- Australian Executor Trustees Ltd v Provident Capital Ltd

Supreme Court of NSW|2022-08-12|Before: Black J

Solicitors: Maddocks Lawyers (Plaintiff) File Number(s): 2015/252832

Nature of the application and background facts

By Interlocutory Process filed on 29 July 2022, Mr Lindholm in his capacity as special purpose receiver ("SPR") of Banksia Securities Ltd (recs and mgrs apptd) (in liq) ("BSL") sought a direction that he is justified in not accepting an proposal dated 11 October 2021 ("Confidential Settlement Proposal") to compromise his rights on behalf of debenture holders to enforce the judgment of the Supreme Court of Victoria in Bolitho v Banksia Securities Ltd (No 18) (remitter) [2021] VSC 666 ("Remitter Judgment") against several defendants in those proceedings ("Defendants") and to compromise related claims for non-party costs orders and insurance recoveries on specified terms. I gave that direction at the conclusion of the hearing of that application on 12 August 2022. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Redwood, with whom Mr Grady appeared, in this judgment.

Affidavit evidence

By his confidential affidavit dated 27 July 2022, Mr Lindholm outlined the background to his receipt of the Confidential Settlement Proposal. He then outlined the steps which he had taken to investigate the financial capacity of the Defendants and the Non-Parties to meet the Remitter Judgment and to determine the availability of insurance funds from the LPLC to satisfy claims against legal practitioners under the Remitter Judgment. Mr Lindholm referred to the bankruptcy of two of the legal practitioners against whom judgment was given in the Remitter and the liquidation of AFP. Plainly, as Mr Lindholm recognises, the bankruptcy of those individuals and that entity significantly limits or excludes the prospects of recovery from those entities. Mr Lindholm also referred to correspondence with the LPLC in respect of claims against insurance policies held by the legal practitioners, and he has devoted significant efforts to seeking to determine the amounts that may be recoverable under those policies, after defences costs already paid by the LPLC. Mr Lindholm also summarised the then position in respect of the conduct of proceedings in respect of the Non-Party Costs Summons. Mr Lindholm also addressed the financial positions of the other Defendants and Non-Parties to the extent that they have been disclosed by investigations.
Mr Lindholm then turned to correspondence he had received from debenture holders about the proposed settlement, including matters raised by Mrs Botsman and another debenture holder, Mr Pitman. Mrs Botsman took an active and successful role in challenging the Defendants' conduct in earlier proceedings, and has expressed strong views as to steps that should be taken to enforce the Remitter Judgment, and also advanced several criticisms of the conduct of Mr Lindholm and his legal representatives. It is not necessary or appropriate to determine those criticisms in this application, in which Mrs Botsman did not appear, although she was given notice of the application. I note, in fairness to Mr Lindholm, that those criticisms are not, on their face, consistent with observations of this Court and the Supreme Court of Victoria on several occasions on which the conduct of the special purpose receivership has been reviewed by the Courts.
Mrs Botsman and Mr Pitman also contend that any settlement amount paid to the SPR for debenture holders should also include a very substantial additional payment to Mrs Botsman, and a smaller payment to Mr Pitman, by way of compensation for earlier conduct of the Defendants directed to them in the course of the proceedings. I conclude below that it would be inappropriate for the SPR, who was appointed by the Court to represent the interests of the debenture holders as a whole, to enter into a settlement which diverted monies that would otherwise be payable to all debenture holders to Mrs Botsman or Mr Pitman, irrespective of the merits of any claims which they have against the Defendants or Non-Parties, which they are free to bring in their own right.
Mr Lindholm set out the features of the Confidential Settlement Proposal, to which I have had regard. I do not set out those features in full in this judgment, given the confidentiality orders that have been made, although I refer to aspects of them to the extent necessary to understand the conclusions that I have reached. Mr Lindholm expresses a view as to whether the quantum of the Confidential Settlement Proposal is reasonable in his commercial judgment, but also indicates concerns that he has about other terms of the Confidential Settlement Proposal, and indicated why he considers it necessary to obtain directions from the Court before not accepting the Confidential Settlement Proposal and making any counter offer.
Mr Lindholm notes, in paragraph 138 of his first affidavit, his views as to the terms of the proposed Confidential Settlement. [REDACTED]. He indicates the basis on which he reaches that view, which seems to me to be soundly reasoned, and recognises the advantage of making a final distribution to debenture holders within the next six months, bringing a lengthy and complex special purpose receivership, and the costs incurred in it and in continuing litigation, to an end. I note below, however, a difficulty with the Confidential Settlement Proposal in its present form which may undermine that objective. He also refers to the outcome of such a distribution, estimated to be a further distribution of approximately [REDACTED] cents in the dollar to debenture holders, bringing their total recovery from the liquidation of Banksia to [REDACTED] cents in the dollar of principal.
[REDACTED]. Mr Lindholm fairly recognises that his assessment that the Defendants may not have further available assets (other than those to which he has had regard) against which he could recover the Compensation Component is sensitive to the inadequacy in the disclosure of the Contributing Parties' (as defined) financial position.
Mr Lindholm also has regard, rightly, to the understandable view expressed by the committee of debenture holders (possibly other than Mr Pitman) that many debenture holders wish to have the special purpose receivership of BSL finalised as soon as possible and the desirability of that result in view of the age and demographic of debenture holders. He also recognises the benefit of that course in avoiding continuing costs in the Second Elliott Appeal and avoiding any risk of an adverse result and a costs order that would diminish the return to debenture holders if that appeal was successful. Mr Lindholm also expresses a view as to whether the potential parties to the Confidential Settlement Proposal are likely to contribute any further significant funds in addition to the settlement fund contemplated by that proposal, although he rightly recognises the uncertainties involved in such an assessment.
On the other hand, Mr Lindholm recognises factors which tend against the Confidential Settlement Proposal, including that it involves a compromise of a judgment of the Supreme Court of Victoria which he is presently entitled to enforce on behalf of debenture holders. I recognise the significance of that matter, but Mr Lindholm is right also to recognise that the value of a judgment depends upon access to assets against which it can be recovered. Mr Lindholm rightly recognises the extent of the discount to the judgment amount that is involved in the Confidential Settlement Proposal and appropriately has regard to the prospects of claims in the Non-Party Costs Summons. [REDACTED]. There is no reason to think that that analysis is not reasonably and properly made.
