PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –
SEPARATE DECISION OR DETERMINATION OF QUESTIONS AND
CONSOLIDATION
OF PROCEEDINGS – CONSOLIDATION OF PROCEEDINGS –
Source
Original judgment source is linked above.
Catchwords
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS –SEPARATE DECISION OR DETERMINATION OF QUESTIONS ANDCONSOLIDATIONOF PROCEEDINGS – CONSOLIDATION OF PROCEEDINGS –where theapplicant is a shareholder and creditor of a company, called Armour, in agroup (Armour Group) – where the applicant commencedtwo proceedingsfollowing the enforcement of various securities over assets held by the ArmourGroup – where the securitiesare held by the first respondent as trusteepursuant to the terms of a Security Trust Deed – where the securities weregrantedto secure obligations Armour owed in respect of fixed rate securedamortising notes issued to FIIG Securities Limited (FIIG) –where thesecond respondent holds, as trustee, the right to enforce Armour’srepayment obligations under those amortising notes– where the thirdrespondents, the receivers, were appointed to companies in the Armour Group
following the enforcement of
the securities – where the fourth respondent
allegedly acquired a significant portion of the amortising notes and was
allegedly
involved in the enforcement of the securities – where the
applicant, in two separate proceedings, seeks: first, a declaration
that upon
payment of the secured debt owed by Armour under the amortising notes, it is
entitled to be subrogated to the rights of
the first and second respondents
(first proceeding)
and secondly, an order that the appointment of the third
respondents as receivers
was not valid (second proceeding) – where the
applicant applies for an order consolidating the two separate proceedings
–
where the third and fourth respondents apply for summary dismissal of
the first proceeding or, alternatively, strike out of the entirety
of the
statement of claim in that proceeding – where the consolidation of the
first proceeding and the second proceeding is
contingent on whether the
subrogation proceeding is summarily dismissed or
struck out – where the applicant has sought declaratory relief
Judgment (174 paragraphs)
[1]
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SEPARATE DECISION OR DETERMINATION OF QUESTIONS AND CONSOLIDATION OF PROCEEDINGS - CONSOLIDATION OF PROCEEDINGS - where the
[2]
applicant is a shareholder and creditor of a company, called Armour, in a group (Armour Group) - where the applicant commenced two proceedings following the enforcement of various securities over assets held by the Armour Group - where the securities are held by the first respondent as trustee pursuant to the terms of a Security Trust Deed - where the securities were granted to secure obligations Armour owed in respect of fixed rate secured amortising notes issued to FIIG Securities Limited (FIIG) - where the second respondent holds, as trustee, the right to enforce Armour's repayment obligations under those amortising notes - where the third respondents, the receivers, were appointed to companies in the Armour Group following the enforcement of the securities - where the fourth respondent allegedly acquired a significant portion of the amortising notes and was allegedly involved in the enforcement of the securities - where the applicant, in two separate proceedings, seeks: first, a declaration that upon payment of the secured debt owed by Armour under the amortising notes, it is entitled to be subrogated to the rights of the first and second respondents (first proceeding); and secondly, an order that the appointment of the third respondents as receivers was not valid (second proceeding) - where the applicant applies for an order consolidating the two separate proceedings - where the third and fourth respondents apply for summary dismissal of the first proceeding or, alternatively, strike out of the entirety of the statement of claim in that proceeding - where the consolidation of the first proceeding and the second proceeding is contingent on whether the subrogation proceeding is summarily dismissed or
[3]
struck out - where the applicant has sought declaratory relief
[4]
as to its entitlement to be subrogated to the rights of the first and second respondents - where the quantum of the secured debt owed by Armour has not yet been ascertained and the applicant has not yet paid that debt such that the applicant is not presently entitled to be subrogated to the rights of the first and second respondents - where the applicant accordingly seeks a declaration as to its entitlement upon the happening of a future event - where pleaded communications between Armour and the applicant are arguably discussions by the parties for a proposal for the applicant to pay the whole of the secured debt owed in respect of the amortising notes - whether the first proceeding should be summarily dismissed or the pleading for the claim for subrogation struck out - whether the first proceeding and second proceeding should be consolidated
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COURT SUPERVISION - AMENDMENT - ORIGINATING PROCESS, PLEADINGS
ETC - where the applicant seeks leave to amend to plead claims for misleading or deceptive conduct and unconscionability under the Australian Consumer Law were the two separate proceedings to be consolidated - where the proposed amendments plead a misleading and deceptive conduct case against the fourth respondent on the basis that the fourth respondent made allegedly misleading representations to the applicant and Armour that it would acquire the amortising notes and would extend the date for payment by Armour - where the proposed amendments also allege that the fourth respondent failed to inform Armour or the applicant of an alleged plan to acquire the amortising notes and take steps to enforce the securities - where the proposed amendments allege that this was done in circumstances which gave rise to a reasonable expectation that the fourth respondent would inform Armour and the applicant that the fourth respondent or a related company was intending to acquire the Armour Group or some or all of its assets through the acquisition of the amortising notes and the enforcement of the securities - where the third and fourth respondents submitted that the proposed claims are untenable such that the Court's discretion should be exercised against granting leave to amend because the alleged representations were made in an email from FIIG - where the sending of the email by FIIG is not the conduct from which the misleading representation is alleged to arise from but rather the email is pleaded as the basis from which it could be inferred that the fourth respondent engaged in conduct which gave rise to the allegedly misleading representation - where the third and fourth respondents also submitted that the applicant does not plead: the existence of circumstances which are capable of giving rise to a reasonable expectation that the fourth respondent would inform Armour and the applicant of the matters referred to above; conduct of the fourth respondent
[5]
where the applicant seeks leave to join a company related to the fourth respondent and the firm of solicitors who acted for the fourth respondent and the related company to proposed claims under the Australian Consumer Law - where the applicant seeks to pursue a claim against that firm for its alleged knowing involvement in the contravention of s 18 of the Australian Consumer Law by a company related to the fourth respondent - where the firm has not consented to nor opposed joinder - where substituted service was effected on the related company but it did not appear at the hearing of the application - where the related company was not served strictly in accordance with previous orders of the Court as to substituted service - where the applicant seeks new orders as to substituted service of its application on the related company
whether an order for joinder joining the firm and the fourth respondent's related company should be made
JW Peden KC with R Tooth for the applicant AI O'Brien for the first and second respondents
[25]
D de Jersey KC with MWP Ziebell for the third and fourth respondents
[26]
DB O'Sullivan KC with SD McCarthy for the proposed sixth respondent, Baker & McKenzie (A Firm)
[27]
Corrs Chambers Westgarth for the first and second respondents
[28]
Johnson Winter Slattery for the third and fourth respondents Hall & Wilcox for the proposed sixth respondent, Baker & McKenzie (A Firm)
[29]
[1] The applicant (DGR) is a shareholder and creditor of Armour Limited (Armour), one of several companies in a group referred to by the parties as the Armour Group. DGR commenced two proceedings following the enforcement of various securities over assets of the Armour Group.
[2] The securities are held by the first respondent (PT) as trustee pursuant to the terms of a Security Trust Deed. Relevantly for the purposes of the proceedings, the securities were granted to secure obligations Armour owed in respect of fixed rate secured amortising notes (Notes) issued to FIIG Securities Limited (FIIG). Armour also executed a Note Trust Deed pursuant to which the second respondent (Perpetual) holds, as trustee, the right to enforce Armour's repayment obligations under the Notes.
[3] The third respondents (Receivers) were appointed to companies in the Armour Group following the enforcement of the securities.
[4] The fourth respondent (ADZ) is, on DGR's case, related to a company called Shunkang Holding Group (Shunkang), with its directors (Mr He and Mr Liu) also being directors of Shunkang. DGR alleges that ADZ acquired a significant portion of the Notes and was involved in the enforcement of the securities.
[5] In the first proceeding (BS 15575 of 2023), DGR seeks a declaration that, upon payment of the secured debt owed by Armour under the Notes, it is entitled to be subrogated to the rights of PT and Perpetual under the relevant security documents (Subrogation Proceeding).
