R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited

Federal Court of Australia|2023-02-14|Before: Lee J

Counsel for the applicants in NSD 665 of 2022 and NSD 948 of 2022: Mr L Armstrong KC with Ms A Campbell

Solicitors for the applicant in NSD 665 of 2022: Banton Group

Solicitors for the applicant in NSD 948 of 2022: Shine Lawyers

Solicitors for the second respondent in NSD 665 of 2022 and the third respondent in NSD 948 of 2022: Arnold Bloch Leibler

Counsel for the third respondent in NSD 665 of 2022 and the second respondent in NSD 948 of 2022: Mr T Bagley

Solicitors for the third respondent in NSD 665 of 2022 and the second respondent in NSD 948 of 2022: GRT Lawyers

Counsel for the fourth respondent in NSD 665 of 2022 and NSD 948 of 2022: Mr T Prince

Solicitors for the fourth respondent in NSD 665 of 2022 and NSD 948 of 2022: Corrs Chambers Westgarth

BETWEEN: R&B INVESTMENTS PTY LTD AS TRUSTEE FOR THE R&B PENSION FUND Applicant

AND: BLUE SKY ALTERNATIVE INVESTMENTS LIMITED ACN 136 866 236 (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (and others named in the Schedule) First Respondent

order made by: LEE J DATE OF ORDER: 14 February 2023

THE COURT ORDERS THAT:

On or by 7 March 2023, the applicants serve on the respondents and, if it is proposed that an application for leave to proceed be made against the insurer (or insurers) of the respondents pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Act), on the proposed respondent insurer (or insurers): (a) any interlocutory application the applicants propose to move upon (being an interlocutory application to which the person served is a respondent); (b) a draft of the proposed consolidated statement of claim; (c) any affidavit material; and (d) an outline of submissions and any further evidence relied upon by the applicants in relation to any order they seek at the case management and interlocutory hearing listed at 10:15am on 24 March 2023 (relevant applications).
On or by 17 March 2023, any party, proposed respondent or proposed intervener opposing any of the relevant applications file any evidence upon which they propose to rely and any submissions.
On or by 22 March 2023, the applicants file submissions in response, being submissions which will serve to supersede the submissions provided pursuant to Order 1(d).
The applicants pay the respondents costs of the day.
The proceedings be listed for case management and interlocutory hearing of the relevant applications at 10:15am on 24 March 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

(Delivered ex tempore, revised from the transcript)

A INTRODUCTION 1 Before the Court are two competing securities class actions brought against Blue Sky Alternative Investments Limited (Blue Sky), a company in liquidation: (1) R&B Investments Pty Ltd as trustee for the R&B Pension Fund v Blue Sky Alternative Investments Limited ACN 136 866 236 (Administrators Appointed) (Receivers and Managers Appointed) (In Liq) (NSD 665 of 2022) (R&B Proceeding); and (2) David Furniss v Blue Sky Alternative Investments Limited ACN 136 866 236 (Administrators Appointed) (Receivers and Managers Appointed) (In Liq) (NSD 948 of 2022) (Furniss Proceeding). 2 I will resist rehearsing the background to these proceedings, which is set out in R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (Administrators Appointed) (in liq) (Carriage Application) [2022] FCA 1444 (at [6]-[22]). 3 It is well to commence by explaining the position subsequent to that decision. 4 On 21 December 2022, I made orders to facilitate the consolidation of the proceedings. Those orders contemplated dealing with a range of interlocutory applications today, including: first, the formalisation of consolidation arrangements; secondly, leave to file a proposed consolidated pleading and directions for the future conduct of the proceeding towards the trial, consistent with the overarching purpose in Pt VB of the Federal Court of Australia Act 1976 (Cth) (FCA Act); thirdly, any proposed application to join the insurer (or insurers) of the respondents; and fourthly, applications for notices advising group members of the applicants' intention to seek, at the conclusion of the proceeding, what has been described as a "solicitors' common fund order". An order of this type is contemplated in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107; (2019) 369 ALR 583 (at [121]-[130]) which incorporates a payment to solicitors of a commission out of any settlement sum or judgment.

B THE CURRENT POSITION 5 In order to facilitate the expeditious consolidation of the proceedings, I had hoped to deal with all of these issues today. 6 Regrettably, the matter appears instead to have gone into stasis since the last case management hearing, apparently for three reasons. First, the proposed consolidated pleading has not been finalised due to concerns about the provision of documents the subject of orders made by the Supreme Court of Queensland. Secondly, for reasons that have not been explained, the proposed consolidation agreement remains in draft form. Thirdly, any proposed application to proceed against the insurer (or, as the case may be, insurers) of the respondents has not been moved upon because, I am told, it is unclear as to whether one or more insurer has agreed to indemnify the respondents.