Mr Lindholm in turn points to particular terms of the Confidential Settlement Proposal which have led him to form the view that, on balance, it is not appropriate for him to accept that proposal as it stands. He notes, first, that the nature of the findings made in the Remitter Judgment give rise to public interest considerations that do not exist for ordinary settlements to compromise private rights or causes of action. Second, Mr Lindholm notes that the Defendants and Non-Parties have insisted that their various contributions to the proposed settlement sum be kept confidential from Mr Lindholm and debenture holders, where similar restraints imposed in the underlying proceedings were criticised in judgments of the Supreme Court of Victoria, and have not provided adequate disclosure of their financial position to allow him to make an assessment of the merits of the Confidential Settlement Proposal. Third, Mr Lindholm notes that the Confidential Settlement Proposal, at least in its present form, contemplates a modest payment to Mrs Botsman, in an amount much less than she now seeks, on the condition that she provide a release of the Defendants and Non-Parties. It is not entirely clear that that is a pre-condition to the acceptance of the settlement proposal, as distinct from a pre-condition to any payment to Mrs Botsman, but Mr Lindholm rightly recognises the likelihood that such a release would not be provided where the amount offered to Mrs Botsman is substantially less than the amount she now demands. I will return to these issues below.
Mr Lindholm also refers, in his first affidavit, to views previously expressed by Mr Botsman, on Mrs Botsman's behalf, as to the terms of any settlement that she would regard as acceptable, which contemplated a larger payment by the Contributing Parties and a substantial payment to Mrs Botsman. It does not seem to me that the assessment of a settlement proposal can reasonably be undertaken by simply nominating an amount that is acceptable without a detailed analysis of the legal prospects of claims, such as that which the SPR's Counsel has undertaken, and without an assessment of the assets available to the parties against which judgment is sought to meet that judgment which the SPR has also undertaken, to the extent of the information available to him. There is a substantial risk that an approach of the kind adopted by Mrs Botsman would have the consequence that a settlement proposal would be rejected, notwithstanding that it offered a better return than could ultimately be achieved at a contested hearing, after incurring substantial costs and substantial delay, particularly if the parties against which a judgment was sought to be enforced either did not have the assets necessary to meet it, or held those assets in asset-shielding structures, such as trusts. Mr Lindholm also addresses the prospect of potential claims against the legal representatives which had acted for the Defendants in the Remitter and recognised concerns raised by Dixon J in the Remitter Judgment as to the manner in which those proceedings were defended. It seems to me that Mr Lindholm rightly recognises the risks and costs that would be involved in the pursuit of such claims. The exhibit to Mr Lindholm's first affidavit also includes detailed information provided by Mr Lindholm to the debenture holder committee, to allow it to form a view as to the proposed settlement.
By a second confidential affidavit dated 5 August 2022, Mr Lindholm indicated that he had sent a memorandum to the committee of debenture holders convening a committee meeting to discuss the application, and requested committee members to sign and return a copy of a confidentiality undertaking before receiving material relating to the application. That request was reasonably made, where it was apparent that publication of information relating to the content of the Confidential Settlement Proposal would have the capacity to prejudice any prospect of continuing settlement negotiations or an improved settlement proposal. Several committee members provided such undertakings but Mr Pitman chose not to do so, although expressing a view as to the minimum settlement amount that he would view as acceptable. Mr Lindholm also outlined the matters discussed at the committee meeting, initially at a broader level in Mr Pitman's presence, and then in more specific term after Mr Pitman had left that meeting to allow the detail of the Confidential Settlement Proposal to be discussed. Broadly, committee members agreed that this application was necessary, and supported the SPR taking steps to try to reach a settlement on reasonable terms as soon as possible.
Mr Lindholm also refers to further correspondence from Mr Pitman, who then sought and was provided with further information as to the taxation process in respect of the Costs Component of the Remitter Judgment, and as to the SPR's estimate of the amount recoverable from the LPLC, which was in a relatively wide range, and the return to debenture holders that would be achieved by acceptance of the Confidential Settlement Proposal.
By his confidential affidavit dated 5 August 2022, Mr Samuel Kingston, who is a partner in the firm of solicitors acting for the SPR in the proceedings and in this application, referred to correspondence with ASIC in respect of the application, and to ASIC's advice (which I noted above) that it did not intend to intervene in the application. Mr Kingston also referred to notification given to Mrs Botsman of the application, by sending documents to Mr Botsman, and to the fact that she had not indicated that she sought to appear in the application.
By his third confidential affidavit dated 11 August 2022, Mr Lindholm referred to further correspondence with committee members, one of which had expressed a concern as to the potential for claims against committee members and the risk of third party actions that may be detrimental to achieving settlement. I should record, first, that it is not apparent to me how committee members, in undertaking an apparently reasoned and careful consideration of the issues arising in respect of the settlement, could be exposed to any properly arguable claim against them. Second, it is important to recognise that the SPR is a Court-appointed receiver, and this Court has powers, in the law of contempt, to address any steps taken by third parties which improperly interfere with the conduct of a Court-appointed receivership: see the cases cited in Re Australasian Barrister Chambers Pty Ltd [2017] NSWSC 693 at [5].
Mr Lindholm also referred to Mr Pitman's further correspondence to the SPR, indicating that he was "quite happy" with an amount of additional compensation that he would potentially receive under the Confidential Settlement Proposal; he considered that a larger payment to Mrs Botsman would be appropriate, and that the much larger claim made by Mrs Botsman "may be correct". I have noted above that I would not treat a settlement which diverted funds recoverable by the SPR for the benefit of debenture holders generally to either Mr Pitman or Mrs Botsman as justified. Mr Lindholm also referred to developments in the conduct of the Non-Party Costs Summons in the Supreme Court of Victoria, which include non-compliance with orders made for the service of evidence by several parties.
That affidavit also exhibited a comprehensive joint opinion of Counsel in respect of the legal issues arising out of the Confidential Settlement Proposal, although it is not necessary to address the detail of the matters addressed in that opinion in order to determine this application. I have had regard to that joint opinion in reaching the conclusions that I reach below. Plainly, it is necessary for the SPR to have regard to the legal prospects of the proceedings against the Defendants and the Non-Parties, which are canvassed by the joint opinion; however, as the SPR rightly recognises, that is not a sufficient basis to assess the prospects of settlement, which are substantially impacted by the existing insolvency of several of those parties and the fact that, rightly or wrongly, Australian law has permitted shielding of assets in insolvency, including by the use of trusts, and it appears that several parties against which recovery is sought have trust structures in place. That opinion identifies the possibility of a claim as against at least one third party involved in the conduct of the Remitter, which has not yet been brought. However, it also recognises the significance of the step of commencing that claim; the fact that the necessity or desirability of that step should be considered in the course of other sources of recovery through the Non-Party Costs Summons and the LPLC; and the significance of the costs and further delay associated with bringing that claim, which are particularly significant where many debenture holders are elderly and may well prefer to receive any further distribution sooner rather than later.

