(2009) 76 ACSR 415
- Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89
Great Southern Ltd (in liq) (recs and mgrs apptd) [2012] FCA 807
- Leigh
Re AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315
- Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168
- Pascoe
(2002) 42 ACSR 296
- Re Addstone Pty Ltd (in liq) (1998) 83 FCR 583
Source
Original judgment source is linked above.
Catchwords
(2009) 76 ACSR 415
- Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89Great Southern Ltd (in liq) (recs and mgrs apptd) [2012] FCA 807
- LeighRe AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315
- Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168
- Pascoe(2002) 42 ACSR 296
- Re Addstone Pty Ltd (in liq) (1998) 83 FCR 58316 ACLC 1320
- Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 1613
- Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789
Judgment (3 paragraphs)
[1]
The application for nunc pro tunc approval
Zoulos submits that the liquidators have not adequately explained why they "did not comply" with s 477(2B) of the Corporations Act. TOML and Zoulos also submit that a failure by the liquidators to explain not obtaining approval under s 477(2B) of the Act, prior to entry into the Deed of Assignment, is itself sufficient reason to withhold approval for entry into the Deed nunc pro tunc. I do not accept that submission. Mr Lock offers at least some explanation for the course of action which was taken, notwithstanding that TOML and Zoulos criticise its accuracy, and it seems to me that the time pressures affecting the liquidators at the time of entry into the Deed of Assignment provides some explanation for their failure to seek approval prior to the assignment being made. Second, and more fundamentally, the jurisdiction under s 477(2B) of the Corporations Act is directed to promoting the interests of the liquidation and the creditors, not the exercise of disciplinary functions over liquidators who delay in seeking approvals under the section. Even if the liquidators not having sought approval prior to the assignment were open to criticism, it does not follow that creditors should be deprived of the potential benefit of an assignment which is otherwise in their interests.
The case law indicates that retrospective approval of the Deed of Assignment is possible, either nunc pro tunc or under s 1322(4)(d) of the Corporations Act or on both bases: Chamberlain v RG & H Investments Pty Ltd (No 2) [2009] FCA 1531; (2009) 76 ACSR 415 at [24]. Where the Court can give retrospective approval to such an agreement under s 477(2B) of the Corporations Act, it seems to me that a further order under s 1322(4)(d) of the Corporations Act is not necessary: Hutchison v Hillcrest Litigation Services Ltd [2010] NSWSC 934; Re Colorado Products Pty Ltd (in prov liq) above at [10].
[2]
Conclusion
Notwithstanding the subtlety and range of the arguments that TOML and Zoulos raised in opposition to the application, I am satisfied that, other than in respect of the need for further inquiries and evidence to confirm Mr Jacobsen's ability to procure funding for the proceedings, the liquidators properly exercised their commercial judgment to enter into the Deed of Assignment, and that Deed of Assignment and any consequential lengthening of the liquidation are, subject to the above matter, in creditors' interests. The liquidators should be afforded a brief opportunity to make those further inquiries and lead that further evidence. I would expect that that issue should be capable of determination on the papers, rather than the parties incurring the costs of a further oral hearing, and I will make orders to facilitate that process. Depending on the outcome of those inquiries and that evidence, the Court may well approve the entry into the Deed of Assignment, nunc pro tunc, under s 477(2B) of the Corporations Act. If such an order is made, it would not be necessary to determine the liquidators' further application under s 1322(4) of the Corporations Act.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 May 2016
td) [2010] NSWSC 404; (2010) 78 ACSR 405
- Re SCW Pty Ltd [2013] NSWSC 578
- Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83
- Trendtex Trading Corporation v Credit Suisse (1982) AC 679
- Tillett v Varnell Holdings Pty Ltd [2009] NSWSC 1040
Category: Principal judgment
Parties: John Sheahan & Ian Russell Lock as Joint and Several Liquidators of Kevin Jacobsen Pty Limited (in liquidation) (First Plaintiff)
Kevin Jacobsen Pty Limited (in liquidation) (Second Plaintiff)
Representation: Counsel:
K.L. Andronos SC/A Kaufmann (Liquidators)
R Scruby/P Sharp (Creditors - Time of My Life Pty Ltd and Zoulos Pty Ltd)
The applicable legal principles
Section 477(2B) of the Corporations Act provides that, except with the Court's approval or the approval of a committee of inspection or a resolution of creditors, a liquidator must not enter into an agreement on a company's behalf if the term of that agreement may end, or obligations of a party to the agreement may be discharged by performance, more than 3 months after entry into the agreement. It was common ground between the parties that s 477(2B) of the Corporations Act applies by reason of s 506(1A) of the Corporations Act in a creditors' voluntary winding up. In Re Harris Scarfe Ltd (in liq) [2007] SASC 209, Debelle J appears to have proceeded on that basis without directly addressing that question and I assumed, without deciding, that such approval was required in that situation in Re 7 Steel Distribution Pty Ltd (in liq) (recs and mgrs apptd) [2013] NSWSC 669 at [16]. I will proceed on the same basis here where it was common ground between the parties. On that basis, it seems to me that the liquidators were correct to recognise that the Court's approval under s 477(2B) of the Corporations Act 2001 (Cth) was required in respect of the entry into the Deed of Assignment, because at least the obligations of the liquidators to that agreement in respect of the production of documents on subpoena issued by Mr Kevin Jacobsen would continue beyond the three month period specified in that section.
