First Plaintiff v Defendant

2 On 14 July 2022, WWPD passed a resolution for a creditors' voluntary winding up. David Vasudevan and Innis Cull of Pitcher Partners were appointed as liquidators of WWPD. Mr and Mrs Mega require leave to proceed against WWPD in the 2020 proceeding.

3 The application is supported by the affidavit of Shayne Bedford filed 3 August 2022.

4 In the 2020 proceeding, Mr and Mrs Mega seek to recover the sum of $498,437.05, together with interest and costs, from WWPD and others. They claim for equitable contribution on the basis that the defendants paid less than their share of the liability under guarantees given by eight guarantors in connection with a loan facility advanced by the Commonwealth Bank of Australia to Mega Homes Pty Ltd (ACN 063 797 473) ('Mega Homes').

5 By a share sale agreement dated 12 May 2016, Mr and Mrs Mega sold 50% of the total shares in Mega Homes to WWPD for a purchase price of $15 million. At this time, WWPD had two directors, Jonathan Wang and Ping Wang (also known as Sunny Wang). Moray & Agnew, solicitors, acted for WWPD.

6 Acting on the instructions of Sunny Wang, WWPD now alleges that Jonathan Wang entered into the share sale agreement, and a related merger and shareholders agreement, without WWPD's authority.

7 Mr and Mrs Mega transferred their shares in Mega Homes to WWPD in return for the payment of $6,501,414.50. WWPD and Bo Jiang counterclaim that these funds included funds provided by WWPD ($1,000,000), Bo Jiang ($3,321,414.50) and Holden Rd Development Pty Ltd ($1,500,000). Moray & Agnew paid the amount of $3,321,414.50 to Mr and Mrs Mega on the instructions of Jonathan Wang.

8 In the 2020 proceeding, WWPD and Mr Jiang counterclaim that the purchase price for the shares was paid by WWPD to Mr and Mrs Mega without WWPD's authority, that the Mega Homes shares were worthless, and that Mr and Mrs Mega entered into the share sale agreement and the merger and shareholders agreement in bad faith. They seek damages and an account of profits. WWPD pleads a set-off as to so much of its counterclaim as may be necessary to extinguish the claim by Mr and Mrs Mega.

9 The 2020 proceeding is set down for trial on 6 February 2023 on an estimated duration of eight to ten days.

10 Separately to the 2020 proceeding, Mr Jiang has brought another proceeding (S ECI 2022 01605) against Moray & Agnew in this Court ('2022 proceeding'). In the 2022 proceeding, Mr Jiang seeks to recover the sum of $3,321,414.50 on the basis of an alleged breach of trust by Moray & Agnew as trustee of funds owned beneficially by Mr Jiang. Mr Jiang claims that Moray & Agnew acted in breach of trust when they transferred that sum to Ferraro & Co, the then solicitors for Mr and Mrs Mega.

11 On 29 July 2022, Moray & Agnew issued a third party proceeding in the 2022 proceeding seeking a declaration that they are entitled to contribution and/or indemnity from Mr and Mrs Mega pursuant to Part IV of the Wrongs Act 1958 (Vic). Some of the allegations made by Moray & Agnew in the third party proceeding are similar to the allegations made by Mr Jiang in his counterclaim against Mr and Mrs Mega in the 2020 proceeding.

After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with ... against the company except by leave of the Court and subject to such terms as the Court imposes.

13 Section 500(2) is in similar terms to s 471B of the Act. The principles that apply to the grant of leave under s 471B are similar to those which guide the grant of leave under s 500(2).[1]

14 The considerations relevant to the exercise of the discretion to grant leave under s 500(2) of the Act have been considered in many cases, and may be summarised as follows:

(a) s 500(2) gives effect to the statutory policy of ensuring that the assets are distributed rateably amongst all creditors;

(b) the provision prevents a company in liquidation from being subjected to expensive litigation conducted at the expense of the company's creditors;