Whether this is an appropriate case for a direction to the SPR

Mr Redwood submits that the Court has power to make the direction sought and this is a proper case to make that direction. Mr Redwood rightly recognises that the SPR was appointed under Ch 2L of the Act as a Court-appointed receiver and that his role is analogous to, but not coterminous with, that of a Court-appointed receiver under the Court's general equitable jurisdiction or under section 67 of the Supreme Court Act 1970 (NSW). He submits that s 283HB of the Act which authorised the appointment of the SPR, also provides the source of the Court's jurisdiction to make the directions sought in the Interlocutory Process. He points out that the Court has previously held, in these proceedings, that the "broad remedial and protective jurisdiction" conferred on the Court by s 238HB of the Act includes a power to give directions to the SPR.
I reviewed the scope of the Court's power to give directions to the SPR in BSL 2016 and again in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) (2018) 336 FLR 97; [2018] NSWSC 629 ("BSL 2018") at [17]-[20], to which Mr Redwood refers. As Mr Redwood points out, the initial order for the appointment of the SPR was made under s 283HB of the Act. The Court has wide powers under that section which relevantly provides: "(1) If the trustee or ASIC applies to the Court, the Court may make any or all of the following orders: … (d) an order appointing a receiver of any property constituting security for the debentures; … (g) any other order that the Court considers appropriate to protect the interests of existing or prospective debenture holders. (2) In deciding whether to make an order under subsection (1), the Court must have regard to: (a) the ability of the borrower and each guarantor to repay the amount deposited or lent as and when it becomes due; and (b) any contravention of section 283GA by the borrower; and (c) the interests of the borrower's members and creditors; and (d) the interests of the members of each of the guarantors."
In my unreported judgment in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) (21 August 2017) ("BSL 2017"), I expressed the view that, where the Court had jurisdiction to appoint the special purpose receivers under s 283HB of the Corporations Act and to confer the power to prosecute and defend proceedings on them, then it also had jurisdiction to confer the power to settle the proceedings upon them, whether as incidental to its power to appoint the SPR under s 283HB of the Act or in its inherent jurisdiction. The Court's jurisdiction to give a direction of this kind was also recognised by Robson J in Re Banksia Securities Ltd (recs and mgrs apptd) [2017] VSC 148.
In BSL 2018 at [18], I also observed that s 283HB of the Act confers a broad remedial and protective jurisdiction on the Court, which extends (in s 283HB(1)(g)) to making any order that the Court considers appropriate to protect the interests of debenture holders and is to be exercised having regard to the matters set out in s 283HB(2): Australian Securities and Investments Commission v Bridgecorp Finance Ltd (2006) 58 ACSR 499; [2006] NSWSC 836 at [18]; Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 90 ACSR 650; [2012] FCA 728 at [77]-[78]; Re Metal Storm Ltd (subject to Deed of Company Arrangement) (2014) 100 ACSR 637; [2014] NSWSC 813 ("Metal Storm") at [83]; Trust Company (Nominees) Ltd v Angas Securities Ltd (2015) 107 ACSR 464; [2015] FCA 772 at [82]-[83]. I am satisfied that the Court has the necessary jurisdiction to make the direction sought
A second question arises as to whether a decision not to accept a settlement proposal is within the class of questions as to which such a direction may properly be given. In BSL 2017, I observed that the circumstances in which the Court would exercise its directions power would be determined, by way of analogy, with its exercise of powers under s 424 of the Act, in respect of a controller, and former ss 479(3) and 511 of the Act in respect of Court-appointed liquidators and liquidators in a voluntary winding up, and I should also add a reference to s 90-15 of the Insolvency Practice Schedule (Corporations) in this regard. I also observed, by reference to authority that: "[W]hile the Court will not ordinarily make a direction as to a matter which involves a commercial decision of an insolvency practitioner, it may give directions as to the reasonableness of a contemplated exercise of discretion, particularly where a receiver represents numerous interests and that exercise of discretion might otherwise expose the receiver to criticism."
Mr Redwood refers to my observation, in relation to s 479(3) of the Act, in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7] that: "Section 479(3) of the Corporations Act allows a liquidator to apply to the court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [32]."
I also summarised the circumstances in which such a direction can be given to an insolvency practitioner in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 and Re RCR Tomlinson Ltd (admins apptd) [2020] NSWSC 735 at [6] as follows: "The Court's power to give a direction under s 90-15 of the ISPC at least allows the Court to give a liquidator advice as to the proper course of action for him or her to take in a liquidation, and may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion, although it typically will not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision. The power to give directions under this section is wider than its power to give such directions under former s 479(3) of the Act … ."
