Lawrence v Brighton Hall Securities Pty Ltd ACN 096 576 868

REASONS FOR JUDGMENT 1 The applicant, Ms Lawrence, applies today for leave nunc pro tunc, pursuant to s 500(2) of the Corporations Act 2001 (Cth) (CA), to begin and carry on this proceeding. 2 Section 500(2) CA provides: (2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes. 3 Leave is sought to begin and carry on the proceeding. Leave is required because the respondent (Brighton Hall) is being wound up. The proceeding arises from the collapse of the Westpoint Group which has been well documented. Its activities are summarised in Australian Securities and Investments Commission, in the matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey [2006] FCA 366and Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577. 4 There are two other special features of the motion for leave. First, the proceeding is a representative proceeding pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) and, secondly, it is brought by the applicant's representative, Australian Securities and Investments Commission (ASIC) in the name of Ms Lawrence, pursuant to s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). A lengthy affidavit in support verifies these and the following facts. 5 The respondent was the applicant's former financial advisor. The liquidator for Brighton Hall, Mr Russell Morgan, of KordaMentha, Corporate Recovery Services, has informed the Court, by letter, dated 18 November 2009 that the joint and several liquidators do not possess any funds with which to cover the cost of attending the hearing today or to instruct solicitors to act on their behalf and will not be making an appearance at the hearing. 6 Brighton Hall carried on the business of providing financial services, including giving advice in relation to financial products. Ms Lawrence was advised by Brighton Hall to purchase promissory notes issued by companies within the Westpoint Group. After the Westpoint Group collapsed, Ms Lawrence was left with a very dismal prospect of recovery of any of the money she invested and other members of the group are in a similar position. 7 The evidence before me indicates that the total of the applicant's capital investment that remains unpaid, is approximately $179,904.69, with Ms Lawrence having received a dividend in relation to Ann Street Mezzanine Proprietary Limited in liquidation in the amount of $7367.31 in January 2008. She is recorded as being a contingent creditor of Brighton Hall for the amount of $187,272, pursuant to a report which was prepared prior to the payment of the dividend from Ann Street Mezzanine in liquidation. 8 On the evidence before me it is contended that the advice which was given by Brighton Hall, was given to at least 171 clients, in relation to Westpoint products. The totality of the losses those clients claim appears to exceed $14 million. The group in this proceeding is made up of a large number of those clients. 9 The contention advanced by Ms Lawrence is that the advice from Brighton Hall was negligent and in breach of its obligations to provide financial service efficiently and fairly, contrary to the requirements of s 912A CA. Alternatively, there are claims on the basis of misleading and deceptive conduct, or for negligent misstatement. 10 The principles applicable to the grant of leave, pursuant to s 500(2) CA, or in similar positions of insolvency, are canvassed in a number of authorities, which are collected, very conveniently, by Jacobson J in Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2009] FCA 42(at [17]-[23] of that decision. In Goodman v Glenhurst Corporation Pty Ltd [2008] FCA 1482, Finkelstein J took the view that the Court is required to be satisfied that the applicant's claim was sufficiently serious to be allowed to proceed. The underlying theory for that was that the liquidator should not be vexed with the obligation to fight a hopeless case and incur unnecessary expenditure. His Honour went on to consider the details involved in that proceeding and noted that he had not formed any firm view about the merits but was satisfied that the claim in that instance, both on behalf of the applicant and the then respondent, for indemnity against the insurer, had a solid foundation. Nevertheless, he anticipated that the claims would be hotly disputed. 11 For present purposes I would also touch, in particular, on what Jacobson J said in Altinova at [22], after citing Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 555-557, to the effect that an applicant for leave is not required to demonstrate a prima facie case, in the technical sense of that term, against the company in liquidation. What is required is evidence clearly establishing the existence of a serious claim and a real dispute. I take the approach of Finkelstein J in Glenhurst Corporation as according with the same principle. 12 The authorities (Altinova and Ogilvie-Grant v East (1983) 7 ACLR 669) also make clear that the question of whether leave should be granted may be reduced to one of choosing between two alternative forms of procedure: namely filing of a proof of debt or commencement of legal proceedings. The claimant is required to lodge a proof of debt unless a claimant can demonstrate that there is a good reason to depart from the procedure. 13 It is not possible to state in an exhaustive manner all the circumstances in which leave may be considered to be appropriate but factors do include the amount and the seriousness of the claim, the degree of complexity of the legal and factual issues involved and, importantly, whether the company was insured against the liability. 14 Considering those principles in the present situation, I am satisfied that the claims are serious, notwithstanding that they may, or may not be, hotly disputed particularly by the insurer. Certainly they are in a substantial amount and the extent of the communications and the evidence before me makes it clear that they will involve complex legal and factual issues. 15 I am also satisfied that unless leave is granted, the prospects of either Ms Lawrence or other members of the group recovering any substantial contribution in respect of those claims is exceedingly limited having regard to the financial affairs of Brighton Hall which have also been put in evidence. 16 There have apparently been without prejudice communications between ASIC, on behalf of the group, including Ms Lawrence and Brighton Hall and the insurer, to which I have not been privy. But at least on the face of the insurance policy itself, I accept there is an arguable case that the respondent is entitled to be indemnified under it. (Of course, how the insurer, Allianz, will respond to the claims on the policy, remains to be seen and at this stage the precise position of the insurer is unknown and I make no assumptions whatsoever in relation to that). Certain members of the group, including Ms Lawrence, have made demands for compensation during the period of insurance. There are other members of the group who did not make those demands within the period of insurance. There is, nevertheless, an argument that in light of the similarity of the claims made within the period of insurance, which concluded on 31 May 2006, that the facts notified to the insurer during the period may engage the operation of s 40(3) of the Insurance Contracts Act 1984 (Cth) which provides: (3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract. 17 Again, I make no assumption at all about the merits of that position but if I thought the position was hopeless in relation to the timing of demands on the policy, then that may be an important consideration in the exercise of my discretion as to whether or not to grant leave. 18 On the material before me at this precise stage, it appears that if liability of Brighton Hall is established - and, again, I make no assumption on the merits about that, other than to accept that the claim is serious - then it would appear that the onus will pass to Allianz to establish that the claim is somehow excluded under the policy. 19 I am also satisfied that there is at least a prima facie position that the other unsecured creditors of Brighton Hall will not suffer any prejudice by the grant of conditional leave. The condition will be that Ms Lawrence and other members of the group will be prohibited from enforcing any judgment against Brighton Hall, without leave of the Court. In fact, if Ms Lawrence and other members of the group are successful in obtaining recovery under the policy of insurance, other unsecured creditors of Brighton Hall may benefit, as the total claims against Brighton Hall will be reduced by the amount paid out under the policy, and therefore, at least theoretically or potentially, increase the dividend payable to them. 20 For all those reasons the orders I propose making will be substantially in accordance with the applicant's minute. They will be that: 1. Subject to the following condition, the Applicant have leave nunc pro tunc, pursuant to s 500(2) of the Corporations Act 2001 (Cth), to begin and proceed with this application. 2. Leave is granted on condition that the Applicant is prohibited from enforcing any judgment against the Respondent without the leave of the Court. 3. The matter be adjourned to a date to be fixed. 4. Costs reserved. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.