In the Matter of Equititrust Pty Ltd [2012] NSWSC 1049

Judgment (ex tempore) 1HIS HONOUR: By originating process filed on 14 June 2012 and amended on 5 July 2012 the plaintiffs RM Walsh Land Holdings Pty Ltd (Receiver and Manager Appointed), J Delahunty Land Holdings Pty Ltd (Receiver and Manager Appointed), Byron Bay Land Development Pty Ltd (Receiver and Manager Appointed), and Richard Martin Walsh seek leave pursuant to (Cth) Corporations Act 2001, s 471B, to begin and proceed with a proposed cross-claim in proceeding 2011/124535 ("the 2011 Common Law proceeding") in which they are the first to fourth defendants and the present defendant, Equititrust Limited (in liquidation), is the plaintiff. The liquidator has indicated that he does not oppose leave pursuant to s 471B being granted, upon terms that any judgment against Equititrust Limited be against it only in its capacity as Responsible Entity of the Equititrust Income Fund and as Manager of the Equititrust Premium Fund, and not be admissible to proof in the general body of creditors. 2In the 2011 Common Law proceeding, Equititrust Limited sues the present plaintiffs and others to recover moneys allegedly lent to, and guaranteed by, the present plaintiffs, which were sourced from two funds, called the Equititrust Income Fund and the Equititrust Premium Fund, of which Equititrust Limited was respectively the Responsible Entity and the Manager. There is a substantial surplus of assets in the Equititrust Income Fund, but the Equititrust Premium Fund is insolvent, as is Equititrust Limited itself. 3A Receiver and Manager was appointed to the Equititrust Income Fund by the Supreme Court of Queensland, and the 2011 Common Law proceeding is being prosecuted on behalf of Equititrust Limited by that Receiver and Manager, Mr Whyte, who intends to apply any moneys recovered, first, to satisfy the claims of the Equititrust Income Fund and, to the extent that there is any surplus, to the Equititrust Premium Fund; however, present indications are that there will be no surplus for application to the Equititrust Premium Fund. 4Notwithstanding that the proceedings are being prosecuted on behalf of Equititrust Limited by Mr Whyte as Receiver and Manager of the Responsible Entity of the Equititrust Income Fund, in name and at law Equititrust Limited was the lender to the present plaintiffs, and Equititrust Limited is legally entitled to any chose in action represented by the alleged loans, although it has equitable obligations to the funds of which it was the Responsible Entity. 5The present plaintiffs have filed a defence in the 2011 Common Law proceeding, in which they resist liability on numerous grounds, but including various estoppels said to arise from representations made to them by or on behalf of Equititrust Limited. By their present application, they seek leave pursuant to s 471B to file a cross-claim, including for damages for contravention of (NSW) Australian Consumer Law, s 18 (and its analogues in other Acts), for misleading and deceptive conduct. 6While there are some inconsistencies between the representations pleaded in the draft cross-claim and those pleaded in the defence, broadly, the matters sought to be raised by way of cross-claim overlap with those that have been raised by way of defence, and it is clear that the cross-claim has a substratum of fact that overlaps, to a large degree, that which is involved in the defence. 7As a matter of law, the proper cross-defendant is Equititrust Limited. It may be that Equititrust Limited would have a right of indemnity against the funds from which the advances were sourced, but that does not mean that the present plaintiffs' right of recovery is limited as a matter of law in that way. To the contrary, the proper cross-defendant to the proposed cross-claim must be Equititrust Limited; the proposed cross-claimant's rights are against Equititrust Limited and are not limited to the Equititrust Income Fund, nor, for that matter, to the Equititrust Premium Fund. 8The alternative to a grant of leave is that the matter would proceed by way of proof of debt. Any proof of debt would plainly be admissible to proof in the general body of creditors, although the liquidator might well have rights of indemnity against the funds in question. 