[6] In the second proceeding (BS 16263 of 2023), DGR seeks an order that the appointment of the Receivers was not valid (Validity Proceeding).
[7] This judgment deals with two interlocutory applications.
[8] DGR applies for:
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(a) an order consolidating the Subrogation Proceeding and the Validity Proceeding;
(b) leave to amend to include, in the consolidated proceeding, claims for misleading or deceptive conduct and unconscionability under the Australian Consumer Law (ACL); and
(c) leave to join Shunkang and Baker & McKenzie (the solicitors who acted for Shunkang and ADZ) as respondents to proposed claims under the ACL.
[31]
[9] ADZ and the Receivers apply for summary dismissal of the Subrogation Proceeding or, alternatively, strike out of the entirety of the statement of claim in that proceeding (Summary Dismissal Application).
[10] As to DGR's Application, the position of ADZ and the Receivers is that:
[32]
(a) if the Subrogation Proceeding is not summarily dismissed, but struck out entirely with leave to replead then consolidation ought not be ordered until such time as a proper case is articulated;
(b) if the Subrogation Proceeding is not summarily dismissed or struck out, they do not oppose consolidation of the Subrogation Proceeding and the Validity Proceeding;
(c) they oppose the grant of leave to amend to plead new claims against ADZ under the ACL;
(d) they do not oppose the grant of leave to join Shunkang and Baker & McKenzie;
(e) they do not oppose the grant of leave to amend to plead new claims against Shunkang, Baker & McKenzie and PT under the ACL.
[33]
[11] PT and Perpetual had, until recently, been represented by Baker & McKenzie in both proceedings. DGR's proposal to join Baker & McKenzie to the consolidated proceeding has caused PT and Perpetual to engage new solicitors and counsel. In those circumstances, PT and Perpetual neither consented to nor opposed DGR's Application and indicated they would abide by the order of the Court. That position was taken on the basis that their new solicitors and counsel have had limited time to review and consider the adequacy of the draft consolidated pleading which
[34]
incorporates the proposed amendments. This position was expressly stated not to constitute a concession that the draft consolidated pleading discloses a viable cause of action against PT or Perpetual.
[35]
[12] Baker & McKenzie adopted the same position as PT and Perpetual.
[13] Shunkang did not appear at the hearing. There was a deficiency in the way Shunkang was served under orders for substituted service made on 22 April 2024. I will return to this issue when addressing the questions of leave to join Shunkang as a respondent and leave to amend to plead claims against it under the ACL.
[14] It is convenient to first set out the relevant facts contained in the draft consolidated pleading before dealing with Summary Dismissal Application and DGR's Application.
[36]
[15] The relevant facts pleaded in the draft consolidated pleading are:
[37]
(a) the effect of the relevant transaction and security documents and the Armour Group's failure to pay the sum of $2,964,233 to Perpetual pursuant to the Note Trust Deed on 29 September 2023;1
(b) Armour's request that DGR provide financial support to enable it to pay amounts due with respect to the Notes, including the making of the payment due on 29 September 2023, and DGR's acceptance of that request;2
(c) the consequences of the default by the Armour Group in making the payment due on 29 September 2023, including PT calling a meeting of beneficiaries under the Security Trust Deed to be held on 7 November 2023 to vote on whether to instruct PT to take any action in respect of that default and proposing six alternative resolutions for consideration at that meeting, including that PT take no action unless or until instructed by the beneficiaries in a special resolution;3
(d) facts evidencing a proposal by Shunkang to acquire an interest in Armour, commencing in about April 2023, including:4
(i) Shunkang being granted access to confidential financial information related to the Armour Group, including the transaction and security documents relating to the Notes;
(ii) negotiations between Shunkang and Armour for Shunkang to acquire 100% of the shares in Armour culminating, on 11 October 2023, in Shunkang's agreement in principle, subject to due diligence, to acquire the shares on terms which included that Shunkang (or an associated
[38]
Paragraphs 15A and 15B. I will return to the content of the communications DGR has particularised as constituting Armour's request and DGR's acceptance when considering the Summary Dismissal Application.
[39]
entity) would purchase the Notes, or Shunkang would provide funding to Armour to redeem or repay the Notes;
(iii) DGR would have received the approximate sum of $22,376,480 as part of the agreement in principle for Shunkang to acquire Armour and pay out Armour's debts;
(iv) the total cost to Shunkang of the agreement in principle to acquire Armour and pay out Armour's debts would have been $56,100,158 (plus accrued interest on the Notes);
(e) email communications between Shunkang and Armour on 16 and 17 October 2023 concerning Shunkang's intention to purchase the Notes through FIIG and extend the repayment date;5
(f) the formulation of a plan on the part of Shunkang (by its directors and/or its solicitors) by at least 20 October 2023 to incorporate ADZ for the purpose of:6
(i) ADZ acquiring the Notes and enforcing the securities by appointing receivers and managers and voluntary administrators to companies in the Armour Group;
(ii) Shunkang acquiring the Armour Group (or some or all of its assets) from the receivers and managers or voluntary administrators appointed by ADZ.
(g) ADZ's offer to purchase the Notes, along with communications concerning ADZ's connection with Shunkang and its position on whether (if it acquired the Notes) it would take enforcement action in respect of the Armour Group's default under the Notes;7
(h) ADZ's acquisition of a significant portion of the Notes on or around 3 November 2023;8
(i) adjournment of the beneficiaries' meeting from 7 November 2023 to 14 November 2023, without the adjourned meeting ultimately proceeding;9
(j) the appointment of the Receivers, as well as voluntary administrators, on 10 November 2023 pursuant to a circulating resolution of beneficiaries;10
(k) the entry by some members of the Armour Group into a DOCA proposed by ADZ (pursuant to Shunkang's plan) with the following results:11
(i) ADZ became the owner of all or part of the valuable assets of the Armour Group for total financial consideration under the DOCA of $35,600,000;
[40]
Paragraphs 36 to 39E. I will return to the content of some of these pleaded conversations in considering the question of leave to amend to plead causes of action under the ACL.
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(ii) Shunkang avoided the cost of $56,100,158 (plus accrued interest on the Notes) required to acquire the shares in Armour and to pay out Armour's debts;
(iii) DGR's shares in Armour are now worth nothing;
(iv) DGR will not be repaid the debt it is owed by Armour;
(l) DGR's offer, by letter dated 4 December 2023, to pay to Perpetual the amount of secured monies owing by the Armour Group pursuant to the Security Trust Deed.12
[16] On this application, in addition to the principles which apply when a party seeks to have a claim dismissed or struck out on a summary basis, regard must also be had to principles relating to the entitlement to equitable relief in the form of subrogation and to the availability of declaratory relief as to rights which will come into existence upon the occurrence of future events.
[44]
[17] Pursuant to r 293 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), the Court may give judgment for a defendant if satisfied that the plaintiff has no real prospects of succeeding and there is no need for a trial. The question is whether the plaintiff has real, as opposed to fanciful, prospects of success.13 The answer to that question must be reached having regard to the purpose of the UCPR set out in r 5, including that the real issues in the proceeding be resolved justly. It remains the case that, in making that determination, great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of the opportunity to have his or her claim resolved at trial.14
[18] Rule 171 confers a discretion on the Court to strike out all or part of a statement of claim which discloses no reasonable cause of action. The principles which apply to an application under r 171 were summarised by Bowskill J (as her Honour was then) in Equititrust Ltd v Tucker (No 2).15 I have had regard to those principles, although it is unnecessary to restate them in full. Relevantly, where the effect of exercising the discretion in favour of striking out would be to summarily dismiss a party's claim, or part of it, the Court is to adopt a cautious approach and the discretion should only be exercised in the clearest of cases.16 Further, although the Court may determine a difficult question of law on such an application, the power to strike out should not be
Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq)[2002] QCA 224; [2003] 1 Qd R 259, 264-265 [7], citing General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112
exercised once it appears that there is a real question to be determined whether of fact or of law and that the rights of the parties depend upon it.17
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[19] Subrogation is an equitable remedy that, in certain circumstances, operates to permit a party to acquire and enforce the lawful claims and rights of another party, even in the absence of any assignment from, or assent of, that other party.18
[20] The issue of a party's entitlement to be subrogated to the rights of another party commonly arises in circumstances where that other party is owed a debt and the party claiming an entitlement to subrogation pays the debt (or in the circumstances of this proceeding, proposes to pay the debt) on the debtor's behalf. In such circumstances, the paying party may be subrogated to the former creditor's rights against the debtor, including in respect of any security provided in relation to the debtor's obligations to repay.
