Plaintiff v Defendants

Hall and Wilcox, town agents acting for McCollough Robertson

1 Perpetual Nominees Limited ("Perpetual") commenced this proceeding against Rytelle Pty Ltd (Receivers and Managers appointed), the Forest Resort Operations Pty Ltd, Joan Pamela Walsh and James William Walsh as guarantors ("the Guarantors") of financial accommodation provided to the Forest Resort Pty Ltd and the Forest Resort Hotel Pty Ltd as borrowers ("the Borrowers") by Perpetual ("the Claim"). Perpetual acted as agent for Wellington Investment Management Limited ("Wellington IM"). No claim is made against the Borrowers.

2 The Guarantors and the Borrowers ("Plaintiffs by Counterclaim") have made a counterclaim against Perpetual and Wellington IM ("the Defendants by Counterclaim"). The counterclaim pleads causes of action for breach of contract and misleading or deceptive conduct by Wellington IM associated with the provision of financial accommodation by Wellington IM.[1]

3 Wellington IM is now in liquidation. It was the Responsible Entity of the Premium Income Fund at the relevant times.[2] The Responsible Entity of the Premium Income Fund changed from time to time as follows:

(a) Until 29 March 2008, MFS Investment Management Limited ("MFS Investment") was the Responsible Entity of the Premium Income Fund.

(b) On 29 March 2008 MFS Investment changed its name to Octaviar Investment Management Limited.

(c) On or about 13 June 2008 Octaviar Investment Management Limited changed its name to Wellington IM.

(d) On 15 October 2008 Wellington Capital Limited ("Wellington Capital"), a new entity ("the New RE"), became the responsible entity of the Premium Income Fund. It holds an Australian Financial Services licence and manages the Premium Income Fund pursuant to that licence.

4 Accordingly, the Responsible Entity of the Premium Income Fund remained the same until 15 October 2008. All that took place was a series of name changes, however the entity itself remained the same until that date. At the time of the provision of financial accommodation to the Borrowers, the Responsible Entity was called Wellington IM and I will refer to that entity as the Former RE.

5 The Plaintiffs by Counterclaim seek leave as follows:

(a) To proceed against Wellington IM, the Former RE, pursuant to s 471B of the Corporations Act 2001 (Cth). Leave is required because Wellington IM is in liquidation. The application is not opposed by any party and it is appropriate that leave be granted on the usual terms. The attitude of the liquidator, Barry Hamilton is not known.

(b) To join Wellington Capital, the New RE, as a third defendant to the counterclaim. At an earlier directions hearing, I invited the New RE to make submissions in relation to the proposed joinder. The New RE opposes the joinder essentially on the grounds that such joinder would be futile. I agree. However my reasons differ from the main submissions made by the New RE.

6 The present counterclaim against Perpetual and the Former RE essentially pleads various claims for breach of contract and misleading or deceptive conduct. In summary it is asserted that the Former RE, as lender, failed to provide further finance in breach of its contractual obligations. It also pleads the falsity of various representations made by the Former RE to the Borrowers relating to the ability of the Former RE to provide ongoing funding to the Borrowers. Perpetual and the Former RE deny the allegations and, to my observation, the proceeding has become bitter and acrimonious. Mediation has failed and the proceeding needs to be closely managed and a trial date fixed as a matter of urgency.

7 Wellington Capital, submitted that although as successor to the Former RE it would ordinarily be liable for the liabilities of the Former RE, it is not liable if the Former RE was not entitled to an indemnity from the Premium Income Fund. It was submitted that this flowed directly from the provisions of ss 601FS(2)(d), 601FT(2) and 601GA(2) of the Corporations Act.

8 Section 601FS(1) and s 601FS(2)(d) of the Corporations Act are in the following terms:

(1) If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and liabilities of the new responsible entity.

(2) Despite subsection (1), the following rights and liabilities remain rights and liabilities of the former responsible entity:

...

(d) any liability for which the former responsible entity could not have been indemnified out of the scheme property if it had remained the scheme's responsible entity.

9 I was invited by both counsel to determine at this stage the issue of whether Wellington IM, as Former RE, would - in the event of the Plaintiffs by Counterclaim being successful - be entitled to an indemnity from the Premium Income Fund. It was submitted that this would determine which entity was liable, Wellington IM or Wellington Capital. Wellington Capital submitted that on the evidence, which is referred to below, it was clear and unarguable that Wellington IM, would not be entitled to be "indemnified out of the scheme property" and as a consequence, Wellington Capital would not be liable - making any joinder futile.

10 Rule 9.06 of the Supreme Court (General Civil Procedure) Rules 2005 gives the court a discretion to add a party at any stage of a proceeding. I do not propose to add Wellington Capital as a party at this stage.

