Deloughery v Weston

Judgment - EX TEMPORE 1By interlocutory application dated 10 April 2013, the plaintiffs, Mr Christopher Chamberlain ("Liquidator") in his capacity as Liquidator of Gerard Cassegrain & Co Pty Limited (in liquidation) ("Company") and the Company seek an order under s 477(2B) of the Corporations Act 2001 (Cth) that the Liquidator gave approval to enter into and cause the Company to enter into a litigation funding agreement in or substantially in the form of Confidential Exhibit "CC5" to Mr Chamberlain's affidavit affirmed 10 April 2013 ("Funding Agreement"). The Liquidator also seeks a direction under s 479(3) of the Corporations Act that he would be justified in entering into an agreement in or substantially in the form of the Funding Agreement. He also seeks confidentiality orders in respect of certain exhibits to his affidavit. 2The application is supported by Mr Chamberlain's affidavit dated 10 April 2013 and relates to the entry into the Funding Agreement with a third party litigation funder in respect of proceedings 2012/259522 brought by the Company against certain persons in the New South Wales Court of Appeal; proceedings 2012/253268 brought by Felicity Cassegrain against the Company and others; and proceedings 2012/256538 brought by Claude Cassegrain against the Company and others. 3Mr Chamberlain's affidavit sets out the circumstances of his appointment as Liquidator and refers to proceedings which existed, at the point of his appointment, between Dennis Cassegrain and others as plaintiffs and the Company, Claude Cassegrain, Felicity Cassegrain and Anthony Sarks which were ultimately heard before Bergin CJ in Eq, in which judgment was given in favour of the Company against Claude Cassegrain, Felicity Cassegrain and Anthony Sarks. It appears, as the reference to judgment in favour of the Company implies, that those proceedings had the character of derivative proceedings, pursuant to leave previously granted by Austin J for the proceedings to be conducted in that manner. 4Mr Chamberlain leads evidence of the Company's assets and of proofs of debt lodged by Mr Claude Cassegrain, Ms Felicity Cassegrain, another body corporate and their former legal adviser, Evangelos Patakas & Associates, in the liquidation, as well as claims by the Deputy Commissioner of Taxation, Mr Dennis Cassegrain and a firm of accountants. Notwithstanding the assets to which Mr Chamberlain refers, his evidence is that the Company does not have funds available to it to prosecute the appeal which it has brought or defend the appeals which Felicity Cassegrain on the one hand and Claude Cassegrain on the other have brought in the Court of Appeal. All three appeals are listed for hearing on 26-27 June 2013 and appear to have a degree of complexity, with not only notices of appeal filed by the respective appellants but with notices of contention also filed by other parties to the appeals. There is in evidence counsel's advice concerning the prospects of success of the appeal, which makes clear that it is not comprehensive in character, but identifies a basis on which Counsel has formed a view as to the prospects of appeal. The Plaintiffs, in submissions, have frankly accepted that there are complexities and uncertainties as to the ultimate quantum of the Company's damages if it maintains judgment in the appeals, which will be relevant to the issue which I am asked to determine. The Liquidator's evidence is that: "I consider that it is in the best interests of the Company to pursue the [relevant appeals] because if a company succeeds in defending the appeals brought by Felicity Cassegrain and by Claude Cassegrain and Anthony Sarks, it will retain the benefit of the judgment it currently holds in its favour whereby Claude Cassegrain, Anthony Sarks and Felicity Cassegrain are jointly and severally liable to compensate the company for any loss to the company arising from the transfer of the company's shares in Cassegrain Tea Tree Oil Pty Ltd and Oceania Agriculture Pty Ltd to Felicity Cassegrain on 19 and 20 January 2005 respectively." 5The Liquidator's evidence also addresses issues in respect of the recoverability of judgments against Mr Claude Cassegrain, Ms Felicity Cassegrain and Mr Anthony Sarks. Those matters are, of course, of the kind which would ordinarily be the subject of commercial judgments formed by a liquidator. 6The Liquidator's evidence is that he sought, but was not provided with, funding from the Deputy Commissioner of Taxation (which is a major creditor) to pursue the appeals. Mr Dennis Cassegrain and other shareholders in the Company, who are also persons claiming to be creditors of the Company and who had funded other appeals, have advised that they are unable to fund the current appeals. I will return to a matter raised by that advice below. 7The Liquidator thereafter approached a third party litigation funder, Litigation Lending Services Limited ("Litigation Lending Services"), to fund the appeals and received an offer of funding and, following further negotiations, received revised offers of funding. The relevant correspondence and a proposed litigation funding agreement have been tendered as confidential exhibits. The Liquidator's evidence is that the offer from Litigation Lending Services is the only offer which he has received to fund the cost of the appeals; that the offer will indemnify him in respect of adverse costs orders in respect of the appeals; and he gives evidence, based on lengthy experience as a liquidator, that the terms proposed by Litigation Lending Services are reasonable and acceptable and he considers it is in the company's best interests to enter into the proposed funding agreement for reasons he identifies. 