Bucovaz v OT Markets Pty Ltd

KENNY J: 1 By an interlocutory application filed on 15 March 2021, the applicant seeks leave pursuant to s 471B of the Corporations Act 2001 (Cth), to continue this proceeding against the first and second respondents in respect of the causes of action alleged in the applicant's statement of claim filed on 11 July 2019. The applicant also seeks to have joined as a respondent the insurer under insurance policy IL1707768 (the Policy), as well as leave to file and serve an amended originating application and an amended statement of claim. 2 The application was supported by the affidavit of Charlie Victoria Clark affirmed on 11 March 2021. 3 An affidavit was sworn by Mathew Terence Gollant, as the liquidator for OT Markets Pty Ltd, the first respondent in the proceeding, in which he stated that he did not consent to nor oppose the applicant's application. An affidavit was also sworn by John Ross Lindholm, as one of the two liquidators of AGM Markets Pty Ltd, the second respondent in the proceeding, in which he stated that he did not oppose the grant of leave to continue the proceeding against AGM Markets. The liquidators for both the first and second respondents also stated that they did not intend to take part in the proceedings. The liquidator for OT Markets also sought an order to the effect that no judgment could be obtained against OT Markets without notice of an intention to do so or without first obtaining the leave of the Court. The applicant accepted the desirability of an order to the latter effect, and as I indicated to Ms Thompson who appeared for OT Markets, the liquidators would be required to be notified before any such leave were given. 4 The applicant and OT Markets (and its liquidator) each filed helpful written submissions. AGM Markets did not file written submissions, its liquidator advising by email that the liquidation is unfunded. 5 Briefly stated, the applicant is a former client of OT Markets. OT Markets carried on a financial services business providing an online trading platform in foreign exchange contracts and contracts for difference principally to people in Australia, including to retail customers. In addition, according to Mr Gollant's affidavit, it seems that OT Markets also provided financial product advice to retail customers in Australia and issued those products and provided those services on behalf of AGM Markets. In his affidavit, Mr Gollant further deposes that OT Markets and AGM Markets "entered into a written Corporate Authorised Representative Agreement dated 18 September 2017, pursuant to which [AGM Markets], as the holder of Australian Financial Services Licence No. 4226622 [], appointed [OT Markets] to act on its behalf to provide financial services". 6 The applicant commenced proceedings against the first and second respondents on 11 July 2019, claiming loss and damage arising from the respondents' misleading and deceptive conduct, breach of retainer and duty of care, and breach of certain disclosure obligations owed to her. In substance, the applicant sought compensation from the respondents for the loss occasioned to her by virtue of the manner in which the respondents had provided financial advice in connection with derivative instruments, particularly margin foreign exchange contracts. 7 On 11 October 2019, orders were made in separate proceedings (see Australian Securities and Investment Commission v AGM Markets Pty Ltd & Ors [2020] FCA 208 at [96]) in which the first and second respondents were defendants, including that: (a) pursuant to s 461(1)(k) of the Corporations Act 2001, AGM Markets and OT Markets be wound up; (b) pursuant to s 472(1) of the Corporations Act 2001, Mr Lindholm and Mr Georges be appointed as joint and several liquidators of AGM Markets; and (c) pursuant to s 472(1) of the Corporations Act 2001, Mr Gollant be appointed liquidator of OT Markets. 8 The applicant subsequently submitted proofs of debt in the liquidation of each of the respondents. The liquidators have advised that the anticipated distributions are unlikely to satisfy her claims against the respondents in full. The liquidator of OT Markets has advised that he is yet to adjudicate on the proofs of debt and is proposing to make an application to the Court for directions as to the distribution of funds in the liquidation of the company. The liquidator of OT Markets has estimated a return to client creditors of the company of between 10 to 20 cents in the dollar. The liquidators of AGM Markets have also advised that they intend to apply to the Court for directions as to the distribution of funds in the liquidation of the company. It appears that the stage reached in the liquidation of both companies is, at least broadly speaking, much the same. 9 The applicant has submitted that, if a pre-liquidation insurance contract entered into by the respondents were available to meet the liability of the respondents to the applicant, then, under s 562 of the Corporations Act 2001, the applicant is entitled to receive the net amount recovered from the insurer in respect of that liability. For present purposes, this may be accepted. Consistently with this, the applicant, through her lawyers, made inquiries about the respondents' insurance status. She was advised that AGM Markets held a policy of professional indemnity insurance with Lloyd's Syndicate ACA 2014 (Lloyd's). I interpolate here that Mr Kingston, who appeared for AGM Markets, stated at the hearing that although AGM Markets was the policyholder, OT Markets, as a corporate authorised representative, was noted on the Policy. 