Excel Texel Pty Ltd v Wilson

In the Excel Texel Proceeding: 8. Order 1(a) of the Orders dated 2 November 2022 (November Orders) be varied such that the applicants provide tranche 1 of further security for the respondent's costs by 16 January 2023. 9. If security is not provided in accordance with Order 1 of the November Orders as amended by Order 8 of these Orders, the proceeding as against the respondent be stayed until such security is paid.

In the Davis Proceeding: 10. By 4pm on 23 December 2022, the third respondent file and serve its amended defence to the third further amended statement of claim.

In the Excel Texel and Davis Proceedings: 11. After the delivery of judgment in Australian Securities and Investments Commission v Wilson, the Chambers of the Judge hearing the initial trial will contact the parties concerning a hearing date in the event of an unsuccessful further mediation.

In the Davis Proceeding: 12. Notwithstanding [19] of the Davis Notice (as defined in Order 16 of the June Orders), the applicants do not intend to seek an order that group members who had not registered by 5 August 2022 (before the mediation that occurred in October 2022) will be bound by any judgment or settlement agreement but will not be entitled to any share of any monetary compensation gained from any settlement occurring before four weeks prior to the first date of the final hearing. 13. The applicants intend to include group members who registered after 5 August 2022 as group members who will share in any monetary compensation gained from a settlement or judgment. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

(Delivered ex tempore, revised from the transcript)

A INTRODUCTION 1 A contemporary established phenomenon in securities class actions, evident from a review of cases currently before the Court, is the prevalence of matters in which a regulator has commenced a civil penalty proceeding and an applicant has sought relief in a class action proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCAA), arising out of the same underlying factual substratum: see Webb v GetSwift Limited (No 5) [2019] FCA 1533; Perera v GetSwift Limited [2018] FCA 732; (2018) 263 FCR 1 (at 9-18 [10]-[37]). This case is yet another example of this phenomenon and the issues it causes for the efficient management and disposal of the business of the Court. 2 The two proceedings were listed today, the last business day before Christmas, for a case management hearing to ensure all steps have been taken to ready the matter for hearing, which is presently scheduled to commence on 13 February 2023. The first proceeding, NSD 1983 of 2017 (Excel Texel Proceeding), is a securities class action with a closed class that overlaps with the second proceeding, NSD 862 of 2018 (Davis Proceeding), which is an open class action. 3 When in August 2021 the proceedings were provisionally listed for a hearing commencing in February 2023, the parties did not raise any issue as to the potential impact that the civil penalty proceeding brought by the Australian Securities and Investments Commission (ASIC) against the defendant, Mr Frank Wilson (ASIC Proceeding) would have on those dates. This was because the expectation was that the judgment in the ASIC Proceeding would be delivered in 2022. The evidence now before the Court, however, is that it is not anticipated that delivery of judgment in the ASIC Proceeding will occur until April 2023: see affidavit of Mr Alan Frank Mizen sworn on 15 December 2022.