It was also common ground between the parties that s 477(2B) of the Corporations Act is not a freestanding power to enter into the Deed of Assignment, which must be authorised by one of the powers of a liquidator, arising under s 477(2) of the Corporations Act, as applicable to a liquidator in a voluntary winding up by s 506(1) of the Corporations Act. Mr Andronos, who appeared with Mr Kaufmann for the liquidators, made clear that the liquidators rely only on their power under s 477(2)(c) of the Corporations Act to sell or otherwise dispose of company property. Although s 477(2)(c) of the Corporations Act permits a liquidator to assign a company's causes of action notwithstanding the law of champerty and maintenance, at least in New South Wales, that section does not permit the assignment of causes of action that are otherwise not assignable: Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168 at [70]-[72]; Aquatic Air Pty Ltd v Siewert [2015] NSWSC 928 at [87]. Mr Andronos also confirmed that the liquidators do not rely on the liquidators' further power under s 477(2)(m) of the Corporations Act to do all other things as are necessary for winding up KJPL's affairs and distributing its property. It is therefore not necessary to address the submissions made by Mr Scruby, who appears for TOML and Zoulos, as to the scope of s 477(2)(m) of the Corporations Act.
Assessment of the merit of Mr Jacobsen's and KJPL's claims
TOML and Zoulos point to several matters which they contend have not been investigated by the liquidators, either adequately or at all. They submit that the liquidators did not make an adequate assessment of the underlying legal merits of Mr Jacobsen's personal claims and the KJPL Causes of Action, both of which they submit are relevant to the ultimate prospect that KJPL will obtain any ultimate benefit, by way of the consideration payable under cl 14 of the Deed of Assignment, to which I referred above.
The evidence does not indicate the content of any substantive assessment of these matters by the liquidators, although I referred in paragraph 19 above to their expression of some confidence in the claims in their response to correspondence from TOML's solicitors. I do not accept that the liquidators were required to make such an assessment, at least in the circumstances of a disposal of complex causes of action in an unfunded liquidation. In Bank of Melbourne Ltd v HPM Pty Ltd (in liq) (1997) 26 ACSR 110, to which TOML and Zoulos referred, and the correctness of which they did not challenge in submissions, Lee J observed (at 112) (omitting citations) that
"A liquidator's power of sale under s 477(2)(c) is similar to that conferred on a trustee in bankruptcy, by ss 134(1)(a) and 135(1)(a) of the Bankruptcy Act 1966 (Cth), to dispose of the property of a bankrupt. It entitles a liquidator to sell a bare right of action to a stranger, whether for a cash payment or on terms that the stranger will pay to the company part of the proceeds of the litigation, provided only, that the right of action is "property" of the company in liquidation … Such an assignment, made under statutory power, will be exempt from the rules against champerty and maintenance …
In determining whether a liquidator should be directed to make an assignment of a cause of action, a court should consider whether the assignment would lead to vexatious or improper litigation. However, there is no obligation on either the Court or the liquidator to conduct an investigation of the likelihood of success of the proceeding, indeed it is quite impractical to do so in an application of this nature, and such a conclusion should only be drawn where it is clear and obvious in the circumstances that the action has no reasonable prospect of success …"
It seems to me that, consistent with that approach, the liquidators in an unfunded liquidation could not sensibly be required to undertake a detailed investigation of the legal merits of a claim, prior to assigning it to a third party for the best value that could reasonably be achieved for it, so as to obtain a prospect of a return for creditors. The contrary view would have the likely result, in many cases including this case, that such an assignment could not take place and such value could not be realised for creditors, because the lack of funding that prevented the liquidators from pursuing the cause of action in the first place would also prevent a full investigation of its legal or factual merits. In that situation, it seems to me that there is no error in a liquidator reasoning that a proposal that allows some prospect of a return for creditors is preferable to one that has no prospect of a return for creditors. I note, for completeness, that that result is consistent with s 545 of the Corporations Act which provides that a liquidator is not liable to incur any expense in relation to a winding up of a company unless there is sufficient available property, although I have not relied on that section in reaching that result where the parties did not address it in submissions.