8I should add something further in that regard. First, the percentage which the litigation funder will seek to retain from a successful judgment is in the order that one might expect in respect of commercial litigation funding agreements. Depending upon the amount of any recoveries ultimately obtained by the Company, that may be a relatively low return on the funder's investment or a significantly higher return. That is, it seems to me, a necessary consequence of the uncertainty and complexities of assessing the recoverable damages for the Company. The fact that, in circumstances of complete success, a litigation funder will recover a significant return on its investment is not a reason to decline approval for a litigation funding agreement, where complete success is not guaranteed, and failure or only limited success are also potential outcomes. 9The Liquidator's evidence is that he seeks approval under s 477(2B) of the Corporations Act because the terms and performance of the proposed Funding Agreement will extend for a period longer than three months, and that he has not sought creditor approval where creditors include opposing parties in the appeals, other associated companies, and persons with present or prior commercial associations with them. The Liquidator has, appropriately, given notice to creditors of the application, although drawing their attention to the principle, recognised in the case law, that individual creditors do not have a right to be heard in an application of this nature: Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 498; Deloughery v Weston [2010] NSWCA 148. One creditor, Evangelos Patakas & Associates, a firm of solicitors who previously acted for Mr Claude Cassegrain, has written a letter to the Liquidator in response to that notice, which it requested should be drawn to the Court's attention. The Liquidator has, appropriately, done so. The letter is lengthy, but, in summary, its primary contention appears to be that the Liquidator's adoption of the appeal may, on one view, have relieved Mr Dennis Cassegrain and other family members from an obligation under undertakings previously given in respect of the derivative proceedings heard by Bergin CJ in Eq, and that conduct may operate to the detriment of creditors. The letter acknowledges that it is in the interests of all creditors for the appeals to be prosecuted to their logical conclusion and, if possible, to succeed and lead to recovery of sums which will be available for distribution to creditors. Nonetheless, Evangelos Patakas & Associates argue that, rather than the Liquidator assuming responsibility for the conduct of the appeals, he ought in some way to have insisted that Mr Dennis Cassegrain and other family members should do so, and should not himself have done so. 10There are two possible answers, it seems to me, to those criticisms so far as this application is concerned. The first is that the Liquidator has drawn my attention to the short minutes of order made, at the time that leave was granted by Austin J to bring the proceedings which were subsequently determined by Bergin CJ in Eq. The Court there noted certain undertakings set out in a letter dated 28 May 2009, which relevantly contained undertakings to the Court that certain persons would indemnify the Company in respect of specified matters, which included orders for costs made against the company in the first instance proceedings. The Liquidator points out, and on the face of it the undertakings indicate, that those undertakings were given in respect of the first instance proceedings. That, if correct, would be a complete answer to the criticism made by Evangelos Patakas & Associates because, if the Liquidator has no right to insist on Mr Dennis Cassegrain and other family members conducting the appeal, then he can hardly be criticised for not doing so, or for making his own assessment of whether it was in the Company's interests for him to conduct the appeal. 11A second answer to that criticism is that it is not, in my view, ultimately relevant to the Court's determination whether to approve the Funding Agreement. The Liquidator has in fact, it appears, assumed the conduct of the appeals on behalf of the Company. In that situation, the Court may either approve the Funding Agreement, if it is in proper form for approval, or its declining to do so is likely to prevent the Company taking an active role in the appeals. If there is a proper basis for criticism of the Liquidator's taking an active role in the conduct of the appeals, then it is open to creditors, both under the Corporations Act and at general law, to pursue that criticism and to advance any claims that may arise from it. The proper remedy is not, if such a criticism exists, to decline funding and prevent the conduct of the appeals. 