[21] The mere fact that one person pays off another's debt does not automatically give rise to a right of subrogation to the former creditor's rights against the debtor. There must be something more that generates the entitlement to equitable relief in favour of the paying party.19 Consistent with this position, an important limit on the scope of the remedy is that subrogation will not be available where the claimant is a "volunteer", "officious" or an "intermeddler".20 However, a payment will not be considered voluntary in the relevant sense where the claimant has been expressly or impliedly requested to act by the debtor.21
[22] In any event, by claiming an entitlement to be subrogated to the rights of a secured creditor, a party cannot seek to place himself or herself in a better position than had been bargained for when regard is had to the true nature of the transaction between the payer of the money and the person at whose instigation it is paid. If the true nature of the transaction is that the paying party money intended to provide an unsecured loan to the debtor, the paying party cannot then seek to be subrogated to the rights of a secured creditor paid out with those loan funds.22
[54]
[23] DGR has sought declaratory relief as to its entitlement to be subrogated to the rights of PT and Perpetual upon DGR paying the secured debt owed by Armour. This raises the question whether the Court would exercise the discretion to grant a declaration as to DGR's rights "in relation to circumstances that [have] not occurred and might never happen".23
[55]
17 [2019] QSC 248, [11] citing General Steel Industries Inc v Commissioner for Railways (NSW) (1964)
[24] Declaratory relief will not be available where what is sought is the answer to a hypothetical question or an advisory opinion.24 Nevertheless, Bond J (as his Honour then was) observed in _Nerang Subdivision Pty Ltd v Hutson_25 that declaratory relief is sometimes granted in relation to circumstances that have not occurred and might never occur.
[25] His Honour approved the following statement of Brennan J (then a judge of the Federal Court) in _Re Tooth & Co Ltd_26 which addresses the difference between hypothetical and non-hypothetical conduct:
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"But the remedy is nonetheless limited to cases which are not 'hypothetical in a sense relevant to the exercise of this jurisdiction'. The difficulty is to determine whether a particular case falls on one side or the other of the line which divides the hypothetical from the non-hypothetical cases. In the United States, where federal courts are limited (pursuant to Art. III of the U.S. Constitution, and by the Declaratory Judgment Act) to granting declaratory relief only in 'a case of actual controversy', the Supreme Court has held that the difference between such a case and an hypothetical case is one of degree: 'The difference between an abstract question and a 'controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment' (Maryland Casualty Co. v. Pacific Coal and Oil Co.). The immediacy and reality of a controversy are factors to which weight must be given in applying the principle expressed by Lord Radcliffe in delivering the judgment of the Judicial Committee in Ibeneweka v. Egbuna: '... it is doubtful if there is more of principle involved than the undoubted truth that the power to grant a declaration should be exercised with a proper sense of responsibility and a full realization that judicial pronouncements ought not to be issued unless there are circumstances that call for their making'. A controversy as to the lawfulness of future conduct cannot be said to be immediate and real if it is unlikely that the applicant will engage in the conduct (Golden, Acting District Attorney of Kings County v. Zwickler). If the prospects of the applicant engaging in the conduct are uncertain, the uncertainty may deprive the controversy of a sufficient immediacy and reality to warrant the making of a declaration (Steffel v. Thompson). The degree of uncertainty as to whether the applicant will engage in the conduct proposed will usually determine whether the circumstances call for the making of a declaration."
[66]
[26] Courts will not generally decide questions about future rights that will arise in circumstances that have not yet happened and may not occur, unless there are good practical reasons for resolving the contest as to the nature of those rights; that is, that the party seeking relief is hampered in his or her practical affairs in some significant
respect by the uncertainty or there is some other positive ground for making an anticipatory declaration.27
[71]
[27] ADZ and the Receivers submit that there are five reasons which compel the conclusion that DGR has no real prospects of succeeding in the Subrogation Proceeding and that there is no need for a trial:
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(a) DGR has no presently existing entitlement to subrogation;
(b) Armour did not request that DGR pay its secured debt;
(c) absent such a request, there is not, at law, any broad equitable basis for subrogation in circumstances where the Court considers it to be "just and equitable";
(d) any entitlement DGR might have to subrogation is hypothetical and the Court would refuse to grant the declarations which DGR seeks;
(e) subrogation is excluded in this case by express contractual terms.
[73]
No presently existing entitlement to subrogation
[74]
[28] This submission mischaracterises the nature of the declarations which DGR is seeking. DGR accepts that it has not paid the secured debt, it is not presently entitled to be subrogated to the rights of PT and Perpetual, and it will have no such entitlement until it has paid the secured debt. It is for those reasons that DGR has sought a declaration as to its entitlement upon the happening of a future event; that is, upon its paying the secured debt owed by Armour.
[29] I am unable to accept the submission of ADZ and the Receivers that, unless DGR has paid the secured debt, it has no standing to bring any proceeding for declaratory or other relief with respect to the remedy of subrogation. No authority was cited for that proposition and it is not consistent with the statement by Mahoney JA in Challenge Bank Ltd v Mailman,28 that, before a guarantor has paid the amount owing under the guarantee, the guarantor may have standing to bring proceedings to have his or her rights in respect of the security declared or to restrain actions or appropriations inconsistent with the rights which he or she will have upon discharge of the guarantee.
[30] The factual circumstances here are different than those considered in Challenge Bank because, unlike a guarantor, DGR is not obliged to pay the secured debt. Nevertheless, having regard to the recognition that the Court may grant declaratory relief in respect of rights which will exist upon the happening of future events, I am not persuaded that the circumstance of DGR not yet having paid the secured debt means it has no standing to bring the Subrogation Proceeding. I am not ultimately persuaded that the first reason advanced by ADZ and the Receivers warrants summary dismissal.
[75]
Was there a request by Armour that DGR pay the secured debt?
[31] DGR pleads that the request by the Armour Group was made:
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(a) in a telephone conversation on 27 September 2023 between Mr Bizzell (on behalf of Armour) and Mr Mather (on behalf of DGR); and
(b) in an email from Mr Bizzell to Mr Mather (and others) on 28 September 2023.
[80]
[32] Mr Mather has deposed to the content of the telephone conversation as follows:29
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"On the evening of 27 September 2023, I had a conversation with Mr Bizzell in which we discussed the September Amortisation Payment which would soon be due by Armour Limited. We discussed the need for DGR to provide ongoing financial support with respect to this payment. I said to Mr Bizzell that DGR could provide finance to enable Armour Limited to make the September payment due to noteholders, but that I didn't think it would have to because I was expecting to imminently reach agreement with Shunkang as part of its takeover which would include a working capital facility sufficient to make the September payment."
[82]
[33] The email from Mr Bizzell to Mr Mather on 28 September 2023 read:30
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"As mentioned last night, BDO have advised that in order to signoff on Armour's accounts (going concern etc) that absent any other funding being locked in (noting that Shunkang won't get to that stage by tomorrow) they would need something similar to what DGR provided last year (a letter of financial support).
Copy of last year's letter attached. Last year we were dealing with the Tribeca facility having matured and ongoing FIIG payments etc. This year we need to address the FIIG payment due today, and also the FIIG maturity in 2 months.
Will DGR be willing to provide a similar letter of support this year? Absent this, difficult to see how AJQ audit gets signed off and how we deal with what will flow from that.
[84]
We also need to address what communication will be made to the FIIG note trustee (Perpetual) and noteholders (via FIIG) today given the expected principal and interest payment due today will not be met.