Whether the KJPL Causes of Action are assignable
TOML and Zoulos contend that the Court must consider whether the causes of action sought to be assigned under the Deed are assignable, because the Court must consider the thing that it is asked to approve, and that requires identification of the causes of action the subject of the proposed assignment. I do not accept that submission. It is only necessary for the Court to address this matter so far as it would impact upon the assessment whether the order sought by liquidators under s 477(2B) of the Corporations Act should be made.
TOML and Zoulos submit that at least the statutory causes of action asserted by Mr Jacobsen in the Equity Division proceedings are incapable of assignment. TOML and Zoulos submit that claims under s 82 of the Trade Practices Act 1974 (Cth), claims under s 1041I of the Corporations Act and claims under ss 12GF and 12GM of the Australian Securities and Investment Commission Act are not assignable: Aquatic Air Pty Ltd v Siewert above at [87]. The liquidators do not contest the general accuracy of that proposition, although they submit that the relevant causes of action are assignable in the present circumstances. TOML and Zoulos accept, for the purposes of this application, that claims in deceit and claims for damages for breach of contract are assignable.
TOML and Zoulos also submit that claims for equitable compensation for unconscionable conduct are unknown to the law. It is not necessary to decide the correctness of that submission for the purposes of this application. However, I note that the question of the availability of equitable compensation for unconscionable conduct was left open by McLure J in Australia and New Zealand Banking Group Ltd v Dzienciol (by his guardian ad litem Dzienciol) [2001] WASC 305 at [413]. In Tillett v Varnell Holdings Pty Ltd [2009] NSWSC 1040 at [101], Brereton J observed that he would have ordered equitable compensation for unconscionable dealing, had it been established, where other remedies were not appropriate. In Anderson v McPherson (No 2) [2012] WASC 19 at [13], Edelman J also observed, in obiter, that compensation might be an available remedy for unconscionable dealing.
TOML and Zoulos also submit that there has been an error of law by the liquidators in the entry into the Deed of Assignment, so far as they may have assumed that the statutory causes of action were assignable. The Court might more readily draw that inference where the liquidators have not led evidence as to any legal analysis undertaken by them in respect of that issue. However, it seems to me that any such error is immaterial in the present circumstances, because any such error would ultimately not impugn the conclusion that the liquidators have reached for reasons that I note below. TOML and Zoulos also submit that the liquidators forming any view as to the appropriateness of accepting 5% of gross returns was done on a false basis, namely that all of the KJPL Causes of Action were assigned, or were assignable. It does not seem to me that the question of which causes of action were assignable had any impact on the appropriateness of accepting 5% of gross returns, for reasons that I also indicate below.