Mr Redwood also points to the observations of Jagot J in Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (No 4) [2017] FCA 1133 at [7], in considering the analogous power to give judicial advice to a trustee under the trustee legislation of each State, that: "(a) the jurisdiction or power to give judicial advice is not constrained by any implications or limitations not found in the express words of the section; (b) the Court's discretion is confined only by the subject matter, scope and purpose of the legislation, and there are no implied limitations on the discretionary factors that may arise or rules governing the relative importance of such factors; (c) the judicial advice procedure is intended to be summary in character; (d) a judicial advice application is in the nature of 'private advice' and a departure from usual Court proceedings in which there are multiple, adversarial parties. Accordingly, a person served with documents in respect of a judicial advice application is not thereby a 'party' to the application; (e) the right to obtain judicial advice protects the trustee, but it thereby also protects the interests of the trust, by enabling the trustee to act in the interests of the trust without fear of being personally liable for costs; (f) the function of the Court in a judicial advice application is to determine what should be done in the best interests of the trust; (g) the usual form of order is that the trustee "would be justified" in taking the relevant course of action; (h) in order to ensure the protection of the trustee, it is necessary that the statement of facts fully discloses the relevant matters, but it is not necessary for the trustee to "prove" the facts to a certain standard of proof as would be the case in adversarial litigation; and (i) the practice of the Court has been to look for, and in appropriate cases, rely upon, a memorandum of opinion from counsel …" [citations omitted]
I also noted in BSL 2018 at [20] that the desirability of receivers seeking, and the Court giving, directions in such a setting is supported by authority, including the Court's decision, in respect of a receiver, in Metal Storm and the earlier decisions in which the Supreme Court of Victoria and this Court have given directions to the special purpose receivers in this matter. As Mr Redwood points out, the Court exercised its directions power in BSL 2018 to give the SPR a direction that he was justified in settling certain claims. He submits, and I accept that, by parity of reasoning, that power extends to giving advice to the SPR that he is justified in not compromising a claim of the debenture holders.
Mr Redwood also refers to the observations of the Court of Appeal of the Supreme Court of Victoria in Re McDermott and Potts (in their capacities as a joint and several liquidators of Lonnex Pty Ltd (in liq)) [2019] VSCA 23 as to the role played by a court in applications by liquidators for authorisations or directions concerning compromises is as follows: "Courts recognise that they are generally unqualified and ill-equipped to make or approve of business and commercial decisions. Thus, courts are loath to interfere with the commercial judgment of liquidators on matters within their powers, and will not give directions to liquidators on such matters were no issue arises in relation to a legal matter or in relation to the propriety or reasonableness of the decision. This does not inhibit courts from giving directions to liquidators in relation to the compromise of legal proceedings. The compromise of legal proceedings invariably raises legal issues, although it also usually requires the exercise of commercial judgment. As will be seen liquidators often seek directions concerning the compromise of legal proceedings, and the courts give such directions when persuaded it is appropriate to do so."
Mr Redwood also accepts that a court will generally refrain from giving a direction in relation to a commercial or business judgment within the receiver's discretion where no particular legal issue is raised for consideration and there is no attack on the propriety or reasonableness of the decision in respect of which the direction is sought. However, he submits, and I accept, that the circumstances that will justify the giving of a direction include where the insolvency practitioner is operating in an "acrimonious environment", or the proposed decision risks being subject to criticism by a particular creditor, and there is a stronger reason for making such a direction where the view taken is likely to be contested, and that case is particularly strong where a decision may involve a balancing of interests, here of debenture holders, that are or may be opposed: Re Great Southern Managers Australia Ltd (in liq) [2014] WASC 312 at [61]; Re AE&E Australia Pty Ltd (in liq) [2017] NSWSC 950 at [4].
Mr Redwood also submits, and I accept, that the Court's function in giving a direction of the kind sought by the SPR does not require it to reconsider all of the factors that the SPR has considered, and, as Brereton J observed in Re One.Tel Networks Ltd (2014) 99 ASCR 247, requires the Court to be satisfied, before making a direction, that the decision is proper and reasonable; and, at least usually, this will necessitate consideration of the liquidator's reasons, and the process by which the decision has been reached.
It seems to me that the SPR may properly seek the relevant direction here, and would arguably be exposed to criticism if it did not do so, where it contemplates not settling a substantial claim against the Defendants and Non-Parties for a substantial payment, and the consequences of a loss of that settlement would be significant. In summary, I am satisfied that the Court has jurisdiction to give the direction sought under s 283HB of the Act or in its inherent jurisdiction, where it appointed the SPR to office, and that jurisdiction should be exercised here. That power is implicit in that section, or available in the inherent jurisdiction, at least where (as here) the SPR is faced with a very difficult decision in a legal context; the decision has substantial risks whatever course is taken; the SPR cannot avoid making a decision because doing nothing would itself lead to adverse consequences; and the SPR could not fairly be left without the Court's guidance and protection in making that decision. I am also comfortably satisfied that this is a proper case for directions where the issue does not involve business decisions or matters of commercial judgment; the direction sought would provide guidance on a very difficult question arising in the settlement of highly contentious litigation; and the committee of debenture holders (other than Mr Pitman), on the one hand, and Mrs Botsman and Mr Pitman, on the other, have expressed significantly different views as to issues that arise in respect of any settlement of the proceedings.