The likelihood of Perpetual being quicker to act then [sic] they were last time in relation to moving towards enforcement action on their security is quite high.
Given the Shunkang conditions they have outlined that need to be satisfied before they provide bridge finance (50% acceptances etc), we will not have access to their funds in the timeframes required.
Is DGR going to be capable / willing to provide funding to enable this week's FIIG payment to be made? If so, in what timeframe?
[85]
29 Affidavit of Mather (CFI 8 to 12), paragraph 106.
[86]
30 Affidavit of Mather (CFI 8 to 12), exhibit 'NM-01' at pages 1011 to 1012 (underlining added).
[87]
I have cc'ed Michele to turn his mind to what we could disclose about the status of the Shunkang transaction to FIIG noteholders / Perpetual etc in the context of where we are at. Also appreciate we would need to disclose to ASX anything we might want to communicate to noteholders in this regard.
Ideally, we would be advising noteholders that the P&I payment will be made within [7 days] (assuming DGR is willing / capable of providing the funding in that timeframe). We need to avoid them calling the noteholder meetings to get instructions to commence enforcement action etc like they set in train last time so we will only have a few days window to avoid this.
We may be able to have the interest payment made still asap but that will require formal notification to Perpetual directing them to use funds in the interest reserve account to make the interest component of the payment. In order to use the funds in the interest reserve account we need to be acknowledging that we are in breach which failing to make the principal payment will effectively do.
Geoff - are you able to dig out the letter we sent to Perpetual in this regard for the interest payment last time?
I will circulate a draft of possible ASX announcement that we might use as an update on status of Shunkang transaction. I think the various issues we are dealing with (accounts and audit sign off and required communication to Perpetual and FIIG noteholders) we need to put some update out."
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[34] DGR then pleads that it accepted Armour's request by letter to the directors of Armour dated 28 September 2023, which read:31
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This letter is provided in connection to Armour Energy Limited ('Company') current debt obligations and the company's abilities to discharge their ongoing liabilities as they fall due and future trading intentions of the Company.
The Company has Secured Amortising Notes on issue ('FIIG Notes') in the amount of approximately $14.5 million as at the date of this letter. The FIIG Notes mature on 30 November 2023 and the Company has a principal and interest payment due [sic] (P&I Payment) currently due.
We confirm the Company has requested DGR Global Limited (ASX code: DGR, 'DGR Global') to provide funding to the Company sufficient to discharge the P&I Payment amount outstanding as soon as reasonably practicable.
The Company is in advanced negotiations with respect to a change of control transaction and, in the event that transaction proceeds, the Company's acquirer would make payment of amounts due under the FIIG Notes when they mature.
In the event that the advanced negotiations for the control transaction are not able to be closed the Company intends to seek an extension to the maturity date of the FIIG Notes. The Company has also requested DGR Global to provide
[90]
31 Affidavit of Mather (CFI 8 to 12), exhibit 'NM-01' at pages 1013 to 1014 (underlining added).
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funding to the Company sufficient to discharge any further payments that are required to be made by the Company to FIIG Noteholders as they fall due.
DGR Global have accepted these requests and confirm it will be enforced as needed until such time as the FIIG Notes are settled in full.
We confirm that DGR Global Limited will ensure it will, and is able to, provide this financial support for a period of at least 12 months from the date of the financial statements being authorized, or until the FIIG Notes are settled in full if that occurs earlier. This includes providing financial support up to a maximum limit of $17 million to ensure the company is able to discharge its liabilities in the ordinary course of business and provide the necessary funding to repay any and all debts due and payable.
The form of the financial support will be determined at the time of funding however nothing in this letter detracts from acknowledging that DGR acknowledges it is agreeing to fund and provide financial support for the FIIG Notes to Armour Energy Limited for any amount for a period of not less than 12 months from the date of the Company's 30 June 2023 financial statements being authorized, or until the FIIG Notes are settled if that occurs earlier.
We undertake to inform you immediately in the event that circumstances change but confirm that financial support will not be withdrawn until the Company above has discharged its obligations under the FIIG Notes without jeopardising its ability to continue as a going concern for a period of no less than 12 months from the date the Company's 30 June 2023 financial statements are authorised.
We confirm DGR Global Limited has no intentions to cease trading and deregister the Company for at least 12 months from the date of financial statements being authorised. Doing so would alter the basis for preparation of the 30 June 2023 financial statements.
As Managing Director and Chairman respectively, we warrant that we have authority to commit and provide this letter of financial support on behalf of DGR Global Limited."
[92]
[35] ADZ and the Receivers submit that the telephone conversation on 27 September 2023 and the email on 28 September 2023 refer only to the Notes payment due in on 29 September 2023, not to the payment of the whole of the secured debt payable in respect of the Notes. On that basis, they argue those communications are incapable of being construed as a request from Armour for DGR to repay the whole of the secured debt. They further submit that the letter of support from DGR dated 28 September 2023 is incapable of being construed as a binding acceptance of any request from Armour as it contains conditional language. They assert that the communications evince no more than an intention by DGR to lend unsecured funds to Armour to enable Armour to pay down the secured debt. Finally, they submit that the communications amounted to nothing more than steps taken to allow Armour Group's auditors to sign off on the group's financial statements for the year ended 30 June 2023 on a going concern basis (although any suggestion that the
[93]
communications constituted a sham was expressly disavowed at the hearing before me).32
[94]
[36] While the construction ADZ and the Receivers seek to place on the communications may ultimately prove to be correct, I am not persuaded that those communications are incapable of being construed as a request by Armour for DGR to pay the whole of the secured debt owed in respect of the Notes and DGR's commitment to honour that request. While the principal and interest payment due on 29 September 2023 appears to have been the immediate focus of both Armour and DGR at the time the communications occurred, the underlined parts of both Armour's email and DGR's letter of support (above) mean it is at least arguable that the parties were discussing a proposal for DGR to pay the whole of the secured debt. The construction which the Court ultimately gives to the communications is likely to be influenced by evidence going to the circumstances surrounding the exchange of communications. Likewise, DGR's intention in offering the financial support described in its letter of support ought be determined after considering evidence of matters such as the history of previous financial support offered by DGR, as referred to in Armour's email, and the circumstances surrounding the communications. These are reasons why the Subrogation Proceeding should be permitted to go to trial.
[95]
Subrogation where the Court considers it to be "just and equitable"
[96]
[37] This submission addresses a second basis on which DGR claims that, upon payment of the secured debt, it will be entitled to be subrogated to the rights of PT and Perpetual.
[38] In Owen v Tate,33 Scarman LJ stated:
[97]
"If without an antecedent request a person assumes an obligation or makes a payment for the benefit of another, the law will, as a general rule, refuse him a right of indemnity. But if he can show that in the particular circumstances of the case there was some necessity for the obligation to be assumed, then the law will grant him a right of reimbursement if in all the circumstances it is just and reasonable to do so."
[98]
[39] ADZ and the Receivers submit the phrase "some necessity for the obligation to be assumed" operates to limit the circumstances where subrogation will be available in the absence of a request by the debtor. That is, the conclusion by the Court that it would be "just and equitable" that the paying party assume the rights of the secured creditor does not provide a free-standing basis for the remedy of subrogation. Although that submission as to the state of the law might be accepted, I cannot accept the further argument that it is clear in the present case that there was no necessity for DGR to assume the obligation to pay the secured debt owed under the Notes. As the passage extracted above highlights, such a conclusion could only be reached after considering the particular circumstances of the case. That is a task which should be undertaken having regard to the evidence at trial, not on an application for summary dismissal.
[99]
Whether the declarations sought by DGR are hypothetical
[40] The primary declaration that DGR seeks in the Subrogation Proceeding is expressed as follows:34
[102]
"A declaration that upon payment by [DGR] to [PT] and [Perpetual] of the sum owing by [entities in the Armour Group] in an amount equal to the amount of the "Secured Money" (as that term is defined in the Security Trust Deed), [DGR] is entitled to:
(a) be subrogated to all rights of [PT] and [Perpetual] under the [various loan and security documents; and
(b) an assignment from [PT] of each of the [security documents]."