Other issues raised by TOML and Zoulos
TOML and Zoulos also submit that there is no rational basis for the adoption of a 5% figure as the return to KJPL under the Deed of Assignment. I do not accept that submission. It does not seem to me that the liquidators were in a position to undertake an abstract analysis of the proportion of gross proceeds of the litigation which they ought accept, where a single offer had been made by Mr Kevin Jacobsen and there was no suggestion that either Mr Kevin Jacobsen or any third party would make a more favourable offer. It seems to me that, in the relevant circumstances, the liquidators were faced with a decision whether to accept what was then the only offer available to them, that made by Mr Kevin Jacobsen, and could reasonably accept it where it was preferable to terminating the winding up without a return to creditors. It also seems to me that that offer remains preferable, notwithstanding the later offer made by Zoulos, where it provides a prospect of a return to creditors that Zoulos' later offer does not.
Mr Scruby also submits that the liquidators are proposing to dispose of causes of action the nature and value of which they have not assessed, which have not been the subject of valuation advice, and that the proposal to dispose of them has not been the subject of any competitive tender process. It seems to me that the liquidators are in a strong position to assess the value of those causes of action, where they have received offers to acquire them from Mr Kevin Jacobsen and to extinguish them from Zoulos. Notably, Zoulos has not increased its offer from the amount of $60,000 which it offered to obtain a release of those rights after the creditors' meeting that supported this application. It seems to me that Mr Scruby's submission that it might do so, if the Deed of Assignment were not approved and an auction process were now adopted, should be given little weight for that reason. No doubt, if the assignment of the rights to Mr Kevin Jacobsen is not approved, Zoulos might increase its existing offer as to the price to be paid to release the claims against it, TOML and the other persons referred to above, just as it might also reduce that offer. It seems to me that there is no reason that the Court should substitute its judgment for the liquidators' commercial judgment as to those possibilities.
TOML and Zoulos also submit that the proposed assignment is unfair as between creditors because it "effectively renders Kevin Jacobsen and his associates immune from any claims which could have been brought by KJPL". In particular, Mr Scruby submits that the effect of cl 11 of the Deed of Assignment is to assign to Mr Jacobsen any causes of action that KJPL may have against him and his related interests as a result of the matters referred to in the Deed of Assignment, and that aspect of the proposal is unfair as between creditors and demonstrates that it is "ill advised". As Mr Andronos points out in oral submissions (T34), there would be little commercial justification for KJPL to pursue proceedings against Mr Kevin Jacobsen, whatever their merit, given that it is common ground that he personally is impecunious. Mr Andronos also submits that, where only Mr Kevin Jacobsen is prepared to pursue the Equity Division proceedings, so as to generate a return (or, I interpolate, a prospect of a return) for creditors, then the creditors are better off with that proposal even if its cost includes abandoning any claim against Mr Jacobsen.
In Re HIH Insurance Ltd [2004] NSWSC 5 at [15], Barrett J in turn referred to the purposes of s 477(2B) of the Corporations Act, noting that:
"Although [ss 477(2A)-(2B) of the Corporations Act] deal with different aspects of a liquidator's powers, both are concerned to ensure that the court exercises some oversight of the liquidator's actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of the power in the particular circumstances has been sufficiently shown. The court's assessment must be made in light of the purposes for which liquidators' powers exist. One overriding purpose is to serve "the interests of those concerned in the winding up - here the creditors" (Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J); the other is to do whatever needs to be done "for the proper realisation of the assets of the company" or to assist its winding up (Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J). The court does not concern itself with the commercial desirability of the transaction. As Giles J said in the Spedley Securities case (above):
The court pays regard to the commercial judgment of the liquidator. That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in Re Mineral Securities (Australia) Ltd [1973] 2 NSWLR 207 at 231-2, the court is necessarily confined in attempting to second guess a liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct.
Although this was said in relation to s 477(2A), I consider the statement to be equally applicable to s 477(2B). As Austin J observed in Re United Medical Protection Ltd [2003] NSWSC 237, the considerations arising under both provisions are "much the same", although I would add that s 477(2B) focuses particular attention on the need to ensure that contractual provisions as to timing do not cut across the general expectation that winding up will proceed in as expeditious a fashion as circumstances allow: Re G A Listing & Maintenance Pty Ltd (above), Re CIC Insurance Ltd (2001) 38 ACSR 181."