C THE CONSOLIDATED PLEADING 7 On 13 February 2023, the eve of this case management hearing, my Associate received a letter from the solicitors for the applicant in the R&B Proceeding, Banton Group, indicating that the applicants in both proceedings have yet to finalise a proposed consolidated pleading. The reason for that delay is the subject of an affidavit sworn by Jonathan Benjamin Wertheim on 13 February 2023 (Wertheim Affidavit), a solicitor of Shine Lawyers (Shine), who acts for the applicant in the Furniss Proceeding. 8 A view was apparently formed by Shine that having regard to orders made by Crow J in the Supreme Court of Queensland restricting the use of documents accessed by Mr Furniss under Pt 2F.3 of the Corporations Act 2001 (Cth), it would be "prudent and necessary to seek further orders in the Supreme Court of Queensland to vary those restrictions" before it would be permissible to provide copies of those documents to the solicitors for the applicant in the R&B Proceeding: Wertheim Affidavit (at [7]-[9]). 9 It was not until 9 February 2023, however, that orders varying the restrictions on those documents were made by the Supreme Court of Queensland. 10 It is regrettable that this course was adopted. Although it is unclear when the concerns referred to in the Wertheim Affidavit first emerged, I had no notice of this difficulty until my Chambers received the letter from Banton Group on 13 February 2023. 11 In Pt IVA proceedings, at least in my docket, there is liberty to approach the Associate at short notice if there is any perceived difficulty in complying with orders of the Court. 12 If I had been apprised prior to Christmas of any difficulties in finalising a proposed consolidated pleading, I would have been able to assist the parties in clarifying whether the relevant documents could be provided to the solicitors for the applicant in the R&B Proceeding. 13 Instead, the parties pressed pause for several weeks, stifling progress towards the consolidation of the proceedings.

D THE CONSOLIDATION AGREEMENT 14 Additionally, the proposed consolidation agreement has not been finalised. 15 It is unclear to me why this is so. Although I am told that arrangements for consolidation have been agreed in principle, those arrangements are not reflected in a finalised document: Wertheim Affidavit (at [23]-[26]). Indeed, counsel indicated that the proposed consolidation agreement remains a "dynamic document", which was provided to the Court: T14.35-45. 16 Two comments should be made about the proposed consolidation agreement in its current form. The following appears in the recitals: D On 21 December 2022: a) the parties reached agreement in principle to consolidate the R&B Proceeding and the Furniss Proceeding on the basis inter alia that they would seek: i. an order (Litigation Fee Order) requiring each group member who receives a payment in the resolution of the consolidated proceeding (whether by way of settlement or an award of damages) to pay to Shine and Banton a proportion of that sum, in an amount to be determined by the Court; or ii. if the matter is transferred to the Supreme Court of Victoria, a 'Group Costs Order' pursuant to s 33ZDA of the Supreme Court Act 1986 (Vic) (Group Costs Order); … 17 First, as can be seen, the proposed consolidation agreement foreshadows the applicants seeking, at the conclusion of the proceeding, a solicitors' common fund order. 18 It has been suggested recently that there is no power to make any type of common fund order under Pt IVA of the FCA Act: see Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84 (at [190] per O'Callaghan J). Although it is unnecessary to decide such a point for the purposes of these reasons, I doubt that this is the case. I also doubt that the making of such an order is necessarily restricted to funders. Even leaving aside the question of statutory power in the context of "Settlement CFOs", as I indicated in Klemweb, this Court, as a Court of equity, will apply fundamental equitable principles in the execution of its jurisdiction, including the maxim that equity is equality. One of the outer workings of this maxim is seen in relation to the proper order for costs in representative proceedings brought in Chancery in respect of the reimbursement for the costs of litigation. I went on to observe (at 612-3 [139]-[141]): [139] Focussing on the context of Pt IVA proceedings, it is not apparent to me why a properly formulated common fund order that relates, in its operation to a common fund and involves a contingency payment to a solicitor could not, in some cases, be appropriate to ensure justice in some Pt IVA proceedings. … [140] In circumstances where there is real doubt about the ability to intervene with contractual promises given to funders absent any complaint by the contractual counterparty … the practical benefit of common fund orders has been to maintain control over disproportionate deductions from modest settlements, prevent windfalls, and ensure the Court's protective and supervisory role in relation to group members is given effect. … [141] Subject to being properly framed… I do not consider it unlikely that a common fund order incorporating a contingency payment could be made. When one has regard to the equitable roots and restitutionary basis of common fund orders, it is not apparent why a common fund order incorporating a contingency component is antithetical to doing justice in a Pt IVA proceeding in an appropriate case. 19 Secondly, and relatedly, it is proposed that if the Court does not make a solicitors' common fund order, the parties will seek what is known as a "Group Costs Order" in the Supreme Court of Victoria: see Allen v G8 Education Ltd [2022] VSC 32; Fox v Westpac Banking Corporation; Crawford v Australia and New Zealand Banking Group Limited [2021] VSC 573. 20 It should be obvious to all concerned that such a step will mean that the substantive progress of these proceedings will be frustrated. This reinforces a concern that one often has about Pt IVA proceedings, namely that solicitors and funders are focussed so intently on their own position that they forget that it is their duty to advance the claims of the applicant and group members towards a swift resolution of the substantive matter. As I said in Klemweb (at 601-2 [85]): Legal representatives acting for an applicant have professional, contractual and fiduciary duties. Those duties involve advising and assisting the applicant to discharge the obligation to represent the claims of the group members they represent in accordance with Pt IVA and Pt VB of the Act. The Court is entitled to expect that the applicant and the lawyers will not act contrary to the interests of group members as a whole in advancing and dealing with the common aspects of their s 33C claims. It is to be expected that differently represented applicants may responsibly and in good faith come to disparate views about pleadings, claim periods, forensic decisions and case theories in complex litigation. Leaving aside manifest deficiencies in a way a case is pleaded or conducted, often it will be difficult to tell whether a particular decision was sound until the end of the litigation. Having said that, provided there is no reason to think otherwise, the Court should assume that a relevant legal team will reflect regularly upon the conduct of the case and give thought to amendments including refining or including further causes of action and, if appropriate, bringing s 33K applications to augment or restrict the class. 21 Although I have no firm view about the matter and will hear any application if it is made on the merits, in the light of the overarching purpose, it is presently difficult to reconcile further delay of the proceeding by countenancing the transfer of the matter to the Supreme Court of Victoria only to procure more favourable financial arrangements for the solicitors and funders in the proceeding. 22 It is unnecessary to form any final view about these issues today. For present purposes, the solicitors for the applicants intend to send a letter to the New South Wales Legal Services Commissioner regarding, among other things, the prospect of seeking the solicitors' common fund order, including whether the Commissioner wishes to be heard in relation to the making of any such order. I consider this to be a sensible course.

