Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited

Solicitor for the First Respondent: Gilbert + Tobin

Counsel for the Second and Third Respondents: Mr N Owens SC and Ms N Oreb

Solicitor for the Second and Third Respondents: Baker McKenzie

Counsel for the Proposed Fourth, Ninth, Eleventh to Eighteenth Respondents: Mr S Donaldson SC and Ms J Jaffray

Solicitor for the Proposed Fourth, Ninth, Eleventh to Eighteenth Respondents: Moray & Agnew

Counsel for the Proposed Fifth to Eighth and Tenth Respondents: Mr E Muston SC and Mr M Newton

Solicitor for the Proposed Fifth Respondent: Gilchrist Connell

Solicitor for the Proposed Sixth, Seventh, Eighth and Tenth Respondents: Clyde & Co

BETWEEN: MATHESON PROPERTY GROUP PTY LTD ACN 107 163 253 AS TRUSTEE FOR THE MPG TRUST Applicant

AND: VIRGIN AUSTRALIA HOLDINGS LIMITED ACN 100 686 226 First Respondent

THE COURT NOTES THAT:

1. In order to maintain this proceeding the applicant is obliged to provide an indemnity to VAH in the terms set out in Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited [2022] FCA 1243, that is, for all costs, expenses, judgments (including but not limited to any judgment or order obtained by the applicant against VAH, or any amounts required to be paid by VAH in connection with any judgment or order), suits or action incurred directly or indirectly as a consequence of the applicant commencing proceedings against the respondents to the extent that VAH is not indemnified for such amounts pursuant to a contract of insurance entered into before 20 April 2020 or such amounts as are not otherwise paid by VAH's insurer (Indemnity).
2. VAH has, through its senior counsel, advised the Court that notwithstanding the terms of the Indemnity and any submissions made on behalf of VAH on 2 September 2022 that: (a) although VAH contends the Indemnity covers the costs and expenses arising in the circumstances referred to in paragraph 10(b)(iii) of the Outline of Evidence of Mark Russell Clifton located at pages 3371-3372 of the Court Book provided to the Court on 17 July 2023 (CB) and reproduced as annexure A to these orders, VAH does not maintain and will not maintain in relation to this proceeding (or any proceeding commenced or proposed to be commenced by a group member) that the Indemnity operates so as to extend to: (i) costs, expenses or judgments incurred in relation to any cross-claims or any claims for contribution made in relation to the claim of the applicant or a claim of a group member made in this or in any other proceeding; or (ii) any judgments or orders against persons other than VAH. (b) an indemnity from Balance UK to the applicant with an initial limit of $10 million will be sufficient, for the purposes of cl 8.1(d)(2) of the DOCA, to satisfy VAH that the applicant will be able to meet the Indemnity; and (c) VAH does not propose to defend any claim of the applicant or a claim of a group member made in this proceeding on the basis that an Indemnity was not provided prior to its commencement.
3. The parties agree to reserve for further argument, if necessary, the following questions: (a) whether the Indemnity authorises VAH to demand, or requires MPG to make, periodic payments on account of the Indemnity of amounts that are said to be costs and expenses falling within the Indemnity; and (b) if period payments can be demanded up to a limit of $5 million, whether any such periodic payments are subject to supervision and assessment by the Court.
4. As a consequence of (2) and (3) above, the applicant does not press for relief in terms of prayers 1 or 2 of its draft originating application located at CB 51 to 54 and reproduced as annexure B to these orders, or prayer 7A of its amended interlocutory application dated 9 June 2023. AND THE COURT ORDERS BY CONSENT THAT:
5. The claim for relief in terms of prayer 7A of the applicant's amended interlocutory application dated 9 June 2023 be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Annexure B 1. An order pursuant to section 447A of the Corporations Act 2001 (Cth) (the Act), or alternatively section 90-15 of the Insolvency Practice Schedule (Corporations) at Schedule 2 to the Act (the IPS), that Part 5.3A of the Act is to operate in relation to Virgin Australia Holdings Pty Limited as if the third paragraph of Schedule 5 of the Deed of Company Arrangement dated 5 September 2020 is amended so that it reads as follows: [The creditor] irrevocably and unconditionally indemnifies the Company against any costs or expenses or any amounts required to be paid by the Company in connection with the Insured Claim, including an assertion by the creditor that an Insured Claim exists (Costs), to the extent that the Company is not indemnified for such costs pursuant to a contract of insurance entered into before [Appointment Date] or such Costs are not otherwise paid by the Company's insurer. (the Approved Creditor Indemnity). 2. Further or in the alternative, a declaration pursuant to section 90-15 of the IPS that the Company is not entitled to an indemnity in the form of Schedule 5 other than the Approved Creditor Indemnity.