(c) the liquidators' time and resources should not be diverted into expending substantial funds on defending claims against the company in court, when the proof of debt process is available as a cheaper and more efficient alternative;

(d) the proof of debt process is preferred as the way in which disputes are resolved unless the applicant can show good reason to depart from that procedure;

(e) in determining whether leave should be granted, the Court considers the balance of convenience and whether an applicant should be permitted to proceed by way of action to judgment, or left to pursue their claim by lodging a proof of debt with the liquidator;

(f) the onus is on the applicant to demonstrate why it is more appropriate to proceed by way of action; and

(g) the applicant must show that there is a serious question to be tried and that the claim has a solid foundation.[2]

15 In determining whether leave to proceed should be granted, the relevant factors will commonly include:

(a) the amount, nature and seriousness of the claim;

(b) the degree of complexity of the legal and factual issues involved;

(c) whether the relief is not otherwise available to the applicant except by application to the Court;

(d) the stage to which the proceedings, if already commenced, may have progressed;

(e) in the case of a counterclaim (or cross-claim), whether it arises out of the same factual matrix as the claims made in the primary proceeding;

(f) whether there is a risk that the same issues would be re-litigated if the claims were to be the subject of a proof of debt;

(g) whether the proceedings will result in prejudice to the creditors;

(h) whether the company has a policy of insurance from which any judgment will be paid;

(i) whether the claim is in the nature of a test case for the interest of a large class of potential claimants;

(j) whether the grant of leave will unleash an 'avalanche of litigation';

(k) whether the cost of the hearing will be disproportionate to the company's resources;

(l) delay; and

(m) whether pre-trial procedures, such as discovery and interrogatories, are likely to be required or be beneficial.[3]

16 Mr and Mrs Mega submitted that they should be granted leave to proceed in the 2020 proceeding principally for the following reasons:

(a) their claim for equitable contribution against WWPD arising under guarantees given to the Commonwealth Bank raises a serious question to be tried and has a solid foundation;

(b) the application for leave is made in the context of an existing proceeding, in which WWPD is a party, and which is at an advanced stage;

(c) Mr and Mrs Mega's allegations in the 2020 proceeding have been met with a defence from WWPD and counterclaims from WWPD and Mr Jiang. The defence and counterclaims are factually intensive and complex;

(d) given that the defence and counterclaim are founded on Mr Wang's instructions, which are disputed, it would be very difficult for WWPD's liquidators to evaluate their claim by the proof of debt process;

(e) the existing litigation is a more convenient way to resolve the claim rather than the proof of debt procedure. WWPD's liquidators have accepted Mr and Mrs Mega as contingent creditors in the sum of $498,437.05 plus costs;

(f) WWPD's defence to the claim by Mr and Mrs Mega in the 2020 proceeding is largely the subject of admissions or non-admissions. To date, WWPD's liquidators have not advised whether they intend to pursue WWPD's counterclaim;

(g) the factual foundation for WWPD's defence and counterclaim is adopted by Mr Jiang in his counterclaim. The defence to the Megas' claim raises the same facts, or related facts, as those alleged in the counterclaim by Mr Jiang;

(h) given the reliance of Mr Jiang and Moray & Agnew on the same allegations made by WWPD, the determination of these allegations at trial will assist the liquidators without undue call on WWPD's resources. It is convenient to resolve all issues, including those raised by the counterclaim, at the one time;

(i) if an appeal from a disputed proof of debt eventuated, the same issues would arise in that appeal as are being litigated in this proceeding. The grant of leave to proceed will avoid a multiplicity of proceedings; and

(j) the matters pleaded in WWPD's counterclaim are incorporated in the defence by way of a set-off, and arise out of the same factual matrix. It would be unjust if Mr and Mrs Mega's claim against WWPD in the 2020 proceeding was determined by WWPD's liquidators through the proof of debt process, while at the same time WWPD's liquidators continue to reserve their right to pursue a counterclaim on WWPD's behalf against Mr and Mrs Mega, relying on the same factual foundation as is set out in WWPD's defence.

