Ascot Vale Self Storage Pty Ltd (in Liq) v Nom de Plume Pty Ltd [2019] VSC 794

Ascot Vale Self Storage Pty Ltd (in Liq) v Nom de Plume Pty Ltd [2019] VSC 794 - VSC 2019 case summary — Zoe

[44]

6.1 The Liquidator and Company will not make, accept or reject any offer of settlement in the Actions without first providing prior written notice to the Funder of their intention to do so. Such notification must:

(a) contain the substance of the offer received or intended to be made; and

(b) subject to clause 6.2, specify a date not less than 10 business days from the date of the notice in which the Funder is to respond to the notice if it wishes to do so.

6.2 If the circumstances require, whether due to the terms of the offer received or some other time limitation, the Liquidator may specify such circumstances and a shorter period of time in which the Funder may respond to the notice if it wishes to do so.

6. 3 The Funder may, prior to the expiration of the notice period contained within the notice referred to in clause 6.1, either approve or oppose the Liquidator and/or the Company making, accepting or rejecting such offer. Such approval or opposition must be by notice in writing given to the Liquidator prior to the expiration of the notice period contained within the notice referred to in clause 6.1.

6.4 If the Liquidator receives notice from the Funder in accordance with clause 6.3 that it opposes the Liquidator making, accepting or rejecting the offer then, subject to clause 6.5, the Liquidator will refrain from making, accepting or rejecting such offer.

6. 5 If the Funder provides a written response in accordance with clause 6.4 stating that it does not agree to the course of action proposed by the Liquidator or Company then the Liquidator will engage senior counsel nominated by the Lawyers to provide a written advice to the Liquidator and the Funder regarding the prospects of success, quantum and reasonableness of the relevant proposed course of action. If within 14 days following receipt of such advice the Liquidator and the Funder cannot agree mutually acceptable terms on which to proceed forward in the prosecution of the Actions the Liquidator will be free to determine whether to make, accept or reject any such offer as he may in his absolute discretion determine.

[136]

The learned Associate Justice erred in finding that there were grounds to permanently stay the proceeding under Order 23.01(1)(b) of the Rules: Reasons dated 3 May 2019 at [238]. His Honour could only have done so if he found (which he did not, and could not) that it was not possible for the Defendants to receive a fair trial. His Honour should have found that this case did not fall into any of the categories of abuse of process identified by him at [77]-[81] of the Reasons.
The learned Associate Justice erred in finding that there was any or any relevant or appropriate evidence that the Defendants would suffer prejudice if the Court determined not to grant a permanent stay: Reasons at [235]. His Honour should have found that prejudice to the Defendants if a stay was not granted was not established.
Given that his Honour found there had not been inordinate delay (Reasons at [230]) the learned Associate Justice erred in granting a permanent stay.
The learned Associate Justice erred in finding that the Plaintiffs' explanation for the length of time that had elapsed was inadequate: Reasons at [230].
The learned Associate Justice erred in finding that the litigation was not undertaken for the general body of creditors of the First Defendant but solely for the 'Melville interests' (Reasons at [221]) which would control the proceeding or that this was relevant and decisive.
The learned Associate Justice erred in finding that the 'Melville interests' will, through the medium of a funding agreement, have de facto control of the liquidation: Reasons at [225] and that such control was relevant or decisive in establishing the existence of an abuse of process.
The learned Associate Justice erred in finding that the obtaining by assignment of debts of two significant unsecured creditors for derisory sums was relevant or decisive. There was no evidence (and no finding) that the assignment of those debts was improper or unlawful: Reasons at [224].
The learned Associate Justice erred in finding that the 'Melville interests' had 'effective control over creditors' meetings' of the First Plaintiff and in large part enabled the passing of the Third Funding Agreement (Reasons at [224]) in that:

[140]