(Delivered ex tempore, revised from the transcript)

A INTRODUCTION AND BACKGROUND 1 This is a representative proceeding commenced pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) which, despite my best efforts, has regrettably languished for some time. Notwithstanding the originating application was filed some fourteen months ago, the parties have until today been embroiled in disputation as to matters other than the substantive controversy which the Court is required to determine. 2 The applicant, Matheson Property Group Pty Ltd (MPG), represents a class comprising various holders of unsecured notes issued by the first respondent, Virgin Australia Holdings Limited (VAH). 3 MPG alleges that the notes were issued pursuant to a prospectus which was misleading and deceptive and which failed to disclose matters required to be disclosed pursuant to s 710 of the Corporations Act 2001 (Cth) (Corporations Act). The face value of the relevant notes is in the vicinity of $325 million. 4 In April 2020, VAH and a number of its subsidiaries entered voluntary administration and, in September 2020, deeds of company arrangement covering the entities in the Virgin Australia group of companies were executed, including a deed of company arrangement (DOCA) with respect to VAH and certain other entities (Deed Companies). 5 The substance of the dispute before the Court today arose as a consequence of declarations I made that, on the proper construction of the DOCA, cl 8.1(d) requires MPG to provide VAH with: (1) an indemnity in the form of sch 5 of the DOCA in relation to all claims made against VAH in the proceedings (Creditor Indemnity); and (2) evidence, to VAH's reasonable satisfaction, that MPG is and will continue to be able to satisfy the Creditor Indemnity: Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited [2022] FCA 1243 (earlier judgment). 6 In my earlier judgment, I reasoned that cl 8 allows relevant creditors (as defined in the DOCA) to pursue claims against the Deed Companies to the extent covered by insurance but requires them to do so in a way that does not expose the relevant Deed Company (in this case, VAH) to any expense or loss, including legal expenses (at [35]). The requirement to give the Creditor Indemnity is not only engaged where the claims are established to be "Insured Claims" but also where the creditor "intends to take action in relation to a Claim under [cl 8]" - that is, where the creditor seeks to rely on cl 8 (at [35]). 7 I explained the less than pellucid drafting (in particular, the inconsistent deployment of "Claim" and "Insured Claim"), at least in part, reflects the fact the demarcation between "Claims" and "Insured Claims" is not necessarily clear cut at the time of providing the indemnity (at [34]-[35]). 8 MPG filed and eventually withdrew an application for leave to appeal from the decision.