The terms of the Confidential Settlement Proposal

Mr Redwood summarises the terms of the Confidential Settlement Proposal as providing that the SPR will release the parties to the Confidential Settlement Proposal from any and all claims in relation to the Banksia Proceeding, including his rights to enforce the Remitter Judgment; those parties would pay a specified amount to the SPR, inclusive of the further insurance recoveries, but excluding (so that it is in addition to) to the $3 million of insurance recoveries paid to date; the Contributing Parities will make a specified payment to each of Mr Pitman and Mrs Botsman (subject to them executing a deed of release); the respective contributions to the settlement sum and the sources of those funds will be kept confidential from the SPR and the Court; and the Second Elliott Appeal will be discontinued.
Mr Redwood also points out that the Confidential Settlement Proposal, if accepted, would compromise all the SPR's rights (held on behalf of debenture-holders) against at least each of the judgment debtors to the Remitter Judgment; each of the respondents to the Non-Party Costs Summons; and against the LPLC. Those rights and entitlements presently comprise the SPR's rights to enforce the Remitter Judgment against the Defendants, comprising the Compensation Component and the Costs Component to which I referred above; the SPR's claim for non-party costs currently made in the Non-Party Costs Summons; and any further rights to recover sums form the LPLC in respect of the policies of insurance held or for the benefit of by Mr O'Bryan, Mr Symons, Mr Zita, Mr Trimbos, Mr Alex Elliot, Mr Mark Elliott and Elliott Legal.
Mr Redwood points to several uncertainties as to the scope of that proposal in its present form. He notes that the Confidential Settlement Proposal does not specify the parties to any settlement or disclose what individual Defendants or Non-Parties would contribute to the proposed settlement sum, and refers to contributions from "third party sources" to the settlement but does not identify those sources or what they would contribute to the settlement sum. Mr Redwood points out that the SPR also does not know whether the settlement sum comprises insurance recoveries exceeding the $2 million referred to above, and whether the amounts paid by the parties to the Confidential Settlement Proposal are to be reduced by any sum on account of the insurance held by Mr Mark Elliott, Elliott Legal or Mr Alex Elliott and, if so, the quantum of that reduction. He also notes uncertainty as to the scope of any releases that are or may be sought for the directors of AFP or the LPLC. He rightly recognises the possibility that the negotiation and finalisation of any settlement with numerous parties would be time-consuming, costly and somewhat uncertain given the identities and issues involved.