It was common ground between the parties that the Court should have regard to whether the liquidators' judgment has been "infected by a lack of good faith or error of law or principle, or whether there are real or substantial grounds for doubting the prudence of [their] conduct" in respect of entry into the relevant agreement: Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86; Re Gerard Cassegrain & Co Pty Ltd (in liq) [2014] NSWSC 1292 at [6]. The Court is not concerned, in granting approval to the Deed of Assignment, with matters of commercial judgment but is concerned to be satisfied that the entry into that agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator: Re McGrath (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405.
In Re FAI Film Distribution Pty Ltd [2014] NSWSC 1904 at [16]-[17], Brereton J in turn noted:
"The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances for the liquidation, but satisfies itself that there is no error of law or grounds for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up.
Importantly, the court's approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval completes the liquidator's power to enter into the transaction, but does not amount to the court approving the transaction itself …".
His Honour also there noted (at [18]) that:
"Section 477(2B) is concerned with long term agreements which might protract the liquidation and has the effect that the liquidator cannot enter such agreements without the approval of the committee of inspection, the creditors, or of the court. Its rationale is that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation which would interfere with the expeditious completion of the winding up [Re GA Listing and Maintenance Pty Limited (1994) 15 ACSR 308; Re CIC Insurance Ltd (provisional liquidator appointed) [2001] NSWSC 438; Re HIH Insurance Ltd, [15]]. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation and whether that is in all the circumstances reasonable in the interests of the administration [Re Opel Networks Pty Ltd [2013] NSWSC 1245; in the matter of Re One.Tel Ltd, [30]] …".
I recognise that a higher level of inquiry has generally been required where a liquidator proposes himself or herself to conduct proceedings, with the aid of litigation funding, and both parties also referred to the principles applicable to the approval of a liquidator's entry into a litigation funding agreement. In Re Addstone Pty Ltd (in liq) (1998) 83 FCR 583; 16 ACLC 1320, to which Mr Scruby referred, Mansfield J identified several matters which were applicable to the entry into a litigation funding agreement, to the extent that it amounted to a sale or disposition of property of the company for the purposes of s 477(2)(c) of the Act. His Honour there identified relevant considerations as including the nature and complexity of the cause of action; the amount of costs likely to be incurred in the conduct of the action and the extent to which the financier was to contribute to those costs; the extent to which the financier was to contribute to the defendant's costs if the action was not successful, or to any security for costs; the extent to which the liquidator had canvassed other funding options; the level of the financier's premium; the risks involved in the claim; and the liquidator's consultation with the creditors of the company.
Those factors were applied by Austin J in Re ACN 076 673 875 Ltd [2002] NSWSC 578; (2002) 42 ACSR 296 at [28]-[29], in respect of approval of entry into a funding agreement under s 477(2B) of the Corporations Act and again in Leigh; Re AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315 at [25], where his Honour identified relevant factors as including the liquidator's prospects of success; the interests of creditors other than the proposed defendant; possible oppression in bringing the proceedings; the nature and complexity of the cause of action; the extent to which the liquidator had canvassed other funding options; the level of the funder's premium; the liquidator's consultation with creditors; and the risks involved in the claim, including specified matters. Austin J also there noted (at [36]) that, although the court would not override a liquidator's commercial judgment, there must be evidence that a commercial judgment has been made on the basis of appropriate advice. While I broadly accept that proposition, it seems to me that the appropriateness of the advice which a liquidator requires must be determined in the circumstances, having regard both to the complexity of the decision which he or she has to make, and having regard to the availability of funds to obtain such advice. In the present case, it seems to me that the liquidators did not require external advice in order to exercise a commercial judgment, where the question which they had to answer was ultimately a relatively straightforward one, given the limited options available to them, and where they were unfunded in the liquidation at the time a decision had to be made.