B THE INTERLOCUTORY ISSUES 9 Today, MPG moves on an amended interlocutory application, relevantly seeking the following orders: 1. Pursuant to rule 9.05 of the Federal Court Rules 2011 (Cth) (FCR) and/or sections 37P and/or 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCA Act), an order that … [the pre-administration insurers of VAH (VAH Insurers)] be joined to the proceeding … 2. Further, or in the alternative to Order 1, an order that the Applicant be granted leave pursuant to section 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) to proceed directly against each of the VAH Insurers … 3. An order pursuant to FCR, rule 9.21(2) or, further and alternatively, the equitable jurisdiction of the Court, or further or alternatively, s 37P of the FCA Act appointing Liberty Mutual Insurance Company ARBN 086 083 605 (Liberty) as the representative party of each of the VAH Insurers in this proceeding. … 7. If and to the extent that it is necessary, an order pursuant to s 447A of the Corporations Act 2001 (Cth) (the Act) that Part 5.3A of the Act is to operate in relation to Virgin Australia Holdings Limited (the Company) as if: (a) the VAH Insurers do not have any right and/or are unable to exercise any right conferred on the Company under cl 8.1 of the deed of company arrangement dated 5 September 2020 (DOCA); and/or (b) the creditor indemnity referred to in cl 8.1(d)(1) of the DOCA is an indemnity in favour of the Company and not the VAH Insurers. 7A. If and to the extent that it is necessary, an order pursuant to s 447A of the Act, or alternatively section 90-15 of the Insolvency Practice Schedule (Corporations) at Schedule 2 to the Act, that Part 5.3A of the Act is to operate in relation to the Company as if amending the third paragraph of Schedule 5 of the DOCA is amended so that it reads as follows: [The creditor] irrevocably and unconditionally indemnifies the Company against any costs or expenses or any amounts required to be paid by the Company in connection with the Insured Claim (Costs), including an assertion by the creditor that an Insured Claim exists to the extent that the Company is not indemnified for such costs pursuant to a contract of insurance entered into before [Appointment Date] or such Costs are not otherwise paid by the Company's insurer. 10 MPG also provided to the Court a draft originating application by which it proposes to seek the following relief: 1. An order pursuant to section 447A of the Corporations Act 2001 (Cth) (the Act), or alternatively section 90-15 of the Insolvency Practice Schedule (Corporations) at Schedule 2 to the Act (the IPS), that Part 5.3A of the Act is to operate in relation to Virgin Australia Holdings Pty Limited as if the third paragraph of Schedule 5 of the Deed of Company Arrangement dated 5 September 2020 is amended so that it reads as follows: [The creditor] irrevocably and unconditionally indemnifies the Company against any costs or expenses or any amounts required to be paid by the Company in connection with the Insured Claim, including an assertion by the creditor that an Insured Claim exists (Costs), to the extent that the Company is not indemnified for such costs pursuant to a contract of insurance entered into before [Appointment Date] or such Costs are not otherwise paid by the Company's insurer. (the Approved Creditor Indemnity). 2. Further or in the alternative, a declaration pursuant to section 90-15 of the IPS that the Company is not entitled to an indemnity in the form of Schedule 5 other than the Approved Creditor Indemnity. 11 The relief sought may be placed into four categories: (1) first, the application in the draft originating application and prayer 7A, by which MPG seeks an order, pursuant to s 447A of the Corporations Act, or alternatively s 90-15 of the Insolvency Practice Schedule (Corporations) in sch 2 to the Corporations Act, that Pt 5.4A of the Corporations Act is to operate in relation to VAH in a way which resolves what are said to be "insuperable practical difficulties" as to the provision of the Creditor Indemnity (Statutory Issue) - the Statutory Issue relates to an alleged disconformity between what is said to have been conveyed to creditors prior to the DOCA being voted upon and the terms of the Creditor Indemnity; (2) secondly, if the Statutory Issue is resolved, whether the pre-administration insurers of VAH (VAH Insurers) should be joined to the proceeding pursuant to r 9.05 of the Federal Court Rules 2011 (Cth) (FCR), as parties necessary to ensure each issue in the dispute is able to be heard and finally determined and to avoid multiplicity of proceedings; (3) thirdly, in the event the Statutory Issue is not resolved (and joinder is not effected pursuant to FCR 9.05), whether an order should be made that the VAH Insurers be joined as respondents to the proceeding pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Third Party Claims Act) - this gives rise to a subsidiary issue, namely whether the VAH Insurers would have the benefit of the Creditor Indemnity by operation of s 4(3) of the Third Party Claims Act; and (4) fourthly, if the VAH Insurers are joined to the proceedings, whether the insurer under VAH's Primary Policy, Liberty Mutual Insurance Company Australia (Liberty), should be appointed as a representative respondent (Appointment Issue). 12 After much toing and froing, the parties have agreed it is unnecessary to pursue the Statutory Issue and that the VAH Insurers should be joined to the proceeding pursuant to FCR 9.05. The Appointment Issue was not pressed. 13 Notwithstanding orders were made by consent, for future reference, it is important to explain how matters were brought into a landing.