[103]
[41] Thus, the operation of the proposed declaration is conditioned on at least two events occurring in the future:
[104]
(a) the quantum of the debt must be ascertained (whether by agreement or order); and
(b) DGR must pay the amount of the debt as ascertained.
[105]
[42] ADZ and the Receivers further submit that, in circumstances where Armour is now in liquidation, it would be a matter for the liquidators whether to adopt any payment made by DGR so as to effect the discharge of the secured debt.
[43] I accept that there is a degree of uncertainty as to whether these future events will occur. However, I do not accept that it can presently be said that the prospects of these future events occurring are so uncertain as to deprive the controversy raised by the Subrogation Proceeding of sufficient immediacy and reality to warrant the making of a declaration. That is, I am not persuaded that DGR has no real, as opposed to fanciful, prospects of success in seeking to have the Court exercise its discretion in favour of making the declarations it seeks.
[44] The level of uncertainty about whether future events will occur, and the impact of that uncertainty on the utility of the declarations sought, will be relevant to the exercise of the discretion whether to make declarations. There might well be other considerations such as the assistance which a declaration might provide to DGR in raising capital to pay out the secured debt.35 It seems to me that identification of the relevant considerations, in the circumstances of the present case, should be undertaken by reference to the evidence at trial.
[106]
[45] It may be accepted that parties may contract on terms which exclude or modify what would otherwise be the entitlement to subrogation. In O'Day v Commercial Bank of Australia Ltd,36 Dixon J stated:
[107]
"The ordinary rights of a surety in respect of securities given by the principal debtor do not exist in the present case. Each of the instruments of suretyship
contains elaborate provisions which effectually disentitle the surety to any interest in, and to any rights in respect of, the security, whether by way of subrogation or otherwise."
[111]
"It is true that the surety is entitled to the benefit of all securities held by the creditor ... But the surety may by his contract give up this right."
[112]
[47] These passages make clear that for contractual terms to exclude or modify what would otherwise be an entitlement to subrogation those terms must bind the party which would otherwise be entitled to the remedy.
[48] In advancing this fifth argument as to why summary dismissal should be ordered, ADZ and the Receivers submit, in general terms without identifying specific provisions, that the Note Trust Deed and Security Trust Deed prescribe mechanics for adding new obligors or guarantors and DGR has never been added. Consequently, they argue, there is no contractual basis for DGR to repay the secured debt owing to Perpetual under the Note Trust arrangements or to be subrogated to the security. This submission repeats the argument that any payment by DGR would be a voluntary payment made without an express or implied request.
[49] I have already concluded that the argument as to the lack of any request is not a sufficient basis to summarily dismiss the Subrogation Proceeding. The lack of a contractual basis for DGR to repay the secured debt is not to the point here. That absence does not exclude or modify the availability of the equitable remedy of subrogation if the circumstances are ultimately found to justify it. Put another way, to say that DGR does not have an ability under the relevant contractual documents to pay the secured debt is not the same as DGR binding itself to terms of a contract which excludes the entitlement to subrogation that might otherwise exist.
[50] ADZ and the Receivers then refer to cl 5.2(b) of the form of Guarantee in Schedule 2 of the Note Trust Deed which provides:38
[113]
"As long as there is any Guaranteed Obligations (or any other amounts secured by any encumbrance that secures amounts including the Guaranteed Obligations), no Guarantor may, without the Note Trustee's consent:
[114]
(b) claim or exercise any right to claim, to be entitled (whether by way of subrogation or otherwise) to the benefit of another guarantee, indemnity (or another assurance against loss similar to a guarantee or indemnity) or Encumbrance"
[115]
[51] They argue that the effect of this clause is that even if DGR had been added as an obligor, and had an ability under the contractual documents to pay the secured debt, it would still require Perpetual's consent to take the benefit of any right of subrogation.
38 Affidavit of Mather (CFI 8 to 12), exhibit 'NM-01' at pages 333-334.
[118]
[52] This seems to be an argument raised against a case which DGR does not advance. It is no part of DGR's case that it is a party to the contractual arrangements relating to the Notes. DGR does not claim to be a Guarantor under those contractual arrangements. Nor does it claim that any payment it makes to discharge the secured debt would be made pursuant to those contractual arrangements. Nothing in the submissions satisfies me that DGR has bound itself to any contractual terms which would exclude an entitlement to subrogation which might otherwise be found to exist.
[119]
[53] For the reasons set out above, ADZ and the Receivers have not satisfied me that DGR has no real, as opposed to fanciful, prospects of success in the Subrogation Proceeding or that there is no need for a trial of that proceeding.
[54] The application for summary dismissal of the Subrogation Proceeding must be dismissed.
[120]
[55] ADZ and the Receivers rely on the same five reasons to submit that the pleaded case for subrogation, as currently framed, fails to disclose a reasonable of action. For the reasons I have given for dismissing the application for summary dismissal, I do not accept that submission. Subject to one matter addressed below, the application to strike out the pleading of the claim for subrogation in its entirety should also be dismissed.
[56] An issue emerged at the hearing as to whether DGR had sufficiently pleaded material facts necessary to support its claim to declarations that it be subrogated to the rights of ADZ under securities granted in respect of funds lent by ADZ.39 DGR's response to this issue being raised was to indicate that it would not press for the inclusion of those parts of the relief in the draft consolidated pleading. Consequently, DGR's application for leave to consolidate the proceedings and to amend its statement of claim should be determined consistently with that indication.
[57] I now turn to the various aspects of that application.
[121]
Consolidation of the Subrogation Proceeding and the Validity Proceeding
[122]
[58] Pursuant to r 78 of the UCPR, the Court may order that two proceedings be consolidated if the same, or substantially the same, question is involved in both proceedings, or the decision in one proceeding will decide or affect the other proceeding. If the relationship between the proceedings meets either of those descriptions then the discretion to consolidate will arise.40
[59] The object of consolidation is to have one court determine both proceedings to avoid the possibility of different findings one the same issues of fact considered in separate proceedings. It has been said that, as a general principle, proceedings will be consolidated if the claims properly made in different actions could have been made
[123]
39 Draft consolidated pleading, paragraphs 60 to 62; Transcript 1-36:23 to 1-39:43.
in the one proceeding and the parties to the separate actions will not suffer prejudice by reason of the consolidation.41
[126]
[60] I am satisfied that both the Subrogation Proceeding and the Validity Proceeding involve substantially the same questions arising from the parties' dealings concerning the proposal by Shunkang to acquire the shares in Armour and repay the secured debt and the claim that Shunkang and ADZ subsequently formulated and implemented a plan to take control of the valuable assets of the Armour Group by acquiring the Notes and taking enforcement action under the securities. For that reason, I am satisfied that the discretion to consolidate the Subrogation Proceeding and the Validity Proceeding has arisen.
[61] As to matters relevant to the exercise of that discretion, the parties to both the Subrogation Proceeding and the Validity Proceeding are the same and it is likely that substantially similar evidence would be led in both proceedings. The respondents in both proceedings do not oppose the making of a consolidation order and, consistently with that position, have not identified any prejudice they would suffer if the order was made. In these circumstances, I am also satisfied that it is appropriate to exercise the discretion in favour of making an order consolidating the two proceedings. I am also satisfied that it is appropriate to direct that any costs incurred to date in the Subrogation Proceeding and the Validity Proceeding be the parties' respective costs in the consolidated proceeding.42
[127]
Leave to amend to plead claims under the ACL against ADZ
[128]
[62] The discretion to grant leave to DGR to amend is conferred by r 375 of the UCPR. Leave to amend the originating application to include claims under the ACL is also required by r 377(1)(c). The principles which inform the exercise of the discretion to grant leave to amend under those rules were discussed by Applegarth J in Hartnett v Hynes.43 The relevant factors include:
[129]
(a) the explanation for the amendment;
(b) the prejudice caused to other parties, other litigants and the Court if the amendment is allowed; and
(c) the point the litigation has reached relative to a trial when the application to amend is made.
