Anstella Nominees Pty Ltd v St George Motor Finance Ltd

BACKGROUND 3 From October 1993, Newtronics carried on business as a designer, manufacturer and vendor of electronic controls. In October 1993, Atco Controls Pty Ltd ("Atco") acquired 51% of the issued shares in Newtronics. In April 1998, Atco acquired the remaining issued shares. In September 1998, Atco (and therefore Newtronics) became a wholly owned subsidiary of an Austrian Group, the Zumtobel Group. 4 On 12 February 1998, Seeley commenced proceedings in the Federal Court against Newtronics seeking damages arising from the supply of faulty products by Newtronics to Seeley. On 21 December 2001, the Honourable Justice O'Loughlin ordered Newtronics to pay Seeley $8.9 million together with interest and costs: Seeley International Pty Ltd v Newtronics Pty Ltd [2001] FCA 1862. Interest was later fixed at $5 million. 5 On 8 January 2002, Atco served a demand upon Newtronics pursuant to a mortgage debenture and appointed receivers to Newtronics. On 26 February 2002, Mr Stewart was appointed the liquidator of Newtronics by an order of this Court on the application of Seeley. At the time of his appointment, Newtronics had no tangible assets and its creditors included Atco (in the sum of approximately $20 million but which was apparently secured), Seeley (in the sum of $19 to $20 million and which was unsecured) and other unsecured creditors (for approximately $60,000). Newtronics' assets position and principal creditors have not changed. Seeley is Newtronics' judgement creditor and remains Newtronics' largest unsecured creditor. 6 From the time of his appointment, Mr Stewart retained legal advisers to act on his behalf in relation to the liquidation of Newtronics. Initially, Mr Stewart retained Mr Rydon of Thomson Playford. That retainer was terminated on or about 22 October 2002. On the same day, Mr Stewart retained Mr Jonathon Kramersh, then a partner of Holding Redlich and from 1 February 2003, a partner of Corrs Chambers Westgarth. 7 After Mr Stewart's appointment as liquidator of Newtronics, Mr Stewart was approached by Seeley and it was agreed that Seeley would provide him with funding to carry out certain investigations. In Mr Stewart's first report to creditors dated 17 February 2003, Mr Stewart advised the creditors that he had obtained an indemnity from Seeley in relation to his investigations to date. The report went on to state that "in the absence of funding from Seeley or other creditors, [Mr Stewart had] no other means of funding the cost of any investigation into Newtronics' affairs." Three other creditors agreed to offer Mr Stewart an indemnity to the extent of $6,600 although there was real doubt about the availability of those indemnities except to the extent of $1,000. 8 On 22 March 2002, an Agreement to Indemnify was executed by Mr Stewart and Frank Seeley on behalf of Seeley by which Seeley agreed to indemnify Mr Stewart "to investigate, and if [Mr Stewart] considers appropriate, recover assets and property of Newtronics or damages owed to Newtronics by exercising powers available to [Mr Stewart] under the Corporations Act 2001 and otherwise available pursuant to statute, at common law or in equity" (Recital C) ("the Agreement to Indemnify"). 9 Preliminary investigations into the affairs of Newtronics were carried out by Mr Stewart including: (1) requesting officers of Newtronics to meet with him in accordance with s 530A(2) of the Act. No such meetings were ever held; and (2) seeking to have the books and records of Newtronics delivered to him pursuant to s 530B(4) of the Act. 10 On 16 May 2003, Mr Stewart made application to the Federal Court to examine 17 persons pursuant to ss 596A and 596B of the Act. Examinations of 16 persons were conducted by Mr Stewart in August and September 2003. On 15 June 2004, Mr Stewart made a further application to the Federal Court to examine 9 persons pursuant to ss 596A and 596B of the Act. Examinations of those 9 persons were conducted by Mr Stewart in July, August and September 2004. The costs of these examinations were funded pursuant to the Agreement to Indemnify. 11 From about September 2004 and following the investigations, a draft statement of claim was prepared and Mr Stewart's then legal adviser (Mr Kramersh of Corrs Chambers Westgarth) commenced discussions with Seeley seeking an indemnity to pursue various causes of action. On 11 May 2005, Mr Stewart engaged Ms Penelope Pengilley, a partner of Holding Redlich and the legal file was transferred to her. 12 On 1 December 2005 and in the absence of an indemnity to issue proceedings, Mr Stewart commenced proceedings in the Supreme Court of Victoria by way of Writ and General Indorsement (Proceeding No 9670 of 2005) against Giorgio Gjergja and Gary Tescher to preserve certain causes of action in case of limitation issues ("the Directors' Action"). The general indorsement alleged that Mr Gjergja and Mr Tescher were both directors of Newtronics during specified periods and that each of them had, during those specified periods, breached his duties as a director of Newtronics. 