17 The liquidators said that they were at present without funds to defend the 2020 proceeding. They had not yet decided what position to adopt, and might not defend the proceeding or take any active step. They sought to assist the Court, and if the Court took the view that it was appropriate to grant leave, whether or not the liquidators chose to be involved, they did not seek to disturb that view.

18 In response to the liquidators' submission that they were presently without funding, Mr and Mrs Mega referred to Findex Australia Pty Ltd v McKay, where in response to a similar submission in a like application, Stewart J observed that while unfunded liquidators were not able to oppose a claim brought in a proceeding, equally they were not likely to be in a position to investigate what on the face of it was a fairly complex claim.[4]

19 By a summons filed on 17 August 2022 in the 2020 proceeding, the liquidators made an application for the payment to them of an amount of $500,000, paid into Court by WWPD in July 2021 by order of the Court, and interest ('summons'). The summons is opposed by Mr and Mrs Mega who claim an interest or charge over the funds in court. In order that the summons could be opposed by Mr and Mrs Mega, I ordered that they have leave to proceed in the 2020 proceeding insofar as was necessary for the hearing and determination of the summons. The hearing of the summons concluded on 16 September 2022.

20 I am satisfied that this is an appropriate case for the grant of leave to proceed to Mr and Mrs Mega under s 500(2) of the Act for the following reasons:

(a) Mr and Mrs Mega's claim for equitable contribution against WWPD arises from guarantees given to the Commonwealth Bank of Australia in executed documentation, and has a sufficiently strong foundation;

(b) WWPD and Mr Jiang oppose this claim. They have in turn brought a counterclaim, and claimed a set-off against Mr and Mrs Mega which is said to be greater in magnitude than the claim by Mr and Mrs Mega;

(c) Mr Jiang and Moray & Agnew make similar and significant claims against Mr and Mrs Mega;

(d) the claims arise out of the same documentation and factual matrix;

(e) the claims involve complex factual and legal issues;

(f) the amounts of money involved are considerable;

(g) there will be substantial issues of credit to be determined at the trial;

(h) the 2020 proceeding is well advanced and has been set down for trial;

(i) there will be no delay to the trial date if leave is given to Mr and Mrs Mega;

(j) there are a number of parties to the 2020 and 2022 proceedings, including parties with similar interests to those of WWPD, and the Court is likely to be well-assisted by counsel at the trial;

(k) it would be very difficult and expensive for the liquidators to evaluate the strength of the respective claims through the proof of debt process;

(l) there is a substantial risk that the same or similar issues to those in the 2020 proceeding would be re-litigated through the proof of debt process;

(m) the grant of leave will not unleash an 'avalanche of litigation';

(n) an issue has already arisen between the liquidators and Mr and Mrs Mega as to the amount of $500,000 paid into Court by WWPD pursuant to an order made on 2 July 2021 and the interest that has accrued on this amount; and

(o) I have already found it necessary to give Mr and Mrs Mega limited leave to proceed in the 2020 proceeding in order that they be able to make submissions as to the summons to recover the $500,000 and interest.

21 In the circumstances, I am of the view that the interests of justice are best served if Mr and Mrs Mega are given leave to proceed against WWPD under s 500(2) of the Act on the condition that any judgment obtained in the 2020 proceeding against WWPD shall not be entered or executed without further leave of the Court.

[1] Snelgrove v Great Southern Managers Australia Ltd (in liq) (recs and mgrs apptd) [2010] WASC 51, [28]; Timbercorp Finance Pty Ltd (in liq) v Vivian [2016] VSC 338; (2016) 114 ACSR 198, 203 ('Timbercorp').

[2] Timbercorp (n 1) 204; Re 2 Nails Pty Ltd (in liq) [2018] VSC 745, [22]; Leasing Centre (Aust) Pty Ltd v Shepard [2011] FCA 443, [50]-[51]; Connelly v One Rail Australia (FLA) Pty Ltd [2021] FCA 946, [21].

[4] [2019] FCA 335, [13].