12I turn now to the principles applicable to approval of funding agreements, which are well established, and which I recently summarised in respect of a similar application in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257. It is well established that the Court is not concerned, in an application of this kind, with matters of commercial judgment but only to satisfy itself that the entry into the agreement is a proper exercise of power and not ill advised or improper on the Liquidator's part, Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405; Re Gerard Cassegrain & Co Pty Ltd (in liq) above at [11]. Relevant factors were identified by Austin J in Re Leigh; AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315, and it is not necessary that I repeat them here. The factors which his Honour identified were in turn referred to by the Full Court of the Federal Court in Fortress Credit Corporation (Aust) II Pty Ltd v Fletcher [2011] FCAFC 89 at [24]; (2011) 85 ACSR 38; by Jacobson J in Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 117 at [14] and in Re Gerard Cassegrain & Co Pty Ltd (in liq) above at [12]. As Jacobson J noted in Pascoe; Re Matrix Group Ltd (in liq) above, the question for the Court is whether the Liquidator's judgment has been infected by a lack of good faith or error of law or principle, or whether there are real or substantial grounds for doubting the prudence of his conduct in seeking to enter into the funding agreement. 13I can readily be satisfied as to the prospects of success in the appeals, so far as the Company is concerned, having regard to counsel's opinion put before me on a confidential basis. I can also be satisfied, treating the criticisms raised by Evangelos Patakas & Associates in the manner to which I have referred above, that it is in the interests of creditors, other than the opposing parties in the appeals, to grant the relevant approval, so far as it will allow the Company to seek to maintain the existing judgment in its favour. Indeed, the letter from Evangelos Patakas & Associates to which I referred appeared to accept that proposition, while nonetheless asserting that the Liquidator should instead press others to conduct the appeals. There is nothing to suggest any possible oppression in the conduct of the appeals, noting that two of the three of them were commenced by other parties as against the Company. 14The Liquidator has canvassed other funding options, including funding by the Australian Tax Office which was not available and funding by the shareholders and creditors to which I have referred. The Funding Agreement contains a premium which appears to be appropriate, both because it is in the range of funding premiums commonly seen in complex commercial litigation and because the arrangement has been negotiated at arm's length between an experienced Liquidator, with experienced legal advisers, and a third party funder. I have referred above to the fact that the Funding Agreement may, in some circumstances, deliver a significant return to the funder, but that is not, for the reasons I noted above, a reason to decline approval for it. 15Having regard to these matters, it seems to me that the Court should, on the material before it, not conclude that the Liquidator's judgment has involved any lack of good faith or error of law principle and should not conclude that there is any lack of prudence in entry into the proposed funding agreement or causing the company to do so. Accordingly, I would grant the approval that is sought under s 477(2B) of the Corporations Act for entry into that agreement. 16The Liquidator also seeks a direction under s 479(3) of the Corporations Act that he would be justified in entering into the Funding Agreement, and I note that a direction of that kind was given in Pascoe; Re Matrix Ground Ltd (in liq) above and also in Re Gerard Cassegrain & Co Pty Ltd (in liq) above and [18] where I reviewed the authorities as to the circumstance in which such directions would and would not be given. It is not necessary for me to repeat the review of those authorities. 17In this case, it seems to me that such a direction is appropriate where the proceedings which led to the appeals were plainly complex; creditors of the Company include persons who are party to the appeal; the Liquidator has been faced with questions raised by Evangelos Patakas & Associates in the letter to which I referred; and there are plainly persons who may have an interest in challenging the propriety of the entry into the Funding Agreement. I note that such direction is, of course, subject to the adequacy of the information put before the Court, which would critically include the nature of the undertaking given in respect of proceedings at first instance to which I have referred. Subject to the adequacy of that information, the direction which I consider should be given will allow the Liquidator protection in respect of the entry into the Funding Agreement. 18The Liquidator also seeks confidentiality orders in respect of several documents tendered as exhibits to his affidavit. The Court's power to make such an order is well established and I am satisfied that I should make such an order. 19In these circumstances, I make orders in accordance with the short minutes of order initialled by me and placed in the file. I add a further order in addition to paragraphs 1-5 contained in the short minutes of order as follows: 6. Exhibits may be returned to the solicitors acting for the Liquidator in these proceedings. Direct that the solicitors retain those exhibits, subject to any further order of the Court.