10 By letter dated 15 April 2020, the applicant's legal representative wrote to Moray & Agnew, lawyers for Lloyd's managing agent, asserting that Lloyd's remained liable under the Policy in respect of the applicant's claim against AGM Markets and demanding payment under the Policy. Moray & Agnew responded to AGM Markets' legal representative by letter dated 17 April 2020, stating that the managing agent (Hamilton Managing Agency Limited) had advised that the underwriting members of Lloyd's had determined that AGM Markets was not entitled to indemnity for the applicant's claim. The applicant does not accept the denial of liability; and the applicant's legal representative subsequently advised Moray & Agnew that the applicant would seek to join Lloyd's as a party to the proceeding for the purpose of determining whether Lloyd's is liable under the Policy to indemnify AGM Markets in respect of the applicant's claim. 11 Moray & Agnew subsequently advised the applicant's legal representative that while its client, Hamilton, did not consider there was any liability to indemnify AGM Markets, it did not consent to nor oppose the joinder application that the applicant sought to make. It further indicated that, while it was aware that the hearing of the application was scheduled for 6 April 2021, it did not propose to appear at the hearing and, indeed, it did not do so. 12 Shortly before the hearing, Moray & Agnew advised the applicant's legal representative, by email, that Hamilton, in its capacity as managing agent on behalf of the underwriting members of Lloyd's, was "the correct defendant for the purposes of [the applicant's] joinder application". I return to this matter briefly below.

Leave to proceed against the first and second respondents 13 Section 471B of the Corporations Act 2001 relevantly provides that while a company is being wound up in insolvency or by the Court, a person cannot proceed with a proceeding in a court against the company except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. Since the first and second respondents are being wound up in insolvency, the applicant requires leave to continue this proceeding against them. 14 In the present case, the applicant has sought such leave to continue against the respondents for what it describes as "the limited purpose of establishing their liability, so as to enable the applicant to seek to recover in respect of that liability under the Policy". 15 The principles regarding the grant of leave are well-established: see, for example, Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749 at [23]-[32] (Gilmour J); Re Gordon Grant and Grant Pty Ltd (1982) 1 ACLC 196 at 199 (Master Lee QC) cited with approval, for example, in BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (1998) 16 ACLC 1539 at 1542-1543 (Weinberg J); also La Trobe Wholesale Finance Pty Ltd v Silkwax Pty Ltd [2011] FCA 1102 at [19] (Dodds-Streeton J). 16 In the absence of the identified insurance policy, the applicant's case for a grant of leave to continue this proceeding would not appear to have been particularly strong. The applicant had lodged a proof of debt in each of the first and second respondent's liquidations: it is not yet known whether these will be accepted. It is accepted, however, that leave is more likely to be granted where there is an insurance company standing behind the company being wound up in insolvency to pay any judgment that might be obtained against it, bearing in mind that such an action is unlikely to prejudice other creditors of the company: see, for example, Re Sydney Formworks Pty Ltd (in liq) [1965] NSWR 646 at 651 (McLelland CJ in Eq); Re Gordon Grant at 199; BHG Nominees at 1543; and La Trobe Wholesale Finance at [19]. 17 In this case, a grant of leave to continue the proceeding against the first and second respondents turns on the joinder of an insurer said to stand behind the respondents. In written submissions the liquidator of OT Markets acknowledged that the maintenance of the proceeding against it may be a procedural necessity for the applicant in the prosecution of its claim against the insurer. At the same time the liquidator submitted that any grant of leave should be made subject to a condition that the applicant not seek to enforce any judgment without leave of the Court. As will be seen, in the circumstances of the case, I would grant leave to continue against the first and second respondents subject to such a condition.