B PROCEDURAL BACKGROUND 4 The proceedings have a long procedural history. 5 The matter first came before me in 2019, after the class actions and the ASIC Proceeding were reallocated to my docket. At that time, I indicated to the parties that it was my intention to list the hearings sequentially, such that upon hearing all the evidence in the ASIC Proceeding and reserving judgment, the class actions would be called on for hearing, and then all proceedings would be determined together on the evidence adduced in each proceeding. 6 This approach to case managing the proceedings seemed appropriate, not least because it would have allowed the proceedings to be heard with alacrity in accordance with the overarching purpose. Not to be overlooked, of course, is the fact that this would have also spared the vexation of two judges having to familiarise themselves with similar material and avoided the possibility of inconsistent findings. 7 Although the proceedings initially progressed on this understanding, it was not long before ASIC sought that the ASIC Proceeding be heard separately from the class actions. One of the reasons advanced was the likely need to make fact and credibility findings with respect to witnesses common to the ASIC Proceeding and the class actions against different evidentiary backgrounds, which was said could possibly give rise to a reasonable apprehension of bias by the lay observer. At the time, and as I later observed in Webb v GetSwift Limited (No 6) [2020] FCA 1292 (at [25]), it seemed to me that submissions of this kind are based on a degree of supposition that ought yield to the ability of a judge to discard the irrelevant, the immaterial and the prejudicial. This was, of course, prior to the Full Court's decision in GetSwift Limited v Webb [2021] FCAFC 26; (2021) 283 FCR 328. 8 In any event, it was ultimately unnecessary to determine any issue as to apprehended bias in this case. That was because the class actions had progressed more slowly than I had anticipated or wished, such that hearing the proceedings together would have, it seemed to me at the time, unduly delayed the progress of the ASIC Proceeding. 9 One of the primary reasons for delay was the commencement of derivative proceedings concerning the rectification of insurance policies held by Quintis (Derivative Proceedings), which ultimately meant that the class actions were stayed pending the determination of the Derivative Proceedings and subsequent appeals, which did not occur until 19 May 2022: see Argo Managing Agency Ltd for and on behalf of the underwriting members of Lloyd's Syndicate 1200 v Quintis Ltd (subject to deed of company arrangement) [2022] FCAFC 86. 10 Accordingly, on 9 April 2020, the ASIC Proceeding was reallocated to another judge of the Court for case management and final determination. That proceeding was heard over 13 days in August and October 2021. As noted above, at that time, I made orders in the class actions provisionally listing the proceedings for a six-week final hearing in February 2023. 11 On 1 December 2022, I directed my Associate to write to the parties as follows: As you are aware, the listing of the above matters (on 5 August 2021) for hearing in February 2023 was made when it was anticipated that judgment would have been delivered in proceeding WAD259/2018 ASIC v Wilson, which was reserved on 20 October 2021. It appears there is a realistic prospect that judgment in the ASIC proceeding will not be available by the time of the scheduled commencement of the hearing of the class actions (with the consequence that there will be uncertainty as to the factual findings binding on, or relevant to the position of, Mr Wilson). His Honour invites written submissions by the parties within seven days of today on the questions as to whether the hearing the class actions should be deferred until after delivery of judgment in the ASIC proceeding (in the event judgment is not delivered in the ASIC proceeding this year). His Honour would then proceed to deal with the matter on the papers (however, if any party particularly requires to be heard orally, they should indicate that request in the written submissions). For a variety of reasons it is preferable to obtain clarity in relation to this matter sooner rather than later (and no later than a couple of weeks prior to the end of this term) so that other cases can be fixed and then heard by his Honour during this period, and practitioners and witnesses may obtain clarity as to their commitments. 12 There was no consensus between the parties as to the course to be taken in the event judgment in the ASIC Proceeding was not delivered before the end of the year. The parties wished to be heard. The first available time to relist the matter suitable to counsel was today.

C THE PARTIES' CONTENTIONS 13 In broad summary, Mr Wilson contends the hearing dates should be vacated on two bases. 14 First, Mr Wilson has claimed privilege against exposure to civil penalties, to the extent not already waived by his participation in the ASIC Proceeding or by his defence and evidence in the class actions. Mr Wilson submits that, if the Excel Texel Proceeding proceeds to trial before delivery of judgment in the ASIC Proceeding, Mr Wilson will face the prospect that ASIC may seek to re-open its case to admit evidence arising from the class actions or otherwise seek to re-call Mr Wilson for cross-examination: see, for example, Frigger v Trenfield (No 7) [2020] FCA 1740 (at [21]-[25] per Jackson J). This prospect, it is said, undermines Mr Wilson's right to privilege in the ASIC Proceeding and to elect whether to go into evidence. 15 Secondly, as an exception to the general principle in s 91 of the Evidence Act 1995 (Cth), any declarations of contravention as a result of the ASIC Proceeding will be conclusive evidence of the stated conduct pursuant to s 1317F of the Corporations Act 2001 (Cth) (Corporations Act) in other proceedings. It is not in dispute that any declaration in the ASIC Proceeding may well impact the conduct of, and the evidence to be led at, the hearing in the class actions. 16 By way of a broad summary, the applicants contend that, notwithstanding the likelihood that judgment in the ASIC Proceeding will not be delivered before trial, this does not cause any additional prejudice to Mr Wilson. In the light of the long procedural history of the matter, they submit that priority should be given to finalising the proceedings as soon as possible. The Excel Texel applicants go so far as to say that the conclusive effect of s 1317F is essentially a matter for them, and they wish to proceed without the potential benefit of any declaration of contravention. 17 EY, the third respondent in the Davis Proceeding, submitted that it is "likely to be preferable" for the parties to have the benefit of judgment in the ASIC Proceeding before the hearing of the two class actions, but raised concerns as to the possibility of the hearing being deferred for an extended period of time. 18 I will return to the consideration of the strength of these submissions below, but before doing that, I should say something about the issues in the proceedings and the likely overlap between them.

