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[2019] QSC 207
Supreme Court of Queensland
2019-08-23
Mullins J
Original judgment source is linked above.
PROCEDURE - STATE AND TERRITORY COURTS: JURISDICTION, POWERS AND GENERALLY - INHERENT AND GENERAL STATUTORY POWERS - TO STAY OR DISMISS ORDERS OR PROCEEDINGS GENERALLY - where the special purpose liquidator and general purpose liquidators pursued a consolidated proceeding to recover funds for the benefit of creditors in the company's liquidation - where the special purpose liquidator settled his claims with the defendants - where there were few remaining creditors - where one of the company's alleged creditors is also the litigation funder - whether it is an abuse of process for the general purpose liquidators to continue with the proceeding to recover their outstanding remuneration and expenses in respect of the litigation and the administration and the premium payable to the litigation funder
Elfic Ltd v Macks [2003] 2 Qd R 125; [2001] QCA 219, cited
Hall v Poolman (2009) 75 NSWLR 99; [2009] NSWCA 64, considered
Parbery v QNI Metals Pty Ltd [2018] QSC 240, related
Rozenblit v Vainer (2018) 262 CLR 478; [2018] HCA 23, considered
Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34, considered
S L Doyle QC, M J Doyle and N J Derrington for the second and third plaintiffs
C Ward and T March for the first, second, seventh, fifteenth and sixteenth defendants
HWL Ebsworth Lawyers for the second and third plaintiffs
Jonathan Shaw for the first, second, seventh, fifteenth and sixteenth defendants
[1] The first, second, seventh, fifteenth, sixteenth and twenty-second defendants apply for either a permanent stay of this proceeding as an abuse of the process of the court or a stay pending the final determination of proceeding BS13947/18 brought by Vannin Capital Operations Limited (Vannin) against QNI Resources Pty Ltd (Resources) and QNI Metals Pty Ltd (Metals) and others. Although the application did not specifically seek a stay pending the final determination of proceeding BS8063/18 brought by North Queensland Pipeline No 1 Pty Ltd and North Queensland Pipeline No 2 Pty Ltd against Resources and Metals (the Pipeliners Claims), during oral submissions the defendants framed their alternative relief for a stay on terms by reference to the conclusion of the Pipeliners Claims and the hearing of the application was conducted on the basis that it had been amended to seek alternative relief by reference to the Pipeliners Claims.
[2] The nature of this consolidated proceeding is referred to in many other judgments that have been given in the proceeding, such as Parbery v QNI Metals Pty Ltd [2018] QSC 240 and the judgments in the proceeding referred to in that decision. It is unassailable that the third plaintiffs who are the general purpose liquidators (GPLs) commenced their claims that were consolidated in this proceeding to recover funds for the benefit of creditors of the second plaintiff (QNI).
[3] The first plaintiff who is the special purpose liquidator (SPL) settled his claims in this proceeding with the defendants and, as a result, I made orders in this proceeding on 5 August 2019 (the consent orders) that provided for the discontinuance of claims for relief in the second further amended consolidated statement of claim that were made by the SPL together with other orders that resulted from that settlement. The effect of the settlement with the special purpose liquidator is that the only active defendants defending the GPLs' claims are the first, second, seventh, fifteenth, sixteenth and twenty-second defendants.
[4] At the time of the hearing of this application, the GPLs had circulated a draft third further amended consolidated statement of claim that confines the relief that they are seeking to the claims made in Parts NA, U and W of the previous version of the statement of claim. These claims are respectively described as the Mineralogy loan claims, the China First and Waratah Coal transactions and the Martino transaction. The settlement resulted in the payment of creditors of the company listed in schedule E to the statement of claim, but subject to specific orders that accommodated the existence of the Vannin proceeding and the possibility that the entities listed in schedule B to the order dated 5 August 2019 (Northern Shipping and Stevedoring Pty Ltd, Ostro Shipping Ltd and Societe Des Mines De La Tontouta) may obtain a final money judgment against QNI or have their debts admitted by the GPLs. The defendants assert that the continuation of the proceeding is therefore only for the purpose of recovering the GPLs' costs of the proceeding and the funding premium payable under the litigation funding agreement the GPLs entered into with Vannin.