Leave to join the insurer 18 By her proposed amended statement of claim, the applicant proposes to seek a declaration that the insurer is liable to indemnify AGM Markets in respect of the respondents' liability to pay compensation to the applicant in connection with the subject matter of this proceeding. To this end the applicant seeks to have the insurer joined as a party in the proceeding. Counsel for the applicant stated that if the insurer were joined, "then, to the extent that the litigation is actively defended by or on behalf of the existing respondents, that would be undertaken by the insurer". 19 Rule 9.05(1) of the Federal Court Rules 2011 (Cth) permits an application to join a person as a party if the person: (a) ought to have been joined as a party to the proceeding; or (b) is a person: (i) whose cooperation might be required to enforce a judgment; or (ii) whose joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined; or (iii) who should be joined as a party in order to enable determination of a related dispute and, as a result, avoid multiplicity of proceedings. 20 Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; 166 FCR 398 is authority for the proposition that there is no constitutional impediment to joining an insurer in circumstances like the present, where declaratory relief is sought by a client investor (to the effect that the insurer is liable to indemnify the insured being the person responsible for the client investor's loss): see Ashmere Cove at [49] and [58]. In circumstances such as these, it is said that the client investor has a real interest in establishing that the insured is entitled to be indemnified and therefore the joinder is of practical utility: see Ashmere Cove at [58] and [73]. The decision in Ashmere Cove is consistent with s 22 of the Federal Court of Australia Act 1976 (Cth). 21 In this case, the applicant seeks to have the Court determine the question "whether, under the Policy, [the insurer] is liable to indemnify AGM Markets in respect of any liability of the respondents to the applicant arising from the subject matter of the proceeding". The applicant submitted, and it may be accepted, that "[t]he practical reason for the joinder … is to ensure that all relevant controversies which arise from the same factual substratum are decided in the one case". 22 It must, of course, be accepted that a decision to allow joinder of an insurer is discretionary and dependent on the circumstances of the case. It is well accepted, however, that certain matters are relevant to the exercise of this discretion. These matters were described by Lindsay J in The Owners-Strata Plan 62658 v Mestrez Pty Ltd [2012] NSWSC 1259 at [54], as accepted in, for example, Genworth Financial Mortgage Insurance Pty Ltd v KCRAM Pty Ltd (in liq) (No 2) (2011) 284 ALR 72 at [27]; Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd (in liq) [2013] FCA 883 at [25]-[32]; CGU Insurance v Blakeley [2015] VSCA 153 at [17]; and Kaboko Mining Limited v Van Heerden (No 2) [2018] FCA 706 at [17]. 23 In Mestrez, Lindsay J stated that "the interests of justice, and the convenient administration of justice, may authorise an order that an insurer be joined as a co-defendant with its insured, whether on the application of the third-party Plaintiff or otherwise, if": (i) the insurer has denied liability to indemnify the insured against the Plaintiff's claim. (ii) there is a bona fide dispute as to the entitlement of the insurer to deny liability. (iii) there is a substantial impediment (including insolvency on the part of the insured) standing in the way of the proceedings being conducted simply by the Plaintiff against the insured defendant, with a cross claim filed by the defendant against the insurer. (vi) the dispute as to the liability or otherwise of the insurer to indemnify the insured defendant can properly be made the subject of a grant of declaratory relief … (v) there is, in particular, a true legal controversy between the Plaintiff and the insurer such as would ensure that each of those parties might reasonably be relied upon by the court to serve as a contradictor for the other. (vi) joinder of the insurer as a co-defendant with its insured might reasonably be relied upon to avoid a multiplicity of proceedings, and to enable all matters in controversy between the parties (namely, the Plaintiff, the insured and the insurer) to be completely and finally determined. 24 In this case, there is evidence that the insurer has denied liability to indemnify the insured against the applicant's claim. It may be accepted that there is a bona fide dispute as to the insurer's liability, as indicated by the applicant's proposed amended statement of claim. The insolvency of the insured second respondent, and the likely insufficiency of the funds available for distribution on the winding up, stand in the way of the proceeding being conducted by the applicant against the insured respondent. 25 The dispute can properly be the subject of declaratory relief under s 21 of the Federal Court of Australia Act. There is a true legal controversy between the applicant and the insurer such as to ensure that those parties serve as a contradictor of each other. The joinder of the insurer as a respondent may reasonably be relied on to avoid a multiplicity of proceedings and enable all matters in controversy between the applicant, the first and second respondents and the insurer to be completely and finally determined. 