C THE RESOLUTION 14 Owing to the interconnectedness of the issues and the alternative forms of relief sought, the parties' written submissions focussed upon issues of power rather than finding the shortest way home. 15 I raised concerns to this effect with the parties at the interlocutory hearing on 31 May 2023, resulting in orders for the filing of the amended interlocutory application and draft originating application. But some confusion persisted in the revised submissions filed in advance of today's listing. 16 The cause of some confusion is captured in MPG's written submissions (at [108]-[109]), which provide as follows: 108. Schedule 5 extends the indemnity to "judgments, suits or actions" and applies those expanded exposures (ie, beyond costs and expenses) to those incurred "directly or indirectly as consequence of commencing legal proceedings in relation to the Insured Claim" (emphasis added). 109. It is this extended reach of the indemnity which, according to VAH, extends to including cross-claims and claims for contribution, that is an impediment to the litigation funder in this proceeding, Balance, providing the creditor indemnity in the Schedule 5 form. Ordering that the indemnity conform with the disclosed creditor indemnity condition pulls back the reach of the Schedule 5 indemnity from capturing any exposure indirectly incurred by VAH as a consequence of the Applicant commencing this proceeding. 17 It seemed to me MPG's concerns as to the scope of the Creditor Indemnity were predicated upon a belief that VAH would assert that the Creditor Indemnity would indemnify VAH against any claims for contribution by third parties, in circumstances where senior counsel for VAH had recently confirmed it would not "affirmatively assert" this position: T5.21-22 (31.05.23). 18 Accordingly, I could see no reason to expend further time and costs pursuing the Statutory Issue, and provided the parties with the following draft order for their review in advance of the hearing: THE COURT NOTES THAT: 1. In order to maintain this proceeding, the applicant is obliged to provide an indemnity to VAH in the terms set out in Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited [2022] FCA 1243, that is, for all costs, expenses, judgments (including but not limited to any judgment or order obtained by the applicant against VAH, or any amounts required to be paid by VAH in connection with any judgment or order), suits or action incurred directly or indirectly as a consequence of the applicant commencing proceedings against the respondents to the extent that VAH is not indemnified for such amounts pursuant to a contract of insurance entered into before 20 April 2020 or such amounts as are not otherwise paid by VAH's insurer (Indemnity). 2. VAH has, though its senior counsel, advised the Court that notwithstanding the terms of the Indemnity and any submissions made on behalf of VAH on 2 September 2022 that: (a) although VAH contends the Indemnity covers the costs and expenses arising in the circumstances referred to in paragraph 10(b)(iii) of the Outline of Evidence of Mark Russel Clifton located at page 3371 of the Court Book provided to the Court on 17 June 2023 (CB) and reproduced as annexure A to these orders, VAH does not maintain and will not maintain in relation to this proceeding (or any proceeding commenced or proposed to be commenced by a group member) that the Indemnity operates so as to extend to costs, expenses or judgments incurred in relation to any cross-claims or any claims for contribution made in relation to the claim of the applicant or a claim of a group member made in this or in any other proceeding; (b) an indemnity from Balance UK to the applicant with an initial limit of $10 million will be sufficient, for the purposes of cl 8.1(d)(2) of the DOCA, to satisfy VAH that the applicant will be able to meet the Indemnity; and (c) VAH does not propose to defend any claim of the applicant or a claim of a group member made in this proceeding on the basis that an Indemnity was not provided prior to its commencement. 3. As a consequence of (2) above, the applicant does not press for relief in terms of prayers 1 or 2 of its draft originating application located at CB 51 to 54 and reproduced as annexure B to these orders, or prayer 7A of its amended interlocutory application dated 9 June 2023. AND THE COURT ORDERS BY CONSENT THAT: 4. The claim for relief in terms of prayer 7A of the applicant's amended interlocutory application dated 9 June 2023 be dismissed. 19 This proved a useful exercise. 20 Shortly before the hearing, MPG provided the Court with a revised form of order, reflecting its consent to what I had proposed but identifying an issue as to whether it is open to VAH to call for periodic payments on account of the Creditor Indemnity. VAH consented to the Court's proposed orders and indicated there were some aspects of MPG's proposed orders it could "live with", and others it could not: T3.12-8.44. In the end, three issues were raised: first, the adequacy of the "initial limit" of $10 million on the Creditor Indemnity; secondly, the ability of VAH to make periodic calls on the Creditor Indemnity; and thirdly, the extent to which any periodic calls should be subject to the approval of the Court. 21 Following a short adjournment, the parties resolved the first issue, and agreed to reserve their positions as to the second and third issues, reflected in a carve out in the final iteration of the orders, in the following terms: The parties agree to reserve for further argument, if necessary, the following questions: (a) whether the Indemnity authorises VAH to demand, or requires MPG to make, periodic payments on account of the Indemnity of amounts that are said to be costs and expenses falling within the Indemnity; and (b) if period payments can be demanded up to a limit of $5 million, whether any such periodic payments are subject to supervision and assessment by the Court. 22 It was then necessary to turn to the question of joinder. 23 Counsel for the VAH Insurers indicated they did not object to being joined subject to my making an order along the lines of that made in R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (Administrators Appointed) (in liq) [2023] FCA 703, relieving the VAH Insurers of any obligation to take any step in the proceeding. I am minded to make such an order for the reasons set out by Nettle J in CGU Insurance Limited v Blakeley [2016] HCA 2; (2016) 259 CLR 339 (at 337-338 [115]), namely, to ensure "all issues are dealt with at once in the one proceeding in a manner that binds all parties to the proceeding", in accordance with "contemporary imperatives of cost-effective and efficient judicial management" and, of course, the overarching purpose in Pt VB of the FCA Act.