9As it seems to me that the correct characterisation of the cross-claim as a matter of law is one against Equititrust Limited, and one which would be provable in the general body of unsecured creditors, it would be quite inappropriate to impose the condition sought. The Receiver and Manager has proposed that condition essentially as a practical matter of convenience. As I have indicated, there is a substantial surplus of assets in the Equititrust Income Fund, though not in the Equititrust Premium Fund, and it seems that there is unlikely to be a significant dividend available in Equititrust Limited, the holding entity, itself. One can well understand that it may be attractive to the liquidator as a matter of convenience for recovery to be limited in the way proposed, and that there might be benefits in that course for the plaintiffs, but the plaintiffs are probably the best judge of whether that is the course most in their interests. The appearance that the matter is convenient from the perspective of the liquidator is not a reason to impose the condition sought. I would, in any event, impose a condition that the leave extend only to obtaining judgment, and that further leave be required before proceeding to execute or enforce any judgment. 10Apart from the question of the condition to be imposed, the liquidator opposed the grant of leave essentially on the basis that it was not apparent that there was a triable case. Section 471B, like its predecessors, serves a number of functions. One is to ensure that a company in liquidation is not subjected to a multiplicity of actions that would be expensive and time-consuming. Another is to ensure that the liquidation proceeds in an orderly manner, generally speaking, with claims being dealt with concurrently so that no creditor gets any particular advantage. A third is to ensure that the company is not harassed by vexatious claims while in liquidation. 11Generally speaking, considerations that tend in favour of a grant of leave include; first (and not relevant here), where an insurer stands behind the company in liquidation in respect of the claim in issue; secondly, where the claim is of such complexity or controversy that it would either require examination by the liquidator of a type not well suited to administrative examination, but better carried out in a forensic setting, or where the claim was so likely to be rejected by the liquidator that an appeal by way of hearing de novo would be almost inevitable; and thirdly, where there are already court proceedings on foot in which the same issues or related issues arise so that it is convenient to resolve all issues (including by way of cross-claim in those proceedings). 12In this case, both the second and the third considerations to which I have referred favour a grant of leave. As I have already foreshadowed, the underlying factual basis of the defence already pleaded overlaps broadly with the facts and circumstances that found the proposed cross-claim. Those facts and circumstances, including the representations relied on, are likely to be explored in any case in the defence of the substantive claim. In those circumstances, little, if anything, is lost, and much is gained, by allowing the whole of the substratum of fact, including that raised by the proposed cross-claim, to be explored in the same proceedings. 13The allegations are largely of oral representations. They would be difficult for a liquidator to examine and resolve other than in a forensic setting. They are relatively complex in nature. There is a high degree of probability that a liquidator would reject the claim, leaving the claimants to prosecute it by way of appeal to the court. In those circumstances, it is preferable that it proceed in an orthodox manner by way of cross-claim, concurrently with the defence in which substantially the same issues will be raised. 14In the course of submissions, counsel for the liquidator drew attention to the damages claimed in the proposed cross-claim, including in particular paragraph 79(a) of the proposed pleading, which particularises as one head of the loss and damage "the relief sought in Bank WA's Amended Commercial List Statement". Counsel for the plaintiffs was unable to articulate a basis upon which that relief, at least as so particularised, could conceivably be gained as a result of the cross-claim, although he propounded an alternative "lost opportunity" basis on which there might be a claim. If such a claim emerges, an application for leave to amend can be made in due course, but the leave granted should not include a claim as currently particularised in paragraph 79(a) of the draft cross-claim. 15Accordingly, I order, pursuant to (Cth) Corporations Act 2001, s 471B, that the plaintiffs have leave to begin and continue a proceeding against the defendant in liquidation by filing in the 2011 Common Law Proceeding a cross-claim in the form of the proposed "First cross-claim - statement of cross-claim", comprised in Tab 6 of Exhibit IDSC-1 referred to in the affidavit of Ian David Stafford Collie sworn 13 June 2012 herein, subject to the deletion therefrom of particular (a) pursuant to paragraph 79, and to continue with that cross-claim, upon terms that any judgment obtained thereon will not be enforced against the present defendant without the further leave of this court first having been obtained.