The learned Associate Justice erred in finding that the 'Third Funding Agreement' ought to have been rejected insofar as it contains features which led previous judges to reject previously proposed agreements: Reasons at [223].
The learned Associate Justice erred in concluding that the Liquidator would not conduct a proper enquiry into the efficacy of the 'Fingal charge' and the amount secured by it: Reasons at [226]. In fact, the Liquidator did not need to assess the efficacy of the 'Fingal charge' which had been assessed by the Court of Appeal and by Justice Sifris and the quantum was readily proven.
The learned Associate Justice erred in stating or finding that the Court of Appeal refused to declare the 'Fingal charge' secured loans made by unitholders but rather declared that the 'Fingal charge' only secured amounts that had been advanced by Fingal in its capacity as lender: Reasons at [41]. His Honour's criticism of the Liquidator's second report to creditors (Reasons at [56]) is similarly flawed. In fact, the Court of Appeal simply concluded that since the Albury investors and the unitholders were not parties to the proceeding the declaration should not state that their loans were secured by it.
The learned Associate Justice erred in finding that 'extraordinary' sums were incurred for costs by the Plaintiffs and that there was little or nothing to show for them and that that was relevant or decisive on the stay application given that the sums his Honour referred to were incurred by the Plaintiffs, and not by the Defendants: Reasons at [227, 228, 229]. In any event, there was no evidence that the fees were 'extraordinarily' high or as to their precise composition or makeup.
The learned Associate Justice erred in agreeing with a submission that 'it is not open on the evidence to find that the plaintiff's claims are strong or that there is no defence' noting that it conflicts with his later determination that 'It is just not possible or appropriate in an application of this type to express a view in that regard'; Reasons at [236]. Since the application for a permanent stay was brought under Order 23 of the Rules, his Honour ought to have considered the strength of the Plaintiffs' case, and found that it was at least an arguable one, the merits of which would be finally determined at a later stage.

[142]

1. Having found that the proceeding was commenced on 1 August 2013 J[9], [28] and that the liquidator was not in a position to prosecute the proceeding until November 2017 J[168], and that the conduct of the proceeding was 'seriously wanting' having regard to the overarching purpose of the Civil Procedure Act 2010 (Vic) (CPA) J[237], his Honour did not consider it necessary to find J[3], but ought to have found, that by commencing a proceeding, and maintaining it from August 2013 until November 2017, with no means of prosecuting the proceeding in the manner required by ss 7 and 25 of the CPA, or at all, the liquidator had breached ss 7 and 25 of the CPA. On this, alternative, basis the proceeding ought to have been stayed under s 29(1) of the CPA.

2. Having found that the winding up of AVSS had begun on 2 February 2011 J[24] and that the liquidator now seeks to prosecute an insolvent trading claim under s 588M(2) of the Corporations Act 2001 (the Act) J[28], his Honour did not consider it necessary to find J[3], but ought to have found that had this claim been brought in November 2017, when the liquidator was first in a position to prosecute the claim J[168] in the manner required by ss 7 and 25 of the CPA, or at all, the claim would have been statute barred by reason of s 588M(4) of the Act. On this, alternative, basis the claim ought to have been stayed or dismissed under s 29(1) of the CPA.

3. Having found that the liquidator had taken no substantive steps in the proceeding from 1 August 2013, when the proceeding was commenced, until 1 March 2018 J[9], and that 'aside from two unsuccessful funding applications, no progress had occurred in the proceeding since 2013' J[227] and having rejected the liquidator's explanations for the delay and submissions as to prejudice J[230]-[236], his Honour did not consider it necessary to find J[3], but ought to have found that there had been an inordinate and inexcusable delay by the liquidator in prosecuting the proceeding. On this alternative basis, the proceeding ought to have been stayed, for want of prosecution, in exercise of the Court's inherent jurisdiction.

