Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd... [2021] FCA 911 | Case summary

BANKS-SMITH J: 1 The plaintiffs, Remagen Lend ADA Pty Ltd and Simon Raftery (together the Remagen Interests), seek an order extending the time for compliance by Remagen with an order that it pay security for the costs of the first and third to eighth defendants' costs of the proceeding. The order is sought retrospectively, the time period for payment having expired, and in circumstances where, in the interim, the amount of security has been paid into Court. The payment was due by 9 July 2021. It was received by the Court on 16 July 2021. The application is opposed. 2 There are two proceedings on foot relating to the Adaman group of companies. The first is the proceeding brought by the administrators of that group (WAD 95 of 2021 - Validation Application). The applications that have already been determined in that proceeding are described in Nipps (Administrator) v Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) (No 7) [2021] FCA 813. 3 In the Validation Application, Mr Raftery has made certain allegations about the conduct of the directors of Adaman Resources Pty Ltd and Adaman Minerals Pty Ltd and others, including the Administrators, that have given rise to the following contested issues: (1) whether the removal of Mr Raftery as a director of Adaman Resources on 30 April 2021 and a dilution of his shareholding was invalid; (2) whether the incumbent directors of Adaman Resources were entitled to rely upon an emergency power in the constitution to resolve to appoint the Administrators; (3) whether the board of Adaman Resources was entitled to resolve to appoint administrators to Adaman Resources in the absence of a resolution of its shareholders, having regard to the terms of a shareholders' agreement dated 18 November 2019 between itself and its shareholders on incorporation; (4) whether the board of Adaman Resources acted bona fide in exercising their powers to pass the resolution in that they relied upon a demand made by a related company (SMS) as the catalyst for the appointment in circumstances where (Remagen contends) the debt to SMS was not owed; (5) whether Adaman Resources and Adaman Minerals were insolvent; and (6) whether the independence of the Administrators was compromised in some manner. 4 This is the second proceeding (WAD 106 of 2021), and it was commenced on 11 May 2021 by the Remagen Interests. Strictly for convenience I will refer to the other parties in this proceeding consistent with their description in the Validation Application, and so as follows: (1) the second defendant (Mitchell Group Holdings Pty Ltd) as the Mitchell Interests; and (2) the first and third to eight defendants (Contento Investments Pty Ltd, Stefead Resources Pty Ltd, SMS, Mark Rowsthorn, Daniel Sweeney, Nicholas Anderson and John Fitzgerald) as the Director Interests. 5 In this proceeding, the Remagen Interests seek relief as to the matters generally alleged by Mr Raftery that I have summarised above, and make allegations, relevantly, of oppressive conduct. 6 The Director Interests sought security for costs from Remagen, and that matter was resolved by consent orders made 2 July 2021. The orders relevantly provided that: 1. Pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and r 19.01(1) of the Federal Court Rules 2011 (Cth) (Rules), the first plaintiff is to give security for the first and third to eighth defendants' costs of the proceeding on the following terms: (a) The first plaintiff to pay security in the amount of $75,000 (Security Amount). (b) The first plaintiff pay the Security Amount within 7 days of the making of these Orders. (c) The Security Amount is to be provided by payment into Court. 2. Pursuant to r 19.01(1)(b) of the Rules, the proceedings be stayed if the first plaintiff fails to comply with order 1. 3. There be liberty to apply. 7 The Court may make any order it considers appropriate in the interests of justice: r 1.32 of the Federal Court Rules 2011 (Cth) (Rules). It may vary the time for payment of security: s 56(3) of the Federal Court of Australia Act 1976 (Cth) (Act). Further, it may extend the time for compliance with an order even where the time for compliance has expired (r 1.39). 8 The grant of an extension of time is governed by familiar considerations applicable to discretionary matters concerning case management. Any such assessment necessarily involves potentially competing considerations in light of the overarching purpose set out in s 37M of the Act, being to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Matters relevant to the exercise of the Court's discretion include the explanation for the delay, any prejudice to other parties and the interests of justice: Peter Vogel Instruments Pty Ltd v Fairlight.Au Pty Ltd [2016] FCAFC 172 at [91]-[93]. It has been suggested that a sound reason is required to disturb the status quo by varying a security for costs order: Pampered Paws Connection Pty Ltd (on its own behalf and in a representative capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 7) [2010] FCA 626 at [15]-[18]. 