Whether the direction sought by the SPR should be made

Mr Redwood submits that the SPR's position in response to the Confidential Settlement Proposal is the result of a "finely balanced exercise of his experienced professional judgment" and that: "That is a reflection of the fact that there are strong considerations militating both in favour of, and against, the offer. It is therefore the kind of decision on which reasonable minds may differ. The decision is so finely balanced and complex that it may well be that the SPR would be justified in either accepting or rejecting the settlement offer. Be that as it may, the SPR's judgment, all things considered and having appropriate regard to legal advice, is that the offer should be rejected. Fundamentally, this is because of the terms of the offer rather than the quantum of the [s]ettlement [s]um."
Mr Redwood submits that the Court can be satisfied that the SPR is justified in rejecting the Confidential Settlement Proposal for several reasons. He submits, and I accept, that Mr Lindholm's evidence establishes that he has adopted a proper process for the assessment of the proposal; he has had regard to a range of relevant factors that he outlines in his affidavit; he has sought to balance those competing factors and has done so in a rational way; and he has not formed his view on the basis of extraneous, irrelevant or irrational considerations, and there is reason to suspect bad faith or impropriety in respect of that analysis. I have not neglected Mrs Botsman's allegations against the SPR in that respect, but they do not, in any event, impugn any aspect of Mr Lindholm's reasoning as to the Confidential Settlement Proposal.
Mr Redwood submits, and I also accept that, although the decision is finely balanced, the conclusion reached by the SPR is rational and open on its face, and the process undertaken to arrive at that view is logical and reached for good reasons. Mr Redwood submits, and I accept, that the SPR properly identifies the primary factors falling in favour of accepting the Confidential Settlement Proposal (or at least seeking to progress it to the point of an offer capable of acceptance on its present terms), namely the fact that the proposal would result in total recoveries of approximately [REDACTED] million, which is a substantial sum and represents recovery of between [REDACTED]% of the total amount likely to be payable under the Remitter Judgment (plus other costs orders); it is likely the SPR could make a final distribution to debenture holders, representing a specified amount in the dollar from that settlement, although I refer below to the issues as to the uncertainty as to when payment would be received; the SPR considers that [REDACTED].
Mr Redwood in turn points to five primary concerns identified by the SPR as to why he considers it appropriate for him to refuse the Confidential Settlement Proposal in its current form. The first is that the proponents of the Confidential Settlement Proposal have refused to disclose their respective contributions to the settlement sum in circumstances where they seek a significant compromise of the quantum of that judgment, and it is therefore not possible for the SPR to properly consider the contribution of each party to the proposal and to assess whether that contribution is reasonable and appropriate and represents the maximum amount that the SPR would be able to extract from that party having regard to its financial position. The second, related, issue is, as put by Mr Redwood, that: "the [proponents of the Confidential Settlement Proposal] have not made full and frank disclosure of their financial position. … that can only lead to the inference that the financial information, if disclosed, would not support the offer proposed. The [proponents of the Confidential Settlement Proposal] ask the SPR to accept an offer without the SPR properly understanding the capacity of each party to pay the judgment (and any judgment that may be given in respect of non-party costs), and assess that capacity as against the amount that party is contributing to the [s]ettlement [s]um."
I should address this issue in somewhat greater detail. Mr Redwood submits and I accept that, in assessing the reasonableness of the settlement sum under the Confidential Settlement Proposal, it is necessary to draw a distinction between those parties to the Confidential Settlement Proposal that are judgment debtors and those that are respondents to the Non-Party Costs Summons. He rightly recognises that the Compensation Component can only be recovered from the judgment debtors and potentially also from the Non-Parties that are respondents to the Non-Party Costs Summons. He rightly recognises that the primary risk as to the recovery against the judgment debtors is the available assets of each debtor to meet the judgment sum through usual common law enforcement processes. The risk in respect of recovery against the Non-Parties involves both the prospects of the claims against them, which are addressed in Counsels' opinion to which I referred above, and their available assets to meet any judgment.
Mr Redwood points out that the proponents of the Confidential Settlement Proposal have been unwilling, despite request, to provide detailed information about their financial position. The SPR received a sworn statement of assets from [REDACTED] shortly before this hearing and has only received an unsworn statement of financial position from [REDACTED]. The SPR indicates a concern that those parties' failure to make full and frank disclosure of their respective financial positions is a point of significance and concern, and Mr Redwood submits that, where a party genuinely does not have assets available to meet a claim or judgment, they are generally willing (and often eager) to volunteer that information as part of settlement discussions. He submits that the fact that the Contributing Parties have not made that disclosure leads to the inference (or, I interpolate, at least raises reason to be concerned) that some or all of them may have assets available to meet the judgment or the claims for non-party costs that are not presently known to the SPR. There is a particular concern in this respect that one of the Non-Parties, Decoland, has not complied with discovery orders made by Dixon J and has failed to produce documents as to its financial affairs including information as to its bank accounts.