Parbery & Ors
QNI Metals Pty Ltd & Ors [2019] QSC 207
(2009) 75 NSWLR 99
(2018) 262 CLR 478
(1992) 174 CLR 509
[5] Theoretically, Vannin and the schedule B creditors remain creditors of QNI, although the settlement with the SPL has Metals and Resources agreeing to pay the amount of any judgment obtained by Vannin in the Vannin proceeding against the second plaintiff or any judgment obtained by any of the schedule B creditors against the second plaintiff or any debt admitted by the GPLs in respect of any of the schedule B creditors. Clause 7.2 of the settlement agreement contemplates that it will be Metals and Resources that will defend the claims of Vannin and the schedule B creditors. While the SPL remains in that role, QNI has agreed not to take any step which impairs the conduct of any claims by or defences available to Metals and Resources in relation to these claims. That forbearance will expire when the SPL retires which he has agreed not to do until at least 60 days after the consent orders. The effect of the settlement and the consent orders means, in practical terms, no weight should be given to the claims of Vannin and the schedule B creditors as outstanding creditors of QNI in considering the issues raised by the defendants on this application, even though there is the possibility after the SPL retires that, if the GPLs have the funds, they could pay the debts of those creditors, if admitted to proof.
[6] In her affidavit filed on 16 August 2019 Ms Trenfield (who is one of the GPLs) disclosed at paragraph 56 that, as at 1 August 2019, not including any potential premium that may be required to be paid in respect of funds made available for the advancement of the litigation, the costs incurred by the GPLs in respect of this proceeding and other litigation conducted by GPLs on behalf of QNI to date totalled approximately $10.1m. In paragraph 57 of her affidavit Ms Trenfield discloses QNI has a contingent liability to pay to Vannin that amount plus a "funding premium", as Vannin has funded the costs of the proceeding and other litigation for QNI and the GPLs and provided security for costs of the proceeding for the claims advanced by the GPLs on their own behalf and on behalf of QNI.
[7] To date about $3.8m has also been approved by the creditors' committee of inspection as remuneration for the GPLs to 17 March 2019 in relation to the administration, apart from litigation, and that does not include disbursements either paid or incurred by the GPLs. Of the approved remuneration, approximately $2m has not yet been paid to the GPLs. Ms Trenfield estimates in paragraph 61 of her affidavit that approximately $730,000 in remuneration for further work has been incurred by the GPLs since 18 March 2019. The sum of the outstanding amounts for remuneration, inclusive of GST, is calculated by Ms Trenfield in paragraph 62 of her affidavit as equating to approximately $2.9m. Ms Trenfield deposes in paragraph 63 of her affidavit to QNI's funds comprising cash at bank in an amount of $1,052,112.95 and the funds of US$3,759,246.71 paid into court in the interpleader proceeding BS6216/16 by Glencore International AG which is the subject of a claim by Vale Nouvelle-Caledonie SAS (Vale). Ms Trenfield concludes in paragraph 64 of her affidavit that those funds are insufficient to cover the remaining claims which are given priority under s 556 of the Corporations Act 2001 (Cth) (the Act).
[8] Ms Trenfield identifies in table A set out in paragraph 12 of her affidavit five creditors (apart from the Pipeliners Claims) which have lodged proofs of debt in the liquidation that have yet to be adjudicated upon by the liquidators and therefore are outstanding creditors. The fact that these creditors were not included in schedule E to the statement of claim which was the list of creditors of QNI in respect of which the SPL sought indemnity from Metals and Resources does not preclude the GPLs entertaining proofs of debt from those creditors. In fact, Ms Trenfield's description of these creditors' claims gives some indication as to why some of the claims may not have been included in schedule E. The GPLs are duty bound to follow the usual processes for calling for, or updating, proofs of debt before distribution of any funds in the liquidation and are not constrained by the list of creditors in schedule E.