D GENERAL OBSERVATIONS CONCERNING THE PROCEEDINGS 19 Mr Wilson was a managing director of Quintis, a company that operated an agricultural managed investment scheme, which oversaw Indian Sandalwood plantations and operated a sandalwood oil distillation facility. Quintis was listed on the Australian Securities Exchange (ASX) and had continuous disclosure obligations pursuant to s 674 of the Corporations Act and the ASX Listing Rules. 20 Quintis' business included the supply of pharmaceutical-grade sandalwood oil. On 20 February 2014, Santalis Pharmaceuticals Inc (Santalis), a United States subsidiary of Quintis, entered into licence and supply agreements with Galderma SA (Galderma) (a subsidiary of Nestlé) for, among other things, the sale of sandalwood oil to Galderma over a 20-year period (Galderma Agreements). On 16 December 2016, Santalis and Galderma entered into an agreement terminating the Galderma Agreements (Termination Agreement). 21 The extent of the commonality in the contested substratum of fact can readily be seen from the pleadings. By way of a broad overview, ASIC alleges that Mr Wilson knew that Galderma wanted to terminate the supply agreement from December 2016, and was subsequently made aware of the execution of the Termination Agreement by February 2017, but did not inform the other members of Quintis' board of directors. ASIC also alleged that, on 6 June 2017, Mr Wilson authorised and approved a market announcement about the Galderma Agreements that was potentially misleading or deceptive. It is said that the other members of Quintis' board of directors did not find out about the Termination Agreement until May 2017, soon after which a market announcement was made disclosing the Termination Agreement. ASIC claims that Mr Wilson's conduct was in breach of s 180 of the Corporations Act and his duties as a director for the purposes of s 1317G(1)(b)(i) of the Corporations Act. 22 Similarly, the class actions share a common substratum of facts and raise overlapping legal issues. The most direct overlap between the proceedings concerns Mr Wilson's alleged conduct and representations regarding the Galderma supply agreement. The Excel Texel applicants claim that Quintis' share price was inflated between 1 July 2015 and 10 May 2017 by reason of Mr Wilson's alleged misrepresentations and failures to disclose in relation to, inter alia, the Galderma supply agreement. ASIC has sought declarations on the basis that, among other things, Mr Wilson failed to inform the Quintis board that Galderma wanted and was taking steps to terminate its agreements with Santalis, and those agreements had been terminated. Those declarations, if made, necessarily assume that Mr Wilson knew or ought to have known of the relevant matters, which are directly relevant to the allegations in the Excel Texel Proceeding that Mr Wilson engaged in misleading and deceptive conduct contrary to s 1041E of the Corporations Act. 23 Although it is not contended that the Davis Proceeding directly shares this common substratum of facts, there are three points to be made concerning the overlap between the two class actions. 24 The first is that, following the orders I made on 1 July 2022 approving the settlement between the applicants in each proceeding and Quintis, the only remaining active respondents in the Davis Proceeding are Mr Wilson and EY and, in the Excel Texel Proceeding, Mr Wilson: see Davis v Quintis Ltd (Subject to Deed of Company Arrangement) [2022] FCA 806. 25 The second is that, by reason of the leave I granted on 1 July 2022, the Excel Texel applicants have filed a third further amended statement of claim, which incorporates the claims pleaded in the Davis Proceeding as against Mr Wilson. 26 The third point is that cross-claims have been filed by Mr Wilson against EY in both class actions and, in turn, EY has filed a cross-claim against Mr Wilson in the Davis Proceeding. Those cross-claims rely on the allegations against the respective applicants in both class actions, such that the overlap in the factual and legal matters arising between the class actions is considerable.