[130]
[63] It will also generally not be appropriate to grant leave to amend to add new causes of action if those proposed causes of action are shown to be untenable44 or to have such poor prospects of success that a grant of leave would not be consistent with the overarching purpose of the UCPR, being the just and expeditious resolution of the real issue in dispute in civil proceedings.
[131]
41 Pacific Century Productions Pty Ltd v Taylors Contracting Services[2003] QSC 289, [24]-[25].
44 For example, see the contrasting discussion in Body Corporate for Sun City Resort CTS 24674 v Sunland Constructions Pty Ltd[2011] QSC 42, [54] and [64]; Platinum United II Pty Ltd v Secured Mortgage Management Ltd (in liq)[2012] QSC 30, [27], [29], [30], [31], [34].
[134]
[64] ADZ and the Receivers submit that deficiencies in the pleading of the proposed claims under the ACL against ADZ meant that those claims are untenable. To assess that submission it is first necessary to set out the basis of the proposed claims against ADZ under the ACL.
[65] The proposed amendments plead a misleading and deceptive conduct case against ADZ which has two limbs.
[66] The first limb is that, by identified conduct (which is to be understood in light of particular circumstances), ADZ represented to DGR and Armour that:45
[135]
(a) ADZ is an associated entity of Shunkang;
(b) ADZ would acquire the Notes as part of Shunkang's proposal to acquire the shares in Armour and pay out Armour's secured debt (or an equivalent acquisition with ADZ as purchaser); and
(c) upon the acquisition of the Notes, ADZ would extend the date for payment by Armour until after the completion of Shunkang's acquisition of the shares in Armour (or an equivalent acquisition with ADZ as purchaser).
[136]
[67] The representation is alleged to have been made expressly or impliedly by the following conduct on ADZ's part:
[137]
(a) informing FIIG, on or before 30 October 2023 for the purpose of notifying note holders of ADZ's offer to acquire the Notes, to the effect that ADZ's preference as acquirer of the Notes was to take no enforcement action in respect of Armour's default in making the payment due under the Notes on 29 September 2023 and, further, that ADZ's intention was to vote in accordance with that preference at the beneficiaries' meeting to be held on 7 November 2023;46
(b) informing FIIG, by no later than 31 October 2023, that it was the bidder for the Notes, and an associate of Shunkang, and instructing FIIG to disclose those facts to DGR.47
[138]
[68] That ADZ engaged in this conduct is said to be inferred from the content of emails sent by a representative of FIIG. Relevantly, that ADZ engaged in the conduct described in [67](a) above is said to be inferred from a statement in an email sent by Mr Kingsley of FIIG to all noteholders on 30 October 2023 that "the acquirer has indicated their preference is to vote no action."
[69] The circumstances against which the conduct is said to give rise to the pleaded representation are:
[139]
(a) Shunkang's initial approach in relation to the acquisition of an interest in Armour and the making of non-binding offers;48
[140]
48 Draft consolidated pleading, paragraphs 16 to 19.
[141]
(b) the making of a non-binding indicative offer by Shunkang on 30 September 2023 and subsequent negotiations leading to an agreement in principle for Shunkang to acquire 100% of the shares of Armour on terms which would include the purchase of the Notes by Shankung (or a related entity) and the provision of funding by Shunkang to permit Armour to redeem or repay the full amount owed under the Notes;49
(c) Shunkang's request to Armour by email dated 16 October 2023 for contact details of the account manager at FIIG so Shunkang could discuss the process for purchasing the Notes;50
(d) emails sent by Shunkang's agent on 17 October 2023 indicating that, if Shunkang did not provide funding to Armour for it to redeem the Notes, it (or its related entity) was likely to agree to extend the date for repayment of the Notes until after Shunkang's acquisition of the shares in Armour was completed.51
[142]
[70] The alleged representation is said to have been misleading or deceptive in circumstances where, from 26 October 2023:52
[143]
(a) ADZ knew that Shunkang did not intend to proceed with its proposal to acquire the shares in Armour and repay the secured debt and ADZ did not itself intend to proceed as acquirer under a similar acquisition but intended instead to acquire the Notes and take enforcement action through the appointment of receivers and voluntary administrators to the companies in the Armour Group and, thereafter, to acquire the valuable assets of the Armour Group through the receiverships or voluntary administrations;
(b) by taking action connected with the appointment of receivers and voluntary administrators, ADZ sought to prevent Armour from having a sufficient opportunity of making the payment due under the Notes on 29 September 2023 or the full amount of the secured debt.
[144]
[71] The second limb of the proposed claim against ADZ for misleading and deceptive conduct is one of misrepresentation by silence.53 It arises from ADZ's failure to inform Armour or DGR of the existence of, or its intention in relation to, the alleged plan to acquire the Notes and take steps to enforce the securities through the appointment of receivers and voluntary administrators to the companies in the Armour Group in circumstances which gave rise to a reasonable expectation, from 26 October 2023, that ADZ would inform Armour and DGR that:
[145]
(a) that the earlier proposal for the acquisition of the shares in Armour, and repayment of the secured debt, by Shunkang (or ADZ) would not be proceeding; and/or
(b) that ADZ or Shunkang was instead intending to acquire the Armour Group, or some or all of the assets of the Armour Group, through the acquisition of the
[146]
49 Draft consolidated pleading, paragraphs 21 to 24.
[147]
51 Draft consolidated pleading, paragraphs 28 to 30.
[148]
52 Draft consolidated pleading, paragraphs 51T to 51V.
[149]
53 Draft consolidated pleading, paragraphs 51W to 51Y.
[150]
Notes and enforcement of the securities or, alternatively, through some means other that the earlier proposal for Shunkang or ADZ to acquire the shares in Armour and pay the secured debt.
[151]
[72] The circumstances said to give rise to a reasonable expectation of disclosure are those identified in [69] above as well as the fact that, by reason of Mr Liu and Mr He being directors of both Shunkang and ADZ, at the time of its incorporation ADZ is imputed to have the knowledge of the pleaded events and communications involving Shunkang, including the formulation of the plan to acquire the valuable assets of the Armour Group by purchasing the notes and taking enforcement action in respect of Armour's default in making the payment due under the Notes on 29 September 2023.54
[73] ADZ and the Receivers submit that the first limb of the misleading and deceptive conduct claim is untenable because:
[152]
(a) the email from FIIG stating that ADZ had indicated its preference was to vote no action be taken with respect to Armour's default in making the payment due under the Notes on 29 September 2023 (see [68] above) could not be understood as carrying the meaning required to support a representation that ADZ "would" (not preferred or intended to) extend the date for payment by Armour until after the completion of Shunkang's acquisition of the shares in Armour (or an equivalent acquisition with ADZ as purchaser);
(b) the conduct relied upon to constitute the representation was conduct on the part of FIIG (sending the email), not ADZ, and no material facts are pleaded which support an allegation that ADZ could be made liable for a representation by FIIG.
[153]
[74] I am not satisfied that either of these matters establish that the first limb of the misleading and deceptive conduct claim is untenable or has such poor prospects of success that I should exercise my discretion against granting leave to DGR to amend. The sending of the email by FIIG is not the conduct from which the representation is said to arise. The second issue raised by ADZ and the Receivers mischaracterises the effect of the proposed amendments. In these circumstances, it is not necessary for DGR to establish that FIIG's email carried the same meaning as the alleged representation. Nor is it necessary for DGR to plead material facts which would make ADZ liable from a representation by FIIG, rather than a representation arising from its own alleged conduct.
[75] The FIIG email is pleaded as the basis from which it is to be inferred that ADZ engaged in conduct which gave rise to the representation (see [67]-[69] above). ADZ and the Receivers may ultimately succeed in arguing that the FIIG email does not support an inference that ADZ conducted itself in the manner from which the representation is said to arise, or that the inferred conduct does not give rise to the alleged representation. However, I am not persuaded that either of those outcomes is so clear at this stage as to warrant refusing leave to amend.