[9] Vale's claim is for the supply in December 2015 of nickel hydroxide cake (NHC) in respect of which Vale claims it has a retention of title clause pursuant to a security deed that QNI executed in favour of Vale on 15 July 2015 and was a registered security interest. Vale relies on that retention of title claim to pursue the amount paid into court in the interpleader proceeding in respect of the product that was processed from the NHC or in respect of which the NHC was used. Vale's total claim is US$4,953,649.04. That would be reduced to US$1,194,402, if Vale was fully successful in obtaining the funds paid into court. Hastings Deering (Australia) Limited lodged a proof of debt on 19 March 2016 for $15,023.04. It does have four security interests registered in respect of goods supplied to QNI, but Ms Trenfield sets out in paragraph 35 of her affidavit that she is not aware of any attempt on its part to enforce its security in preference to claiming as an unsecured creditor or whether the securities are, in fact, capable of being realised. PME Supplies lodged a proof of debt on 12 May 2016 for $3,051.90. Schneider Electrical (Australia) Pty Ltd lodged a proof of debt on 3 May 2016 for $22,635.26. It also had a registered security interest, but Ms Trenfield deposes in paragraph 38 of her affidavit to not being aware of any attempt on its part to enforce against that security in preference to claiming as an unsecured creditor. Blej Investments Pty Ltd lodged a proof of debt on 21 April 2016 for $3,080. Apart from Vale, the outstanding creditors are modest in that the total claimed is $43,790.20.
[10] On the basis that the continuance of this proceeding is primarily to benefit the creditor Vannin, the defendants submit that the proceeding is properly characterised as champertous and should be permanently stayed. The defendants acknowledge it is not champertous for a liquidator to enter into a funding agreement to pursue recovery of assets of the company in liquidation. See Elfic Ltd v Macks [2003] 2 Qd R 125 at [75]-[83] and [188]-[189]. The defendants submit, however, that the GPLs are continuing the proceeding for the dominant purpose of giving benefit to Vannin pursuant to the litigation funding agreement. The defendants bear the onus of proving the proceeding is being continued for an improper purpose in the sense in which that is explained in Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 522, 526 and 534-535.
[11] The factual assertion on which the defendants' submission is based that the proceeding is primarily to benefit Vannin as the litigation funder is not made out. There are substantial costs and expenses incurred by the GPLs in the conduct of this proceeding, the other litigation and the administration, even ignoring the existence of other creditors, which justify the continuance of the proceeding by the GPLs to collect the assets of QNI to cover those costs and expenses and any outstanding creditors' claims and preclude the characterisation of the plaintiffs' claims as being pursued primarily to benefit the litigation funder. There is no justification for ordering a permanent stay of the proceeding.
[12] The defendants advance their alternative submission for a stay of the proceeding on terms in a number of ways. One submission was that this proceeding should be stayed, so that the GPLs could undertake the adjudication process in respect of any remaining creditors' proofs of debt and that the court should then exercise its supervisory jurisdiction in respect of liquidators to determine how the quantum of the admitted proofs, the justifiable remuneration and expenses of the GPLs (taking into account that much of the proceeding was prosecuted by the SPL until he settled with the defendants) and any legitimate funding uplift payable to Vannin compared with the likely recovery in the proceeding to determine whether it was proper for the GPLs to pursue the proceeding.