E RELEVANT PRINCIPLES 27 The relevant principles that apply in respect of the vacation of hearing dates are well established and were not in dispute. 28 The decision of whether to vacate hearing dates, like any other practice and procedure decision, is guided by the provisions of Pt VB of the FCAA. Any discretion must be exercised in such a way as to facilitate the overarching purpose, being the just resolution of disputes, according to law, and as quickly, inexpensively and efficiently as possible: s 37M of the FCAA. 29 The matter is one of discretion, which is to be exercised judicially having regard to a number of relevant considerations, including: the reason for the adjournment; the timing of the adjournment application; the detriment or prejudice to the parties if the application is or is not granted; the detriment to the Court and other litigants; and other public interest considerations: see generally Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (at 182 [5] per French CJ; 211-212 [93], [95], 215 [103] per Gummow, Hayne, Crennan, Kiefel, and Bell JJ).

F CONSIDERATION 30 Applying the relevant principles to the circumstances here, I consider that, for the following reasons, the current hearing dates should be vacated. 31 Dealing first with the issue of privilege, Mr Wilson's concern is that forensic decisions at the February hearing will be affected by the potential for ASIC to seek to reopen its case in the ASIC Proceeding. This submission, it seems to me, carries little weight. 32 As the Excel Texel applicants submit, leave to reopen the case can be entertained at either time in accordance with the ordinary discretionary principles on a remitter. As Tate ACJ, Kyrou and Ferguson JJA observed in Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 (at [185]-[186]): 185. Where a case has been closed and judgment reserved, exceptional circumstances will be required for a court to allow the case to be reopened. This rule applies with even greater force where reasons for judgment have already been delivered but final orders have not yet been made. The rule is necessary to ensure finality in litigation and the efficient administration of justice, and to avoid a reopened hearing being 'bedevilled by arguments about … the scope of the re-opened proceeding'. 186. Exceptional circumstances will similarly be required in order for a party to introduce an issue for the first time on appeal. In Coulton v Holcombe [(1986) 162 CLR 1], Gibbs CJ and Wilson, Brennan and Dawson JJ stated that '[i]t is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial.' (Footnotes omitted; emphasis added). 33 Although I accept that the delivery of judgment in the ASIC Proceeding would be relevant to the Court's decision to grant leave, the prospect of such an application seems to me to be speculative. In any event, any such prejudice would be slight when compared to the prejudice caused to the parties in vacating the hearing date. Moreover, the fact that Mr Wilson may be required to make forensic decisions concerning privilege is one that will theoretically exist until the ASIC Proceeding is finally determined. Unsurprisingly, no submission was made that the hearing should be deferred until after any appeal in the ASIC Proceeding. 34 Mr Wilson notes in his written submissions that had there been a realistic prospect that the Excel Texel Proceeding would be heard before the ASIC Proceeding, he would have applied for a stay of the Excel Texel Proceeding: see, for example, National Australia Bank Limited v Human Group Pty Ltd [2019] NSWSC 1404 (per Henry J). In response to this, the Excel Texel applicants point to Mr Wilson's laissez-faire approach to the filing of evidence in the class actions to date, and the fact that no application for a stay of the Excel Texel Proceeding has previously been raised. In particular, orders were made on 7 December 2021 with respect to Mr Wilson's evidence, at which time no objection was raised. This may be accepted, but it is important to note that this was all done when it was still thought judgment would be delivered in the ASIC Proceeding prior to the hearing of the class actions. 