[76] As to the second limb of the misleading and deceptive conduct claim, ADZ and the Receivers submit that DGR does not plead the existence of circumstances which are
[154]
capable of giving rise to a reasonable expectation that ADZ would inform Armour and DGR of the matters referred to in [71] above. For example, DGR does not plead that ADZ was subject to duty of disclosure at law or in equity, that a statement conveying only a half-truth had been made, that ADZ had undertaken a duty to advise Armour or DGR, or that ADZ had made a representation with continuing effect which, although initially correct, had subsequently become incorrect.55
[155]
[77] Importantly, in identifying the material facts giving rise to the reasonable expectation of disclosure, DGR's proposed pleading does not refer to ADZ's conduct said to give rise to the representation, the representation itself or ADZ's knowledge of or involvement in the formulation and implementation of the plan to acquire the valuable assets of the Armour Group by purchasing the Notes and taking enforcement action under the securities. There is force in the submission that, without reference to these additional material facts, it is unlikely that DGR would establish that a reasonable expectation of disclosure existed. However, that matter could be addressed by including those facts, already pleaded in the draft consolidated pleading, as part of the material facts alleged to have given rise to the reasonable expectation of disclosure. On the basis that is done, I am not satisfied that the second limb of the proposed misleading and deceptive conduct claim against ADZ is untenable or has such poor prospects that I should refuse to grant leave to amend.
[78] ADZ and the Receivers also point to what they characterise as specific failures in the pleading of the proposed misleading and deceptive conduct claim to comply with the rules of pleading set out in the UCPR.
[79] First, they submit that the allegation in paragraph 51S of the draft consolidated pleading that the representation arose "against the circumstances pleaded in paragraphs 16 to 19, 21 to 24, 26 and 28 to 30" (see [69] above) is opaque and has the potential for unfairness where it is not clear whether the conduct the subject of those paragraphs is also relied upon to inform the content of the representation. It was made clear during oral submissions that DGR relies upon an assessment of the alleged conduct in all the relevant circumstances to establish that the conduct gave rise to the representation.56 That position is consistent with a step in the assessment whether a person has contravened s 18 of the ACL, being to consider what meaning the alleged conduct conveyed, judged by reference to the context in which that conduct occurred.57 I do not accept that it is unfair for DGR to refer in paragraph 51S to other paragraphs which plead facts upon which it relies as the context in which the meaning of the alleged conduct is to be determined. However, it appeared from DGR's oral submissions that the facts it relies upon as forming the context against which the meaning of the alleged conduct is to be assessed extends beyond those paragraphs presently identified in paragraph 51S.58 If that is the case, all of the additional paragraphs pleading relevant contextual facts should be identified in paragraph 51S before the amendments are finalised and filed.
[156]
55 Addenbrooke Pty Ltd v Duncan (No 2) (2017) 348 ALR 1, 119 [482].
without a sufficient pleading of the facts from which such conditions of mind should be inferred as required by rr 149(1)(b), 150(k) and 150(2) of the UCPR. In response, DGR submits that its pleading, in paragraph 35A, that ADZ had imputed to it knowledge of matters involving Shunkang based upon Mr Liu and Mr He being directors of both companies, makes it obvious that the conditions of mind pleaded in paragraphs 51T and 51X were held by those two directors. Further, DGR submits that the facts from which the existence of those various conditions of mind have already been pleaded; for example, the formulation and implementation of the plan to acquire the valuable assets of the Armour Group by purchasing the Notes and taking enforcement action under the securities. I accept that the facts which DGR relies upon to establish the existence of the conditions of mind described in paragraphs 51T and 51X have been pleaded in other parts of the draft consolidated pleading. Nevertheless, ADZ and the Receivers should not have to guess what pleaded facts DGR relies upon in that context. Accordingly, the persons alleged to have held the conditions of mind and the paragraphs pleading the facts DGR relies upon to establish the existence of those conditions of mind should be identified in paragraphs 51T and 51X before the amendments are finalised and filed.
[159]
[81] In summary, I am not satisfied that any of the complaints which ADZ and the Receivers make about the form in which the proposed misleading and deceptive conduct claim has been pleaded justify a refusal to grant leave to amend to bring the proposed claim as part of the consolidated proceeding. I also do not consider that any other discretionary consideration would justify such a refusal.
[82] Finally, I note that the submissions of ADZ and the Receivers did not address the claim pleaded in paragraph 51AQ of the draft consolidated pleading that ADZ engaged in unconscionable conduct in contravention of ss 20 and 21 of the ACL. Assuming that DGR can prove the material facts it has pleaded as the basis for that claim, I can see no reason to conclude that the proposed claim is untenable or has such poor prospects of success that I should refuse leave to amend to plead that further claim against ADZ. Further, in circumstances where the proposed claim for unconscionable conduct is based upon the same facts relied on in the misleading and deceptive conduct claim, I do not consider that any other discretionary consideration would justify such a refusal.
[83] Subject to the matters identified in [79] and [80] above being attended to, I will grant DGR leave to amend to include the proposed ACL claims against ADZ in the consolidated proceeding.
[160]
Leave to amend to plead a claim under the ACL against PT
[161]
[84] In summary, the substance of the proposed claim against PT for misleading and deceptive conduct is that:
[162]
(a) by informing DGR that the beneficiaries' meeting would be adjourned from 7 November 2023 to 14 November 2023 and that documents for the adjourned meeting would be forwarded to interested parties, PT represented to DGR and Armour that:
(i) there would be a further beneficiaries' meeting on 14 November 2023;
(ii) prior to the further meeting, PT would circulate documents to DGR;
(iii) in the meantime, no enforcement steps would be taken against Armour;
(b) the representation was misleading and deceptive in circumstances where, from at least 6 November 2023, PT knew that ADZ (as acquirer of the Notes) did not intend to extend the time for payment due under the Notes and instead intended to enforce the Notes without a further beneficiaries' meeting and without giving Armour sufficient time to make the payment due under the Notes on 29 September 2023.
[163]
[85] Given the position which PT and Perpetual took on DGR's application (see [11] above), I do not consider that it is appropriate for me to give any detailed consideration at this juncture to the viability of otherwise of the proposed ACL claim against PT.
[86] Having neither consented to nor opposed the grant of leave to amend, PT and Perpetual have not identified any deficiency in the proposed ACL claim or any other discretionary consideration which would justify a refusal of leave to amend. In those circumstances, and where I have concluded that DGR should have leave to amend to plead ACL claims against ADZ, I consider that the most efficient course is to grant DGR leave to amend to include the proposed ACL claim against PT in the consolidated proceeding, rather than deferring a decision on that issue until PT's legal representatives have had sufficient time to reach a position on the question whether that proposed claim pleads a viable cause of action. The grant of leave to amend in those circumstances will not preclude PT from taking whatever further steps it may be advised to take if its legal representatives ultimately form the view that the proposed ACL claim does not disclose a reasonable cause of action.
[164]
[87] Pursuant to r 69 of the UCPR, the Court may order that a person be included as a party to the proceeding if that person's presence before the Court is necessary, or would be desirable, just and convenient, to enable the Court to adjudicate effectually and completely on all matters in dispute.
[88] DGR applies to join Baker & McKenzie to the consolidated proceeding so it can pursue a claim against the firm for knowing involvement in Shunkang's contravention of s 18 of the ACL (see further below). In those circumstances, I am satisfied that Baker & McKenzie's presence before the Court is both necessary, and would be desirable, just and convenient, to enable the Court to adjudicate effectually and completely on all matters in dispute.
[89] Having neither consented to nor opposed an order for joinder (see [12] above), Baker & McKenzie has not identified any discretionary consideration which would justify a refusal to make that order. In those circumstances, I consider that it is appropriate to order that Baker & McKenzie be joined as a respondent to the consolidated proceeding. Further, for the same reasons I have set out in addressing the question of leave to amend to include the ACL claim against PT, I consider that the most efficient course is to grant DGR leave to amend to plead a claim against Baker & McKenzie for knowing involvement in Shunkang's contravention of s 18 of the ACL. This grant of leave will not preclude Baker & McKenzie from taking whatever further steps it may be advised to take if its legal representatives ultimately form the view that the
[165]
proposed claim for knowing involvement in Shunkang's contravention of s 18 of the ACL does not disclose a reasonable cause of action.