4. Having found that orders had been made on 19 June 2014 that AVSS give security for the defendants' costs of the proceeding J[6] and that no amount of security had been fixed or given and that no approach had been made to the Court by AVSS or the Liquidator to fix or give such security until 1 March 2018 J[7], his Honour did not consider it necessary to find J[3], but ought to have found that AVSS had failed to give security for costs. On this, alternative, basis the proceeding ought to have been dismissed pursuant to r 62.04 of the Supreme Court (General Civil Procedure) Rules 2015.

5. Having found that there was a history of litigation between the funder and the defendant and that the Court had twice rejected funding agreements between AVSS and the funder in which Robson J and Judd J had 'sharply criticised' the liquidator and funder J[222] such that there were compelling reasons why the liquidator ought to have obtained the Court's approval before entering into a funding agreement with the funder J[223]; and having found that the liquidator had, instead, entered into a funding agreement with the funder, without the Court's approval, on terms that allowed the funder to retain 'de facto control' of the liquidation and the proceeding J[225]-[226] and to conduct the proceeding as litigation 'by proxy', for the benefit of the funder, rather than for the benefit of the general body of creditors of AVSS J[221], in circumstances where the liquidator and his solicitors had incurred 'extraordinary' sums of unpaid legal costs and remuneration J[227] which gave them a 'very strong incentive' to obtain payment of those fees J[228], and where the liquidator's explanation for not seeking Court approval was found to be 'disingenuous and most unconvincing' J[223], his Honour did not consider it necessary to find J[3], J[87], but ought to have found that in accepting funding from the funder, without the Court's approval, in order to prosecute the proceeding, the liquidator was not faithfully performing his duties. On this, alternative, basis the proceeding ought to have been stayed either permanently or until security is provided by a person or persons on terms and in an amount approved by the Court on the application of the Second Respondent or alternatively on the Court's own initiative pursuant to ss 45-1(1) or ss 90-15(1) of Schedule 2 or alternatively s 536(1) of the Act.

[171]

First, in contravention of ss 7 and 25 of the Civil Procedure Act 2010, the Liquidator commenced the proceeding without any means of prosecuting it, either in the efficient, timely and prompt manner required by CPA or at all.
Second, in contravention of ss 7 and 25 of the CPA, the Liquidator maintained that proceeding, without any means to prosecuting it, either in the efficient, timely and prompt manner required by CPA or at all, for more than four years.
Third, had the Liquidator brought the proceeding in November 2017, when he first had funding to prosecute it in the efficient, timely and prompt manner required by the CPA, or at all, the proposed claim of insolvent trading against Mr Leggo would have been statute barred.
Fourth, even now, more than six years after the proceeding was commenced, the Liquidator does not have funding to prosecute the proceeding to its conclusion, either in the efficient, timely or prompt manner required by the CPA or at all. Rather, the Melville interests must agree funding at each stage of the action and can terminate the funding agreement at any time.
Fifth, more than six years have passed since the proceeding was commenced and no substantive step has been taken in the proceeding save for filing the Originating Process. The proceeding remains in its infancy, will take years to complete, and relates to events that are now well over 10 years old. In the circumstances, the proceeding should be stayed as this is necessary to safeguard the administration of justice.
Sixth, the relationship and litigious history between the Melville interests and the defendants, along with the Court's rejection of past funding agreements as having compromised the liquidator's independence, were compelling reasons for the Liquidator to have sought the Court's approval of the third funding agreement. To exercise the Court's discretion to lift the stay of the proceeding, on the provision of security from the Melville interests on similar terms, without the Court's approval, would bring the interests of justice into disrepute.
Seventh, the Court should not exercise its discretion to lift the stay of proceedings on the provision of security, where that security has been obtained from the Melville interests on terms which contain features that are contrary to the interests of creditors and compromise the liquidator's independence and have twice been rejected by this Court for that reason. To do so would be to now give the imprimatur of this Court to those funding arrangements, which the Court has twice refused to do.

At a glance

Court

Decision date

Before

Source

Judgment (492 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (14)