E THE JOINDER OF THE INSURERS 23 Regrettably, another matter has remained in stasis since I made orders on the last occasion. 24 During the hearing in December, I was informed by counsel for the applicant in the R&B Proceeding that a potential application was being contemplated to join the insurer (or insurers) of Blue Sky, which, in the light of its insolvency, is hardly surprising. 25 Presently, an issue has arisen as to whether the insurers have agreed to indemnify the respondents in respect of the claims made in the R&B Proceeding: Wertheim Affidavit (at [20]). There may be good reasons for the delay, but it is unclear to me as to why that information is likely to be determinative as to whether or not any application pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) ought be made. 26 Even if indemnity has been granted, there can be little doubt that it is appropriate for the proceedings to be advanced against the insurer (or insurers) directly. In any event, if such an application is to be made, it should be raised the next time the matter is before the Court. 27 I am conscious, of course, that if I am to make orders affecting the insurer (or insurers) of the respondents, I will be doing so in their absence, and it would be open for such insurer (or insurers) to seek a variation of those orders.

F CONCLUSION AND COSTS 28 The respondents seek their costs of the day. In addition to having to set aside today to deal with this matter, it is now necessary that the proceedings be adjourned for well over a month for no particularly good reason. 29 Accordingly, the applicants should pay the respondents' costs of today. 30 In the absence of an application for those costs to be assessed forthwith, those costs will be dealt with in the ordinary course. I certify that the preceding thirty (30) numbered paragraphs is a true copy of the Reasons for Judgment of the Honourable Justice Lee.

SCHEDULE OF PARTIES NSD 665 of 2022 Respondents Second Respondent: JOHN BRUCE KAIN Third Respondent: ROBERT WARNER SHAND Fourth Respondent: ERNST & YOUNG (A FIRM) (ABN 75 288 172 749)

NSD 948 of 2022 Respondents Second Respondent: ROBERT WARNER SHAND Third Respondent: JOHN BRUCE KAIN Fourth Respondent: EY (ALSO KNOWN AS ERNST & YOUNG) (A FIRM) (ABN 75 288 172 742)

Pt IVA, Pt VB Civil Liability (Third Party Claims Against Insurers) Act 2017(NSW)s 5

At a glance

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