Mr Redwood recognises that AFP is in liquidation and that, although its liquidators have identified possible claims against third parties and ongoing investigations in that regard, they do not presently expect there to be a dividend in the liquidation. Mr O'Bryan is bankrupt and his trustee in bankruptcy has stated that it is expected that a dividend will be declared in the bankruptcy, but the existence, timing and quantum of any dividend is uncertain. The SPR expresses the view that, having regard to the matters raised in the trustee's report, it would appear unlikely that any dividend would be substantial. Mr Symons is bankrupt and no dividend is expected. In relation to the other judgment debtors, Mr Redwood identifies the disclosed assets of Mr Zita, the late Mr Trimbos and Mr Alex Elliott and notes that it appears that Mr Alex Elliott is a beneficiary of certain trusts of which Decoland (to which I refer below) is the trustee.
Mr Redwood submits that the position in relation to the Non-Parties is "even less clear". He points to evidence that Decoland has substantial property holdings worth well in excess of $10 million and is the trustee of the Elliott Equity Investment Trust and the Elliott Family Trust. He rightly identifies the question [REDACTED] and also recognises that, even if Decoland had accessible assets exceeding $10 million, those assets can only be used to satisfy the Costs Component of the Remitter Judgment. Mr Redwood also notes that Elliott Legal has ceased trading and it is unlikely that it has any assets other than any responding insurance policy with the LPLC. Mr Redwood also points out that [REDACTED] true financial capacity and position is important because he, along with insurance recoveries, is the most likely source of any further significant contribution to the Compensation Component. Mr Redwood notes that it appears that [REDACTED] is a beneficiary of [REDACTED] and [REDACTED], although it is not known what distributions he has received since the commencement of the Remitter or is likely to receive in the future. Mr Redwood notes that entities associated with Mr O'Brien and/or his wife, Noysue Pty Ltd and Noysy Pty Ltd have advised their only assets is nominal cash at bank, although it appears that Noysy was removed as trustee of two trusts following the Remitter Judgment.
Third, Mr Redwood points to the SPR's concern that the lack of transparency and secrecy surrounding the proposal (including as to the source of the funds) is of particular concern given the nature of the findings in the Remitter, that information had been withheld from the SPR and he had been misled in respect of the settlement of the earlier proceedings and observes that: "In that context, the SPR has grave concerns about entering into a settlement arrangement where it is clear that obviously relevant information is not being disclosed to him." Mr Redwood also points to inconsistencies in the material provided to the SPR which exacerbate this concern.
I give substantial weight to these concerns. In order to make a rational assessment of the Confidential Settlement Proposal, and whether the discount it allows against the amount of the judgment in the Remitter is appropriate, it seems to me that the SPR would need access at least to the respective contributions of the Defendants and the Non-Parties to the amount of any settlement and adequate disclosure of their financial positions. If he does not have that information, then there is a significant risk that too large a discount may be allowed in respect of one or more parties of a judgment which could ultimately have been enforced against that party or parties in full. It seems to me that there is particular reason to be concerned about that matter, where an inference can reasonably be drawn that the Defendants and Non-Parties would have disclosed that information on the SPR's request, if it would have in fact demonstrated that the Confidential Settlement Proposal was a reasonable one, and that their unwillingness to do so is prompted by the fact that the disclosure of that information would undermine the attractiveness of that proposal or assist the SPR in making a more accurate assessment of the assets available to meet a judgment against them. It seems to me that greater transparency is necessary to permit the SPR to make a reasoned assessment of the Confidential Settlement Proposal, and, if the Defendants and Non-Parties are not prepared to provide it, then the SPR would be justified in not entering that settlement, at least on its present terms.
Fourth, Mr Redwood points to the SPR's recognition that: "considerations of the public interest and the administration of justice are squarely engaged given the nature of the judgment. The Court found in the Remitter that the judgment debtors debased the proper administration of justice and engaged in a fraudulent scheme that abused the processes of, and deceived, the Supreme Court of Victoria. In that context, the decision transcends the usual economic considerations of the litigants."
It seems to me that the SPR properly recognises that factor, but I consider that it should ultimately be given limited weight in assessing whether a settlement should be accepted by the SPR on behalf of the debenture holders. The purpose of the SPR's appointment was ultimately to protect the interests of debenture holders and that will best be achieved by maximising the recoveries available to them and avoiding incurring further costs where that would not increase those recoveries. To the extent that wider issues affecting the public interest arise from the Remitter Judgment, it is open to regulatory bodies to pursue those issues, and there is no suggestion that such bodies are not alert to that issue.
Fifth, Mr Redwood submits that acceptance of the Confidential Settlement Proposal (so far as it contemplates a payment to and release by Mrs Botsman and possibly also Mr Pitman) lacks utility where Mrs Botsman and Mr Pitman do not support acceptance of the proposal and are unlikely to give such releases. I recognise, here, that the SPR did not previously reject the possibility of additional payments to Mrs Botsman and Mr Pitman, and conveyed their request for such payments in the course of correspondence relating to the settlement. However, he now rightly recognises that this aspect of the settlement is also problematic in principle, quite apart from the practical problem to which I referred above. Mr Redwood submits that: "The SPR does not consider it is consistent with his duties to all debenture holders to seek to extract from the [proponents of the Confidential Settlement Proposal] substantial monetary contribution in favour of a particular debenture holder at the expense of, or in preference to, other 16,000 debenture holders who have also suffered loss as a result of the Remitter. The SPR has acknowledged the enormous contribution of Mrs Botsman, and Mr Botsman, in uncovering the fraud against debenture holders and protecting and advancing the interests of debenture holders. Moreover, the SPR recognises the appalling way Mrs Botsman and Mr Botsman were treated by the [Defendants]. Mrs Botsman may well have private rights of action against some of the [Defendants] which she could privately compromise with them. Accepting those matters, the SPR does not consider his duties permit him to accede to the payment of very substantial financial compensation to a particular debenture holder out of any settlement proceeds in respect of the comprise of the rights and entitlements of all debenture holders. The SPR is required to treat the debenture-holders equally (pari passu) when it comes to any settlement proceeds. It seems to the SPR that if such a payment to a particular debenture holder were to be countenanced out of any settlement sum it would at a minimum require explicit court approval after hearing from the competing positions of the particular debenture holder and the remaining debenture holders."