13 On 27 March 2006, Seeley and Mr Stewart executed a Deed of Indemnity ("the Deed of Indemnity"). By that Deed, Seeley agreed to provide Mr Stewart with a further indemnity to commence proceedings on behalf of Newtronics against Atco seeking to enforce an agreement between Newtronics and Atco allegedly recorded, inter alia, in a letter of support dated 21 July 2001 from Atco to Newtronics ("the Promise of Support Action"). On 3 April 2006, Mr Stewart commenced the Promise of Support Action against Atco in the Supreme Court of Victoria, Proceeding No 2015 of 2006, Folio 5947. Atco was served on the same day. 14 On 13 April 2006, administrators were appointed to Atco and the Promise of Support Action was stayed in accordance with s 440D of the Act. 15 On 10 July 2006, Seeley and Mr Stewart entered into a deed to vary the terms of the Deed of Indemnity ("the First Variation Deed"). By the First Variation Deed, Mr Stewart and Seeley agreed to vary the Deed of Indemnity to provide a further indemnity to Mr Stewart to pursue on behalf of Newtronics: (1) a further action for claims against directors of Newtronics for negligence and breach of directors' duties in relation to the design, supply and failure to warn about the supply of defective controllers to Seeley being the Directors' Action; and (2) proof of the Promise of Support Action in the administration, deed administration or liquidation of Atco. 16 Also on 10 July 2006, a statement of claim was filed and served in the Directors' Action. On 28 June 2007, orders were made for the provision of security for the benefit of one of the directors, Mr Gjergja. 17 On 1 December 2006, Mr Stewart filed an application in the Promise of Support Action seeking leave to proceed against Atco (a company then in liquidation) and seeking leave to add Newtronics' receivers as defendants to the proceeding. On 8 December 2006, Hargrave J granted Mr Stewart leave to proceed against Atco and added Newtronics' receivers as second defendants to the proceeding. The Promise of Support Action was served on the Newtronics' receivers on 14 December 2006. 18 On 13 December 2006, Seeley and Mr Stewart entered into a further deed ("the Second Variation Deed"). By the Second Variation Deed, Mr Stewart and Seeley agreed to vary the Deed of Indemnity (as varied by the First Variation Deed) to provide a further indemnity to Mr Stewart: (1) to seek leave to proceed against Atco in the Promise of Support Action; (2) to amend the Writ and Statement of Claim in the Promise of Support Action to add a claim that a mortgage debenture dated 13 April 1995 purportedly given by Newtronics in favour of Atco ("the Mortgage Debenture") and the Deed of Affirmation and Rectification dated 21 August 2000 were both void; (3) to seek declarations to the effect that Atco stood behind other unsecured creditors in the liquidation of Newtronics in relation to any moneys recovered in the Promise of Support Action; (4) to seek leave to add Stephen Andrew Hawke and Colin Nicol ("the Receivers") as second defendants to the Promise of Support Action; (5) to pursue a claim against the Receivers in the Promise of Support Action that their appointment was invalid as a result of the invalidity of the Mortgage Debenture and further or alternatively, breach of the Promise of Support referred to at [13] above. 19 On 16 March 2007, Seeley and Mr Stewart entered into a further deed ("the Third Variation Deed"). By the Third Variation Deed, Mr Stewart and Seeley agreed to vary the Deed of Indemnity (as varied by the First and Second Variation Deeds) to provide that Seeley would provide certain bank guarantees by way of security for costs in favour of the defendants in the Promise of Support Action. The bank guarantees were provided on 22 and 23 March 2007. 20 On 6 June 2007, Seeley and Mr Stewart entered into a further deed ("the Fourth Variation Deed"). By the Fourth Variation Deed, Mr Stewart and Seeley agreed to vary the Deed of Indemnity (as varied by the First, Second and Third Variation Deeds) to provide that Seeley would provide a further indemnity to Mr Stewart to pursue on behalf of Newtronics a further action for damages against Mr Gjergja, Russell Kenery, David Brice and Russell Kennedy in the Supreme Court of Victoria, Proceeding No 6897 of 2006 issued by way of Writ and General Indorsement on 9 June 2006 ("the Conduct of Litigation Action"). The defendants have all been served. 21 Since the execution of the Deed of Indemnity and in reliance upon the financial support provided by Seeley under the Agreements, Newtronics has: (1) examined some 25 persons pursuant to ss 596A and 596B of the Act; (2) in the Directors' Action, served the proceedings, made application to examine one of the directors, completed a number of interlocutory steps and taken steps to provide security for costs; (3) in the Promise of Support Action, obtained leave to proceed against Atco, joined the receivers, continued to prosecute the claim and provided security for costs; (4) in the Conduct of Litigation Action, sought an extension of time for validity of the Writ and served the proceedings. A request for security for costs by one of the defendants is currently being considered. If Seeley had not provided that financial support, Mr Stewart informed the court that none of those steps would have been completed. 22 In 2002, Mr Stewart sought advice about whether the Indemnity Agreement fell under s 477(2B) of the Act. On 27 May 2002, his solictor advised him that it did not. Subsequently, in July 2007, Mr Stewart raised again whether s 477(2B) of the Act applied to each of the Agreements. Coincidently, his legal adviser independently turned her mind to the same issue, concluding that it did apply and an application for retrospective approval was therefore necessary. 23 Subsequently, Mr Stewart instructed his legal adviser to make immediate application to the Court seeking approval, retrospectively, pursuant to s 477(2B) of the Act in respect of each of the Agreements. It is that application which is now before the Court.

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