9 The hearing of this interlocutory application commenced on 2 August 2021. On that date the Remagen Interests sought to rely on an affidavit of Mr Raftery. Mr Raftery deposed by affidavit in support of the application that the provision of security was delayed due to the COVID-19 restrictions and stay-at-home orders in place in New South Wales from late June 2021: Public Health (COVID-19 Temporary Movement and Gathering Restrictions) Order 2021 dated 26 June 2021 (PHO). 10 Under those orders, the NSW Minister for Health and Medical Research directed that an employer must allow an employee to work at the employee's place of residence if it is reasonably practicable to do so. 11 Mr Raftery said that since late June 2021, Remagen's employees have been required to work from home and that because of these restrictions, its staff were unable to attend Remagen's registered office to use banking tokens required to transfer the $75,000 to the Court. Mr Raftery said he had to make alternative arrangements on behalf of Remagen by causing a firm of solicitors that act for it on other matters to transfer $75,000 from their trust account to the trust account of King & Wood Mallesons. King & Wood Mallesons paid the $75,000 into Court on 16 July 2021. 12 Mr Raftery said that at the time he consented to the security orders (presumably on behalf of Remagen) he had not appreciated the difficulties that working from home would cause in providing the security within the seven days stipulated. 13 Unsurprisingly, the Director Interests contended that there was no evidence that provided a satisfactory explanation for the delay. In particular, they asserted that the PHO does not prohibit employees attending their place of work if it is not possible for them to work from home (s 20(1), s 20(2) and Schedule 1 of the PHO) and that it appears that Mr Raftery only took steps to seek the transfer of funds via Remagen's solicitors once the time for compliance had expired. 14 It appeared to me on the face of Mr Raftery's affidavit that he had not been sufficiently forthcoming with the Court as to the circumstances of the delay. However, having regard to the significance of the continuation of a stay, I considered it appropriate to adjourn the hearing and provide Mr Raftery with the opportunity to provide better evidence by filing a supplementary affidavit. 15 Mr Raftery did so, and the hearing resumed today. Unfortunately the supplementary affidavit still left a number of questions unanswered. 16 Mr Raftery deposed as follows: 4 Remagen's office is located at Level 7, 17 Castlereagh Street, Sydney NSW 2000 (Remagen's Office). Remagen's Office is in the Sydney central business district. 5 All payments in relation to this proceeding are made from Remagen's designated bank account. 6 An electronic transfer of funds from that bank account can only be made when a code generated by an electronic banking token is entered into the online banking system. 7 Remagen has an internal policy whereby one person must enter the transfer (which then requires the use of a token) and one person must approve the transfer (which requires a further use of a token). This process is established with the bank and cannot be amended without the bank changing the authority process. The purpose of this policy is for compliance with Remagen's AFS licence. 8 The only people who have the authority to approve a payment from Remagen's bank account (in addition to myself) are: (a) Kevin Blignaut, Financial Controller, who resides in the suburb of [redacted] (which is outside the Sydney central business district and about 40 minutes from Remagen's Office); and (b) Surya Wong, Senior Accountant, who resides in the suburb of [redacted] (which is outside the Sydney central business district and about 30-40 minutes from Remagen's Office). 9 Mr Blignaut and I have access to the banking token on our phones. However, I am aware from working with Ms Wong that she uses a physical banking token and does not have access to it on her phone. I am informed by Ms Wong and verily believe that her token is kept at Remagen's Office and that she does not have access to the token at home. 10 While I have authority to approve payments from Remagen's bank account, in practice I do not set up or approve payments. It is Mr Blignaut and Ms Wong who are responsible for those tasks. I leave the management of Remagen's account and the banking to Mr Blignaut and Ms Wong. 11 The standard process for making payments from Remagen's bank account is that I would upload the payment details on Remagen's server and instruct Ms Wong to make a payment, which she would arrange with Mr Blignaut. Ms Wong and Mr Blignaut would then carry out the two-step process described at [7] above. 