These factors have been applied in subsequent case law determining whether to approve litigation funding agreements: for example, Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 at [24]; Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117 at [17]ff; Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [12]ff; Jones, Saker, Weaver and Stewart (liquidators), Re; Great Southern Ltd (in liq) (recs and mgrs apptd) [2012] FCA 807 at [12]ff; and Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 1613 at [9]. Mr Andronos also referred to my summary of the relevant principles in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2014] NSWSC 1292 at [6]ff as follows:
"The principles applicable to approval of funding agreements are well-established, and I have previously summarised them in respect of similar applications in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 and in again in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 1293 where I observed (at 127) that:
It is well-established that the Court is not concerned, in an application of this kind, with matters of commercial judgment but only to satisfy itself that the entry into the agreement is a proper exercise of power and not ill advised or improper on the Liquidator's part, Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405; Re Gerard Cassegrain & Co Pty Ltd (in liq) above at [11]. Relevant factors were identified by Austin J in Re Leigh; AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315, and it is not necessary that I repeat them here. The factors which his Honour identified were in turn referred to by the Full Court of the Federal Court in Fortress Credit Corporation (Aust) II Pty Ltd v Fletcher [2011] FCAFC 89 at [24]; (2011) 85 ACSR 38; by Jacobson J in Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 117 at [14]and in Re Gerard Cassegrain & Co Pty Ltd (in liq)above at [12]. As Jacobson J noted in Pascoe; Re Matrix Group Ltd (in liq) above, the question for the Court is whether the Liquidator's judgment has been infected by a lack of good faith or error of law or principle, or whether there are real or substantial grounds for doubting the prudence of his conduct in seeking to enter into the funding agreement."
The cases concerning approval of litigation funding agreements seem to me to be distinguishable, where a liquidator itself conducting continuing litigation with the assistance of a funding agreement is quite different from the sale of an asset, namely a cause of action, to a third party who will then deal with it in its own right. Several of the factors identified in the cases concerning approval of funding agreements have their primary or only relevance to circumstances where a liquidator is itself conducting the proceedings. To the extent that those factors are relevant to an assignment of the KJPL Causes of Action in this case, the amount of costs likely to be incurred by KJPL in the conduct of the Equity Division proceedings is here minimal; the liquidators have canvassed other funding options, at least to the extent that they have sought to and failed to obtain third party litigation funding; and have considered and rejected an offer made by Zoulos, on the basis that they consider, rightly it seems to me, that it would deliver no benefit to creditors. Other matters, such as the level of the financier's "premium" are of no relevance, where there is no financing arrangement involved in the sale of the causes of action. The risks involved in the claim are relevant, so far as they are a factor relevant to the recovery which might be made by KJPL and its creditors, if Mr Jacobsen were successful. However, as I will note below, that matter does not need to be assessed in the abstract, but only to the extent necessary to undertake a comparison with the other available offer in respect of the causes of action, namely the offer subsequently made by Zoulos.
In summary, it seems to me that a detailed assessment of the prospects of the KJPL Causes of Action is not necessary or material to the liquidators' assessment of the desirability of the assignment from the perspective of creditors. First, there does not seem to me to be any room to suggest that Mr Kevin Jacobsen's or KJPL's claims would not have a prospect of success, if their factual basis is established. Neither the liquidators or the Court are presently in a position to assess whether the factual basis of the claims will be established at trial. The fact that Mr Jacobsen has not succeeded in or not pursued previous proceedings (in substantially different terms, as I will note below) does not demonstrate the claims as formulated in the Equity Division proceedings would fail, if properly funded, absent a previous determination of those claims on their merits. Second, as I noted above, Zoulos' offer would not lead to a return to creditors and the Deed of Assignment at least offers a prospect of such a return. It seems to me that the liquidators could properly reason that the offer of a payment of $60,000 by Zoulos was of no benefit to creditors, where it would pay only a portion of the liquidators' prior ranking costs and result in no recovery for creditors. In those circumstances, even a slim prospect of a substantially larger recovery by Mr Jacobsen, 5% of which would be capable of exceeding the liquidators' costs, was preferable from the creditors' perspective to the certainty of no recovery by them under the Zoulos offer.
The liquidators initially submitted, in their outline of opening submissions, that the question whether any specific causes of action that may have accrued to KJPL are capable of assignment to Mr Jacobsen need not be determined in this application, although they altered that position and sought to have that matter determined in the course of oral submissions. Mr Andronos, relying on Trendtex Trading Corporation v Credit Suisse (1982) AC 679 at 702 ("Trendtex"), submitted that proprietary and equitable causes of action were assignable to Mr Jacobsen and that the better view was that non-proprietary, including statutory claims, were capable of assignment to Mr Jacobsen on the basis that he had a genuine commercial interest in the enforcement of the KJPL Causes of Action. Mr Andronos also fairly acknowledged that the application of Trendtex above in Australia may be uncertain, referring to Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [390]-[403] and to Aquatic Air Pty Ltd v Siewert above at [87].