[166]
[90] Subject to the service issue referred to in [13] above, the result of the application to join Shunkang as a respondent to the consolidated proceeding and for leave to amend to plead claims against Shunkang for contraventions of the ACL should be the same as I have reached in relation to Baker & McKenzie.
[91] On 22 April 2024, Hindman J made orders:59
[167]
(a) granting leave to DGR pursuant to r 129C of the UCPR to serve documents filed in the Subrogation Proceeding, including DGR's Application and the affidavit material relied upon in support of that application, outside Australia on Shunkang (a company incorporated in the People's Republic of China);
(b) providing for those documents to be served on Shunkang by way of substituted service pursuant to r 116 of the UCPR.
[168]
[92] Substituted service was to be effected by:
[169]
(a) sending the documents by email (as PDF attachments and by making them available to be downloaded from a link to a document exchange) to specified email addresses; and
(b) delivering a hard copy of the documents to each of four addresses, being:
(i) the registered office of ADZ in Sydney (being the offices of Baker & McKenzie);
(ii) an address in Victoria, recorded as Mr He's address in a company search of ADZ;
(iii) an address in New South Wales, recorded as Mr Liu's address in a company search of ADZ;
(iv) an alternative address in Victoria, listed as Mr He's address on a confidentiality agreement executed by Mr He.
[170]
[93] DGR accepts that service was not effected strictly in accordance with the orders made by Hindman J. A copy of DGR's Application was included as a PDF attachment to the emails sent pursuant to the orders, but copies of the supporting affidavits were not due to their size.
[94] Nevertheless, copies of all the documents to be served pursuant to the orders were made available to be downloaded from a link to a document exchange included in the body of the emails sent pursuant to the orders. Further, a hard copy of the documents was delivered to each of the four addresses referred to above.
[171]
59 Court document 57 in the Subrogation Proceeding.
[172]
[95] A process server deposed that, when he attended the address in Victoria, recorded as Mr He's address in a company search of ADZ, he was met by two men who, after he explained that he had legal documents to deliver to Shunkang, confirmed that he was at the correct address. The process server passed the hard copy of the documents to one of the men who, when asked who the process server could say he had left the documents with, responded "Zilhong He". I infer from that response that if the man to whom the documents were handed was not Mr He himself, that those documents would have been brought to the attention of Mr He.
[96] These matters are relevant because r 70(2) provides that, unless the Court orders otherwise, an application to include a person as a respondent must be served on all existing parties and on the person. DGR's failure to send copies of the supporting affidavits as PDF attachments to the emails sent pursuant to the orders means that Shunkang was not served strictly in accordance with the terms of the orders of Hindman J. DGR seeks to address this issue by an order that service of DGR's Application is not required to be effected by sending the documents as PDF attachments to the emails.
[97] Having regard to the matters referred to in [94] and [95] above, as well as material which DGR relied on to demonstrate that Mr He was a director of ADZ (which appeared and made submissions at the hearing of DGR's Application) as well as Shunkang, I am satisfied that the steps taken to serve Shunkang pursuant to the orders of Hindman J were sufficient to notify Shunkang of the date DGR's Application would be heard. I consider it is appropriate to make the order now sought by DGR to address the issue with service.
[98] Having reached that position, I am satisfied that Shunkang's presence before the Court is both necessary, and would be desirable, just and convenient, to enable the Court to adjudicate effectually and completely on all matters in dispute in circumstances where DGR seeks to join Shunkang as a respondent to pursue claims against it for misleading and deceptive conduct and for unconscionable conduct in contravention of the ACL.
[99] I consider that it is appropriate to order that Shunkang be joined as a respondent to the consolidated proceeding. Further, for the same reasons I have set out in addressing the question of leave to amend to include ACL claims against PT and Baker & McKenzie, I consider that the most efficient course is to grant DGR leave to amend to plead claims against Shunkang for misleading and deceptive conduct and for unconscionable conduct in contravention of the ACL. This grant of leave will not preclude Shunkang from taking whatever further steps it may be advised to take if lawyers it engages to represent it in the consolidated proceeding form the view that the proposed claims for contravention of the ACL do not disclose a reasonable cause of action.
[173]
[100] Both DGR and ADZ/the Receivers submitted that costs should be ordered on the usual basis that costs follow the event on each of the Summary Dismissal Application and DGR's Application. I agree with those submissions. I cannot see any reason why, in circumstances where DGR has been substantially successful on both applications it should not have its costs paid by ADZ and the Receivers on the standard basis.
[101] I will make no order as to costs between DGR and PT/Perpetual in respect of either the Summary Dismissal Application or DGR's Application.
[102] The orders will be:
The application dated 22 March 2024 brought by the third and fourth respondents in proceeding BS15575 of 2023 is dismissed.
The third and fourth respondents pay the applicant's costs of and incidental to the application referred to in order 1, to be assessed on the standard basis if not agreed.
Pursuant to rule 78 of the UCPR, proceeding BS15575 of 2023 and proceeding BS16263 of 2023 be consolidated.
Pursuant to rule 80 of the UCPR, any costs incurred to date in proceeding BS15575 of 2023 and in proceeding BS16263 of 2023 be the parties' respective costs in the consolidated proceeding.
The consolidated proceeding be placed on the Commercial List and allocated to Hindman J.
Pursuant to rule 69 of the UCPR:
Shunkang Holding Group Co. Ltd be joined as fifth respondent to the consolidated proceeding;
Baker & McKenzie (a firm) be joined as sixth respondent to the consolidated proceeding.
Pursuant to rule 70(2) of the UCPR, service of the application dated 22 March 2024 brought by the applicant in proceeding BS15575 of 2023, as provided for in the orders for substituted service made by Hindman J on 22 April 2024, is not required to be effected by sending the documents described in the orders for substituted service by means of emailing those documents as PDF attachments.
Pursuant to rules 375 and 377 of the UCPR, the applicant be granted leave in the consolidated proceeding to file:
a claim in a form reflecting the relief sought in paragraphs 54 to 59 and 63 to 65 of the amended statement of claim at exhibit JML-1 to the affidavit of James Matthew Lord filed on 22 March 2024; and
[174]
There be no order as to costs as between the applicant and the first and second respondent with respect to either of the applications dated 22 March 2024.
Parties
Applicant/Plaintiff:
DGR Global Ltd
Respondent/Defendant:
P.T. Limited as trustee of the Armour Energy Security Trust [2024] QSC 90
Legislation Cited (1)
Civil Procedure Rules 1999
Cases Cited (14)
(2017) 348 ALR 1
(1992) 175 CLR 564
(1999) 198 CLR 334
(2010) 190 FCR 474
(2008) 102 SASR 582
(1933) 50 CLR 200
(1978) 31 FLR 314
(2023) 97 ALJR 388
(1960) 104 CLR 394
(1964) 112
CLR 125
(2000) 201 CLR 552
(2006) 226 CLR 256
(1972) 126 CLR 507
(1949) 78 CLR 62
alleged to give rise to the representation; the representation itself; or the fourth respondent's knowledge of or involvement in the formulation and implementation of the plan to acquire Armour Group - where the applicant also seeks leave to amend to plead a claim for misleading and deceptive conduct against the first respondent - where the first and second respondents do not consent nor oppose the grant of leave to amend and where those parties have not identified any deficiency in the proposed claim - whether leave to amend should be granted
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JOINDER OF CAUSES OF ACTIONS AND OF PARTIES - PARTIES - GENERALLY
[80] Secondly, ADZ and the Receivers submit that paragraphs 51T and 51X of the draft consolidated pleading refer to various conditions of mind - ADZ's knowledge of certain facts, both ADZ's and Shunkang's intentions concerning certain matters -
an amended statement of claim substantially in the form of exhibit JML- 1 to the affidavit of James Matthew Lord filed on 22 March 2024, with such further amendments as the applicant may be advised to make to address the matters referred to in paragraphs [79] and [80] of the reasons for judgment delivered on 17 May 2024.