[13] The timing of the defendants' application for a stay is most relevant. It was made on day 14 of the trial and almost at the conclusion of the evidence in the plaintiffs' case, apart from the evidence of Mr Parbery and Mr Gothard which was deferred to the conclusion of the evidence in the defendants' case, when it was anticipated that the defendants' accounting expert would be in a position also to give evidence. Ms Trenfield deposes in paragraphs 5 and 6 of her affidavit that the GPLs have not made a further general call for proofs of debt, as that is only done when it is necessary for the liquidator to confirm the identity of all creditors or to enable a dividend to be declared. The GPLs have not adjudicated on any proofs of debt, other than for the purposes of deciding upon the eligibility of creditors to vote at the meeting of creditors or as requested by creditors. Ms Trenfield deposes in paragraph 16 of her affidavit that the GPLs are not presently funded to conduct any adjudication in respect of the proofs of debt lodged by any of the creditors.
[14] In respect of the defendants' alternative application for a stay of the proceeding pending the outcome of the Vannin proceeding, that is not warranted on any view, as for the purpose of this proceeding Vannin's debt was resolved by the terms of paragraph 1 of the consent orders that Metals and Resources pay to Vannin the amount of any final money judgment obtained by Vannin against QNI which is not stayed by order of the court within 28 days of QNI serving a written notification on Metals and Resources that such final money judgment not subject to a stay has been entered against QNI.
[15] Ms Trenfield points to the Pipeliners as possible outstanding creditors of QNI. That no doubt is part of the explanation behind the defendants' submission that this proceeding should be stayed pending the outcome of the Pipeliners Claims. The Pipeliners have lodged proofs of debt totalling $35,540,978, although Ms Trenfield has reduced that amount by $4,440,788.63 because of the difference between the proofs and the supporting invoices. (It should also be noted that the Pipeliners Claims, as reflected in the invoices totalling the sum of $31,100,289.37 exceed the sum of $16,729,093.28 which is claimed in Pipeliners Claims). The Pipeliners Claims have progressed at least to the close of pleadings. QNI is not a party to that proceeding, but Metals and Resources defend the proceeding on the basis that QNI is liable to the Pipeliners or Metals and Resources have no liability to Pipeliners unless QNI fails to meet the Pipeliners Claims. It does not make sense to stay this proceeding pending the determination of the Pipeliners Claims which may not determine the issue of whether the proofs of debts lodged by Pipeliners with the GPLs should be admitted by the GPLs.
[16] For the purpose of the stay application, the defendants issued a subpoena to Vannin to produce the litigation funding agreement. Vannin opposed the production. The creditors' committee of inspection had approved the GPLs entering into the litigation funding agreement with Vannin in order to pursue recovery actions. The plaintiffs rely on exhibit 21 which is the minutes of the meetings of the committee of inspection held on 30 August and 5 September 2016 at which the proposed litigation funding agreement with Vannin was considered by the committee and ultimately approved at the meeting on 5 September 2016. Those minutes were lodged with ASIC on 4 October 2016 and have therefore been publicly available since that time.
[17] On the return of the subpoena on 19 August 2019, I viewed the litigation funding agreement, after submissions were made on the defendants speculating that the extent of the uplift factor in the litigation funding agreement may affect the view taken of the GPLs' decision to continue with the proceeding. As a result, I requested that Ms Trenfield provide a further affidavit dealing with her opinion of the terms and conditions on which the litigation funder will be remunerated in relation to the recovery of proceeds and whether, in her opinion, those conditions were within the usual conditions for this type of litigation, having regard to the issues involved. A further affidavit of Ms Trenfield was filed on 20 August 2019. Ms Trenfield deposes at paragraph 9 of this affidavit that the GPLs' report to creditors dated 11 April 2016 identified a number of potential claims including the claim against the seventh defendant to recover the Mineralogy loans and the claims to set aside the Waratah Coal and China First transactions. Ms Trenfield notes at paragraph 10 of this affidavit that she understood "that without external funding, the GPLs would have had insufficient funds to further investigate and prosecute any of the identified claims on behalf of QNI". At paragraph 19 of this affidavit, Ms Trenfield sets out her opinion that the terms and conditions of the litigation funding agreement are reasonable and contain usual litigation funding terms and conditions, including the extent of Vannin's funding premium entitlements and the indemnity made available to the GPLs and QNI.