I do not consider that it is either necessary or appropriate to determine the question of assignability of the KJPL Causes of Action in this application. It is not necessary to do so in order to assess the validity of the assignment because TOML and Zoulos accept that at least two causes of action, in deceit and for breach of contract, are assignable, and the Deed of Assignment only seeks to assign the statutory and other causes of action to the extent they are properly assignable. It is also not necessary to determine that question to assess the prudence of the liquidators' conduct because, even if the statutory causes of action were not assignable, that would not have any impact upon the assessment of whether the entry into the Deed of Assignment was in the creditors' interests, on the approach which the liquidators have taken. Notwithstanding the arguments put by TOML and Zoulos to the contrary, it seems to me that the amount payable to KJPL under the Deed of Assignment is 5% of the ultimate amount of any recovery by Mr Jacobsen in the Equity Division proceedings, not 5% of the amount recoverable on the KJPL Causes of Action as assigned by KJPL to Mr Kevin Jacobsen. I reach that conclusion, first, because it seems to me to reflect the proper construction of cl 14.1 of the Deed of Assignment, where the words "with any litigation he brings suing on any or all of" in that clause would be superfluous if the clause were to operate in the manner for which TOML and Zoulos contend. It also seems to me that that reading of the clause is consistent with the commercial circumstances in which the Deed of Assignment was executed, when neither Mr Jacobsen nor the liquidators would likely have objectively intended that the parties later have to engage in a complex exercise of dissecting the recoveries referable to potentially overlapping personal causes of action from those referable to the KJPL Causes of Action.
On that view, it does not matter whether any or all of the KJPL Causes of Action are assignable, because KJPL is entitled to 5% of the recoveries made by Mr Jacobsen, where the litigation he has commenced in fact "su[ed] on any or all of" the KJPL Causes of Action, irrespective of whether those causes of action are ultimately assignable or successful. I recognise that TOML and Zoulos also submit that the unassignability of the statutory causes of action makes the prospect of any return to creditors, if the deed is approved, more remote. That submission partly turns on a construction of the Deed of Assignment that treats the amount payable by Mr Jacobsen, on success in the proceedings, as referable only to the KJPL Causes of Action. I do not accept that submission for the reasons noted above. Whether the unassignability of the statutory causes of action would reduce total potential recoveries, and therefore the potential recovery for creditors, would also depend on the extent of overlap between Mr Jacobsen's personal causes of action and the assigned statutory causes of action, which raises issues of factual complexity that cannot be addressed on the evidence led in this application. In any event, where KJPL will have a right to a fixed share of any recoveries made by Mr Jacobsen, the prospect of recovery for creditors under the Deed of Assignment, either because the statutory causes of action are assignable in whole or in part, or because Mr Kevin Jacobsen's personal causes of action succeed, is still more advantageous to creditors than Zoulos' proposal which would not deliver a recovery beyond part of the liquidators' costs.
I have also not neglected the fact that, if Mr Jacobsen obtains a substantial recovery in the Equity Division proceedings, it would still be necessary for the liquidators to enforce their rights under cl 14.1 of the Deed of Assignment, if Mr Jacobsen were not to comply with his obligations under that clause. However, it seems to me that there is no reason to think that they could not or would not do so, if that result were to arise, funding such an action in their personal capacity or by litigation funding.
It is also not desirable to determine the assignability of the KJPL Causes of Action in this application, because the evidence does not establish a proper factual basis for a determination whether Mr Jacobsen in fact has a genuine and substantial or genuine commercial interest in the enforcement of the KJPL Causes of Action, and any determination as to the application of the Trendtex principles would therefore not be made on a proper factual basis.