I consider that a settlement which diverted funds available to debenture holders generally to Mrs Botsman or Mr Pitman, whether in modest or larger amounts, would not be consistent with the statutory basis of the SPR's appointment or the purposes of that appointment, which was directed to the pursuit of claims available to debenture holders generally and not personal claims of individual debenture holders. This issue could readily be addressed by deleting the provision for the payment to Mrs Botsman, and the requirement for the release by her, where a settlement on that basis would not be justified.
I am satisfied that the direction sought by the SPR should be made, to the effect that the SPR is not justified in accepting the Confidential Settlement Offer in its present form. In summary, it seems to me that the SPR is correct that he does not have sufficient basis to make a reasoned assessment of that proposal, without greater transparency as to which parties are contributing to that proposal and in which amounts, and as to the asset positions of the contributing and non-contributing parties, so as to form a view whether the discount to the judgment in the Remittal is justified in the relevant circumstances. Second, it seems to me that there is a real difficulty in the mechanism of the present proposal, so far as it is formulated as a specified amount, less the amount of any further recovery that can be achieved from the LPLC. That formulation seems to me to expose the SPR, and debenture holders, to a real risk that payment of the amount contemplated by the Confidential Settlement Proposal, by the Contributing Parties, would be delayed, or disputes would arise as to that amount, where the LPLC has not been forthcoming as to the solicitors' insurance position, the resolution of issues between the SPR and the LPLC could be delayed, and the contributing parties may decline to make their contribution until the actual amount recovered from the LPLC is known. Third, although it is not essential to the conclusion that I have reached, the SPR would not be justified in progressing the present form of the Confidential Settlement Proposal, to the extent that any amount that would otherwise be recoverable by debenture holders generally is treated as payable to Mrs Botsman or Mr Pitman.
Finally, Mr Redwood submits that a settlement arising from acceptance of the Confidential Settlement Proposal may require approval of the Supreme Court of Victoria, where the Remitter Judgment is at least connected with the Bolitho class action. He identifies a real risk that, in light of the public interest, the context of the findings in the Remitter, and the lack of transparency in the proposal, such a settlement would be approved by that Court. That seems to me a legitimate concern, although I say no more about it where it would be presumptuous for me to predict the approach of another Court. It is not necessary to do so where I would give the direction sought on the other grounds I have addressed above.
In giving this direction, I recognise, as the SPR has also recognised, that there is a real potential cost to debenture holders in that approach, since no better settlement proposal may be received, there may be adverse developments in the Second Elliott Appeal or the Defendants and Non-Parties may ultimately not have sufficient assets available to meet a judgment that can be accessed by the SPR at a reasonable cost and within a reasonable time, or at all. There is a real risk, which both the SPR and this Court recognises, that the decision that the SPR now makes may ultimately, with hindsight, prove to be disadvantageous to debenture holders. However, there is no avoiding that risk, where the SPR must choose between accepting the Confidential Settlement Proposal with its attendant disadvantages, or not doing so.
Importantly, Mr Redwood also submits that: "whilst the course of any future negotiations is uncertain, the SPR's rejection of the Confidential Settlement Proposal does not imply he would not be prepared to accept a revised settlement proposal for an amount within the general range of the [s]ettlement [s]um on appropriate terms. In this respect the direction sought would likely have the practical effect of giving guidance to the SPR that he would be justified in accepting an offer near that amount of the current offer if the difficulties and concerns with the terms of the current offer can be addressed. To that extent, the direction is likely to have the further utility of assisting the SPR in possibly reaching a settlement on appropriate terms in the future."
This is an important matter, and I should expressly observe that it does not follow from my findings above that the SPR should not continue to pursue settlement negotiations in parallel to the existing proceedings, where that course plainly has the support of the committee of debenture holders. The matters which have led me to conclude that the SPR is not presently justified in accepting the Confidential Settlement Proposal could readily be addressed, for example, by the Defendants and Non-Parties giving disclosure of their respective financial positions and their contributions to the Confidential Settlement Proposal. The issue as to the structure of the Confidential Settlement Proposal could readily be addressed, also for example, by specifying the amount (or at least a minimum amount) payable by the Contributing Parties, and the time within which it would be paid, so that payment would not be delayed if the amount to be paid by the LPLC is not promptly resolved. The third issue, in respect of payments to Mrs Botsman and Mr Pitman, and the ability to obtain a release from Mrs Botsman, could be readily addressed by deleting those provisions.

Orders

For these reasons, I gave the direction sought by the SPR at the conclusion of the hearing on 12 August 2022.

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: 29 August 2022

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