11 Joinder of the New RE at this stage of the proceedings would be of no benefit to any of the parties. In these proceedings, the Plaintiffs by Counterclaim first need to establish liability on the part of the Former RE. If they do not, the matter is at an end. If they establish liability, it will only then be necessary to determine whether the party liable, namely Wellington IM, is entitled to an indemnity from the Premium Income Fund. If it is not entitled to any indemnity, there is no question of any liability on the part of the New RE, Wellington Capital. It is protected under s 601FS(2)(d) of the Corporations Act. In such an event, albeit in a retrospective sense, there would have been no need to join Wellington Capital. If, however, the Former RE is entitled to an indemnity, the New RE will automatically be liable under s 601FS(1) which, in effect, operates as a statutory novation.[3] Again, and subject to the matter referred to in paragraph 18 below, there would have been no need to join the New RE at this stage of the proceedings.

12 Accordingly, in the exercise of my discretion, I do not think it necessary or desirable to join Wellington Capital at this stage. It is unnecessary and premature. The liability of Wellington Capital as New RE is automatic and consequential upon issues involving the existing parties. The exposure of the New RE depends on the determination of a number of antecedent matters. Those matters should be determined first and without encumbering this proceeding with a further, unnecessary (at this stage) dimension or diversion. The parties should concentrate on the main issues in the case. This is a sufficient basis to dispose of the application.

13 Although not necessary to decide, and without going into any detail, it is plain enough on the evidence before me that the reason that Wellington IM did not advance funds (assuming for the purpose of this judgment that it was under an obligation to provide further funding) was because, through its conduct, no funds were available to it to be advanced.

14 Mr Hamilton, the liquidator of Wellington IM, has deposed to various matters. He has exhibited a statement of agreed facts signed by him on 7 May 2012. It contains substantial and serious admissions directly against the interests of Wellington IM. If accepted, the agreed statement of facts establishes comprehensively and unequivocally that the Former RE was involved in significant contraventions of the Corporations Act. The final result is that as a result of such contraventions, and as at January 2008, no further funds were available to the Former RE for the purpose of further advances. In such circumstances it is difficult to conceive of the Former RE being entitled to an indemnity from the Premium Income Fund,[4] the trigger for liability of the New RE. I do not accept, as submitted by the Plaintiffs by Counterclaim, that Wellington Capital has "rightly succeeded to the liabilities of Wellington IM under s 601FS(1)".

15 Although it is not necessary or desirable to determine the issue of indemnity at this stage, I am not prepared to simply ignore the evidence. Rather, I take it into account as further support for the conclusion I have reached.

16 Although in a commercial and practical sense Wellington Capital as the New RE is inextricably involved in this proceeding, and presumably the beneficiary of any judgment in favour of Perpetual, it is neither convenient nor desirable (subject to the matters I have referred to below) that it be joined at this stage. If the Plaintiffs by Counterclaim are successful, Wellington Capital would not, on the evidence at this stage, succeed in any claim for indemnification out of the Premium Income Fund. As a result, Wellington Capital would be entitled to assert its position under s 601FS(2)(d). If the position changes for whatever reason, the failure to join Wellington Capital at this stage would not matter and would not cause any real prejudice to the Plaintiffs by Counterclaim.

17 In the final result, and in the exercise of my discretion and after consideration of all necessary facts and circumstances and subject to the matter referred to below, I am not prepared to join Wellington Capital at this stage. Accordingly, subject to the matter referred to below, the application will be dismissed.

18 Although any liability on the part of the New RE will only follow at a later stage, where Wellington Capital will have the opportunity to be heard, I am concerned that the New RE be bound by the decision in this proceeding. It will not be desirable, to say the least, if the New RE asserted that, in addition to its s601FS(2)(d) argument, it was not bound by the decision in this proceeding because it was not a party and not given the opportunity to be heard, particularly in circumstances where it may always have been liable.

19 If Wellington Capital undertakes to be bound by the decision in this proceeding, I will not accede to the joinder application. If however, it does not proffer such undertaking or otherwise wishes to participate in the trial, it will be joined as a party.

20 I propose to give Wellington Capital seven days to make a decision. Orders will be made thereafter consistent with these reasons.

RYTELLE PTY LTD (ACN 105 101 639) (Receivers and Managers appointed)

THE FOREST RESORT OPERATIONS PTY LTD (ACN 100 823 201)

THE FOREST RESORT OPERATIONS PTY LTD (ACN 105 101 639)

WELLINGTON INVESTMENT MANAGEMENT LIMITED (ACN 101 634 146)

[1] Perpetual acted as agent for Wellington IM and as Custodian of the scheme property pursuant to a Custody Agreement.

[2] The Premium Income Fund was first known as The MFS Premium Income Fund and from 29 March 2008, as Octaviar Premium Income Fund until 9 June 2008.

[3] Huntley Management Limited v Timbercorp Securities Limited [2010] FCA 576, [69].

[4] Nolan v Collie [2003] VSCA 39, [50]-[53].