26 These considerations militate in favour of joinder. Neither the liquidators for the second respondent (the insured under the Policy) nor the liquidator for the first respondent has opposed the joinder of the insurer. Whether liability under the Policy will be established is a matter for subsequent adjudication. None has suggested that there is no real question to be tried: compare Sienkiewicz (As Trustee for the Sienkiewicz Superannuation Fund) v Salisbury Group Pty Limited [2013] FCA 977 at [38]. In that case, Robertson J made an order for the joinder of insurers who the applicants contended were liable and obliged to indemnify the respondents in respect of the applicants' claims for damages, observing at [38] that "joinder should not be refused unless it is clear that there is no real question to be tried in the sense that there needs to be a high degree of certainty about the ultimate outcome of the proceeding" and noting at [42] "[e]ven if I had formed the view that the applicants were unlikely to succeed on the factual issues that does not mean that joinder should be refused". 27 In the circumstances of the case, having regard to the matters I have mentioned, I am satisfied that it is in the interests of justice that Lloyd's and Hamilton each be joined as a respondent in the proceeding in order that the question of the insurer's liability to indemnify AGM Markets under the Policy in respect of the subject matter of this proceeding can be determined as part of this proceeding, and that leave should be granted to the applicant under s 471B of the Corporations Act 2001 to continue this proceeding against the first and second respondents.

Amendment of pleading 28 The pleading amendments in question are mostly prompted by the fact that the first and second respondents have entered liquidation, and to enable the final determination of all matters in controversy between the applicant, the first and second respondents and the insurer and arising out of the same substratum of facts to be completely and finally determined. I accept that, as the applicant submitted, the timing, scope and purpose of the proposed amendments are readily explicable and will not cause untoward prejudice to any party. 29 As indicated earlier in these reasons, shortly before the hearing, Hamilton's legal representatives drew the applicant's legal representative to the possibility that the applicant should join Hamilton rather than Lloyd's as the respondent insurer. At the hearing counsel for the applicant indicated that, since the applicant's lawyers had had little time to consider the issue, there was some continuing uncertainty on the applicant's part about the proper party to be joined. At the close of the hearing the Court allowed further time for this issue to be considered, and ordered that the applicant file and serve the amended originating application and the amended statement of claim on which she ultimately sought to rely, identifying the party or parties she sought to have joined. In conformity with this order, the applicant filed these documents on 12 April 2021. The result is that by her proposed amended originating application and proposed amended statement of claim, the applicant seeks the joinder of both "The Members of Lloyd's Syndicate ACA 2014" and "Hamilton Managing Agency Limited (UK company 05832065) (formerly known as Pembroke Managing Agency Limited". 30 The proposed amended statement of claim, at [54]-[56], indicates that the applicant has been unable to obtain the further clarification she sought from Hamilton's lawyers as to the correct party to be joined for the purpose of having the matter of liability under the relevant insurance policy judicially determined. The applicant has therefore sought to join Lloyd's as the insurer identified in the Policy and, on the basis Hamilton's statements to her legal representative, Hamilton as the managing agent. The result is that by her proposed amended originating application and proposed amended statement of claim, the applicant seeks the joinder of both "The Members of Lloyd's Syndicate ACA 2014" and "Hamilton Managing Agency Limited (UK company 05832065) (formerly known as Pembroke Managing Agency Limited". 31 In the circumstances as presently disclosed, and having regard to the evidence currently before the Court, the proposed amended statement of claim and proposed originating application pleading, as well as the matters to which I have already referred, it seems to me appropriate to grant the leave to amend sought by the applicant, as well as the joinder of Lloyd's and Hamilton. 32 It would appear desirable to determine at the earliest convenient date whether the insurer would be liable under the Policy to AGM Markets in respect of the applicant's claim if that claim were to succeed. It would also be desirable to confirm as soon as practicable that the joinder of both Lloyd's and Hamilton is necessary to ensure that the relief the applicant seeks can in fact be granted in the event that liability under the Policy is established.

Disposition 33 For the foregoing reasons, I would make the orders in substance sought by the applicant in its interlocutory application filed on 15 March 2021. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kenny.