D OUTSTANDING ISSUES 24 Following the resolution of the interlocutory issues, I heard from the parties in relation to two further issues: first, the costs of the interlocutory application; and secondly, the case management of the proceeding going forward. 25 As to the first issue, the VAH Insurers seek an order for costs. 26 In the exercise of my discretion as to costs, I have formed the view that MPG should pay 30% of the VAH Insurers' costs. This was an extremely complicated (an unnecessarily complicated) interlocutory dispute, which had a number of interrelated components and there has been a mixed outcome. 27 Secondly, I will make orders bringing the matter back before me in December 2023, at which time all issues concerning discovery and pleadings should have been resolved and MPG will have filed all of its lay affidavits and material in chief. 28 One hopes that, at that time, it will be possible to set a hearing date for the matter, subject to it becoming clear what my commitments are in 2024.

E CONCLUSION AND ORDERS 29 I will make orders giving effect to these reasons. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.

SCHEDULE OF PARTIES NSD 346 of 2022 Respondents Second Respondent ELIZABETH BRYAN AM Third Respondent PAUL SCURRAH Fourth Prospective Respondent LIBERTY MUTUAL INSURANCE COMPANY ARBN 086 083 605 Fifth Prospective Respondent HDI GLOBAL SPECIALTY SE Sixth Prospective Respondent BEAZLEY LLOYD'S SYNDICATE 2623/623 Seventh Prospective Respondent ENDURANCE WORLDWIDE INSURANCE LIMITED Eighth Prospective Respondent ACT LLOYD'S SYNDICATE 9554 Ninth Prospective Respondent HISCOX LLOYDS SYNDICATE 0033 Eleventh Prospective Respondent CV STARR LLOYD'S SYNDICATE 1919 Twelfth Prospective Respondent HCC INTERNATIONAL INSURANCE COMPANY PLC Thirteenth Prospective Respondent ASPEN LLOYD'S SYNDICATE 4711 Fourteenth Prospective Respondent ASSICURAZIONI GENERALI S.P.A. UK BRANCH Fifteenth Prospective Respondent AVIVA INSURANCE LIMITED Sixteenth Prospective Respondent BERKSHIRE HATHAWAY SPECIALTY INSURANCE COMPANY ARBN 600 643 034 Seventeenth Prospective Respondent TRAVELERS LLOYD'S SYNDICATE 5000 Eighteenth Prospective Respondent RSG UNDERWRITING MANAGEMENT EUROPE LIMITED T/AS STARTPOINT EXECUTIVE RISKS