I do not accept TOML's and Zoulos' submission that there is unfairness as between creditors in this respect. Where one party to proceedings is a potential assignee of cause(s) of action and another party to the proceeding is a potential target of the cause(s) of action, then the assignment of the company's causes of action to one party will, in a practical sense, typically reduce the prospect of proceedings against the assignee and promote the likelihood that the assignee will bring proceedings in the company's name against the other party. That would have been the likely result, for example, of the tender process for the causes of action considered by the Court in Re SCW Pty Ltd [2013] NSWSC 578, so far as a successful tenderer would likely not bring a claim against itself. In that situation, it seems to me that a liquidator should be concerned to maximise the prospects of recovery by creditors and the result that action is brought against one or other party is simply a consequence of its doing so. It also seems to me that there is no unfairness in the target of such proceedings of being exposed to them, where that results from a step taken by the liquidator to maximise the prospects of the recovery for creditors, particularly if (as here) that target has made a less attractive bid for the rights than the party that acquired them.
TOML and Zoulos also point out, with substantial force, that it is unlikely that the indemnity under cl 14.2 given by Mr Jacobsen to KJPL and its liquidators for any expenses, costs or liabilities arising out of or in connection with any related litigation is of any value, where it is common ground that Mr Jacobsen is impecunious. While I accept that submission, it does not seem to me to undermine the liquidators' decision. So far as a claim is made against the liquidators personally, it is the liquidators' commercial risk as to whether that indemnity will be valuable. So far as a claim may be made against KJPL, it is presently an entity in liquidation with a very substantial deficiency of assets against liabilities, so the practical likelihood of such a claim may be limited; the Court would first have to be persuaded that leave should be granted to pursue such a claim; and such a claim would presumably have little practical impact on creditors who will receive no recovery from the liquidation, other than by reason of the Deed of Assignment and any recovery by Mr Kevin Jacobsen. That indemnity, of course, would come to have value if Mr Kevin Jacobsen were successful in the Equity Division proceedings, to such an extent as to make substantial recoveries, and was no longer impecunious. TOML also submits that cl 15 of the Deed imposes obligations on the liquidators, which are likely to lead to the incurring of additional expense in the liquidation. As I noted above, those costs will presently be borne by the liquidators personally, and the only circumstance where that would be relevant to creditors would be if Mr Jacobsen has in fact made a recovery in the Equity Division proceedings, such that a distribution to creditors might otherwise be paid, and the indemnity would then have potential value.
TOML and Zoulos also contend that the effect of the assignment would have the result that the litigation against the interests associated with Mr Colin Jacobsen would be oppressive, so far as they may be deprived of the opportunity to seek security for costs which would be available, had the Equity Division proceedings been brought by KJPL. I do not accept that submission. If security for costs is properly to be ordered against Mr Jacobsen, the judge that hears the Equity Division proceedings may make such an order, and it is not to the point, so far as the interests of creditors are concerned, for TOML or Zoulos to complain that Mr Kevin Jacobsen is a natural person rather than a company.
TOML and Zoulos also complain that cl 15 of the Deed will cause the liquidators to assist Mr Jacobsen but not other creditors (by which they presumably mean, TOML, Zoulos and interests associated with Mr Colin Jacobsen). That matter is consequential on the acceptance of Mr Kevin Jacobsen's offer to acquire the rights which, as noted above, was more favourable to creditors than the offer subsequently made by Zoulos. It does not seem to me that Zoulos has reason to complain of that consequence, where it could have made a more substantial offer to the liquidators at any time up to the point of the hearing before me.
Mr Scruby also pointed out, in oral submissions, that the Deed of Assignment did not require Mr Kevin Jacobsen to prosecute KJPL's Causes of Action. That matter would be adverse to the prospect of recovery under the Deed of Assignment, if the amount payable was limited to 5% of KJPL's Causes of Action, as distinct from 5% of the gross proceeds of the Equity Division proceedings. However, the prospects of recovery of KJPL do not depend upon whether Mr Jacobsen pursues the KJPL Causes of Action, where the proper construction of cl 14 of the Deed of Assignment extends to 5% of the gross proceeds of the Equity Division proceedings and not only 5% of the proceeds of KJPL's Causes of Action. It is unlikely that Mr Kevin Jacobsen would not pursue the proceedings generally, if properly funded to do so, given the efforts that he appears to have devoted to their preparation to date.