[18] The gist of the defendants' claim that there is unfairness associated with the continuance of the proceeding is that it is conceivable if the plaintiffs recovered most, if not all, of the amount of $102,884,346.26 claimed against the seventh defendant (and the China First and Waratah Coal charges and the Martino transaction were set aside) there would arguably be surplus funds in the liquidation after meeting any outstanding creditors, legitimate costs and expenses of the GPLs and the funding premium payable to Vannin. The argument was put that a "windfall" would become payable to Vannin, because its funding premium would be calculated by reference to, and deducted from, the surplus funds that would be returned to the shareholders of QNI and that would be a "disproportionate" benefit to Vannin.
[19] The defendants rely on the supervisory jurisdiction of the court in relation to liquidators that was considered in Hall v Poolman (2009) 75 NSWLR 99 at [147]-[154] to submit that there should be a stay at this stage of the proceeding. Hall concerned the direction made by a trial judge that there be an inquiry by the court under the then s 536 of the Act into the liquidators' conduct in relation to the proceedings that had concluded before the trial judge where the liquidators with the assistance of a litigation funder proceeded against two of the company's directors and the Commissioner of Taxation in circumstances where it was apparent that there would have been no prospect of any worthwhile recoupment for creditors and the only real beneficiaries of the litigation would have been the funder, the liquidators and the lawyers. The Court of Appeal set aside the trial judge's order for the inquiry and set out relevant factors for liquidators to take into account in pursuing litigation with the aid of a litigation funder at [150]-[152].
[20] The plaintiffs rely on the confirmation by the High Court of the fundamental principle that a litigant is entitled to a determination "unless to allow the claim to proceed would amount to an abuse of process or would clearly inflict unnecessary injustice on the party seeking the stay": Rozenblit v Vainer [2018] HCA 23; (2018) 262 CLR 478 at [10] (per Kiefel CJ and Bell J), and see also at [63]-[67] (per Gordon and Edelman JJ).
[21] Even though the defendants are critical of the GPLs' conduct of this proceeding and the liquidation, the fact remains that it has been a complex administration and significant costs have been incurred in the course of the administration, including this proceeding and other litigation. The fact that the proceeding has been attenuated, because of the defendants' settlement with the SPL does not deny the GPLs the right to pursue their claims to recover loans from the seventh defendant alleged to belong to QNI to enable their costs and expenses, any outstanding creditors and the funding premium payable to Vannin to be met. The fact that the potential maximum recovery is greater than the likely payments to be made to meet all the costs and expenses and claims payable by the GPLs is due to the quantum of the transactions between QNI and the seventh defendant that are challenged by the GPLs. The defendants do not argue that the GPLs' claims in respect of the Minerology loans are unarguable.
[22] The effect of the defendants' submission that there should be a stay of the proceeding, so that the GPLs should quantify all the outstanding claims to be met in the liquidation, in order to justify seeking to recover the Minerology loans, amounts to the defendants' dictating to the GPLs as to how and when they should perform their duty as liquidators. The logical consequence of the defendants' approach is that if the potential recovery of assets far exceeds the outstanding claims in the liquidation, the GPLs should not continue with the proceeding to recover the Minerology loans. There is no suggestion by the defendants, however, as to how all the costs and expenses of and claims in the liquidation should then be met. Hall is not authority for the defendants' approach of seeking a stay of the proceeding in the midst of the trial. It is also relevant that under s 90-10 of the Insolvency Practice Schedule (Corporations) that the shareholders of the QNI may make an application for an inquiry into the GPLs' conduct of the liquidation, if so advised, at an appropriate stage.
[23] I am not persuaded that there is the injustice asserted by the defendants in the continuance of the proceeding. None of the alternatives put forward by the defendants for ordering a stay of the proceeding on terms is appropriate at this stage of the trial. I have therefore concluded that the stay application should be dismissed. I will give the parties an opportunity to consider these reasons before hearing submissions on costs.