35 Following the Full Court's decision in GetSwift v Webb, and subject to cases where a non-regulator has sought a pecuniary penalty, related proceedings involving a regulatory proceeding and a class action have been case managed on the basis that judgment would initially be delivered in the regulatory proceeding. This causes inconvenience and potential delay, but is an inevitable consequence of the need for two judges to deal with related proceedings of this type. If the class action had been ready first, it seems to me a stay (or more accurately an adjournment) could have been sought of any hearing in the class actions, and given the Full Court's approach, would likely have been successful in order to allow for the initial determination of the ASIC Proceeding. 36 The applicants contend that, given the long procedural history of the matter, priority should be given to finalising the class actions as soon as possible. As noted above, the Excel Texel applicants say they are willing to forfeit any potential benefit arising from any declarations of contravention made against Mr Wilson in the ASIC Proceeding in order to retain the current hearing dates. Such an approach, however, misses the point. 37 First, most importantly, the potential benefit of any contravention declaration (and any narrowing of issues) is not simply a matter for the Excel Texel applicants alone. It impacts upon the time and attention that will need to be given by a judge to issues that have already been considered by another judge of the Court. The public resources of the Court must be used responsibly. Every day hearing this case is a day when other litigants are shut out of the Court. Every day writing a judgment is a day when a judgment cannot be written in another matter. The hearing is currently listed with an estimate of six weeks. It is apparent that the parties propose to tender a significant amount of evidence, both oral and documentary. To the extent that any declarations or findings made may relevantly limit the scope of the issues in dispute, it seems to me that it would be contrary to the overarching purpose to have to determine those issues that are also the subject of a pending judgment. The private interests of litigation funders, the applicants and group members are no doubt worthy of close consideration, but they do not trump the public interest in the efficient use of Court time. 38 Secondly, and relatedly, in defence of the allegations made against it in the Davis Proceeding, EY pleads a proportionate liability defence, nominating Mr Wilson as a concurrent wrongdoer. That defence relies expressly upon the allegations made against Mr Wilson in the Excel Texel Proceeding. EY also brings a cross-claim against Mr Wilson in reliance on those allegations against him in both class actions. Accordingly, EY stands to benefit from any declaration of contravention made against Mr Wilson in the ASIC Proceeding. 39 Thirdly, proceeding to trial while judgment remains reserved in the ASIC Proceeding may give rise to judgment being delivered at roughly the same time, with a risk of inconsistent findings (including inconsistent findings of fact), which are inimical to the administration of justice. 40 Fourthly, I am alive to the fact that class actions usually settle, particularly if there has been a prior determination in a regulatory proceeding. I know nothing of why this case has not settled, but it seems to me it would be responsible to send the parties to a Registrar or another agreed mediator to have a final attempt at settlement in the wake of the findings made in the ASIC Proceeding. It may not work, but before considerable Court time is consumed, it seems appropriate to try. 41 Fifthly, the parties have prepared documents, including agreed statements of fact, in accordance with orders that I have made. It was initially assumed that these would be finalised after the delivery of judgment in the ASIC Proceeding. Following the delivery of judgment in the ASIC Proceeding, there is at least some prospect of those documents being amended, given that the regulatory proceeding will have been finalised at first instance against Mr Wilson, who no doubt has been somewhat constrained in agreeing some facts at this time.

G CONCLUSION 42 It follows from these reasons that the current hearing dates ought to be vacated. The parties in the Davis Proceeding, sensibly, do not consider it efficient or appropriate that those proceedings be heard separately from the Excel Texel Proceeding. Although the present complications have arisen through no fault of the parties, adjournment is the course which best facilitates the overarching purpose and can be put down to being one of the vicissitudes of litigation. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.