12 On 23 June 2021, because of the increased COVID-19 outbreak in Sydney and New South Wales, I instructed all Remagen staff to work from home via a WhatsApp message. On 26 June 2021, the Public Health Order was issued (which is attached at SJR-14 to my affidavit of 24 July 2021). Neither Mr Blignaut and Ms Wong have attended the office since 24 June 2021 and continue to work from home. I have also not attended Remagen's Office from 24 June 2021 until 2 August 2021. 13 Following the Orders of 2 July 2021, I uploaded the payment details onto Remagen's server and called Ms Wong on 6 or 7 July 2021 and instructed her to arrange for payment of the amount specified in the Orders, being $75,000. This payment was not made, and I did not think to ask her if the payment was made. 14 On 15 July 2021, having been contacted by my lawyers King & Wood Mallesons, I caused Corrs Chambers Westgarth to transfer $75,000 from their trust account into the trust account of King & Wood Mallesons, which I describe at [8] of my affidavit affirmed on 24 July 2021. 17 As senior counsel for the Director Interests submitted, Mr Raftery's supplementary evidence still does not provide a transparent explanation. Why did he ask Ms Wong to deal with the payment, with knowledge that she needed a token and with knowledge that he had asked her to work from home where, on his evidence, she had no access to the token? Why did he not follow up on the non-payment sooner? Did Ms Wong not draw his attention to her inability to make the payment? Why did he not facilitate the payment himself using his phone-accessible token in conjunction with Mr Blignaut? To do so may have been a non-standard course for Mr Raftery, but compliance with a court order is not an ordinary circumstance. It is also unclear what occurred between 9 July 2021, when the solicitors for the Director Interests sought evidence of receipt of payment from Remagen's solicitors, and 15 July 2021, when Mr Raftery requested that his solicitors facilitate payment to King & Wood Mallesons. 18 Mr Raftery said he failed to properly understand the significance of the COVID-19 restrictions. His counsel submitted that Mr Raftery simply followed Remagen's standard processes for payment and that in retrospect, he could have done things differently. It seems to me, however, that it is also open to infer that Mr Raftery failed to pay sufficient attention to the importance of the need to pay the security, failed to have sufficient regard to the terms of the orders, failed to take into account that Ms Wong apparently was not in a position to facilitate a payment from her home, failed to take any steps to arrange for Ms Wong to access a physical token, and failed to confirm whether or not she had been able to make the payment. Assuming the delay in payment was not deliberate (and I am prepared to make that assumption), the delay in making payment until 15 July 2021 appears to have been caused, on the current evidence, by Mr Raftery's oversight in failing to take into account the difficulties presented (during the period of the PHO) by the steps his own company employed with respect to the manner of payments, his reluctance to utilise his own phone banking token, his misapprehension as to the importance of the Court's orders, or his purported need to put in place different payment arrangements. Whilst I make no adverse credibility finding in the circumstances, it is regrettable that Mr Raftery has not been more frank in his affidavit evidence. 19 Experience has shown over the last almost 18 months that much can be achieved with the cooperation of parties to litigation to ensure that litigation proceeds fairly and efficiently, despite the imposition of restrictions on movement at various times across Australia. It would have been a simple step for the Remagen Interests to have explained their position to the Director Interests and to have sought a variation of the order before the time for payment expired, either by consent or utilising the liberty to apply that had been granted. 20 Despite my concern as to the nature of Mr Raftery's explanation, and having carefully weighed the respective interests involved, I have come to the view that the variation to the orders as sought by the Remagen Interests should be made. Absent a fulsome explanation as to the delay, I am of the view that Mr Raftery must take responsibility for the non-compliance with the court order. However, such conduct in the particular circumstances of this application should not deny the relief sought. These particular circumstances, to which I give significant weight, are that Remagen agreed to provide security without the need for a contested application; the security has been paid; the security was paid within a relatively short period of time; and this application to in effect correct the position was brought quickly. 21 I have also taken into account the following matters. 22 As to any prejudice to the Director Interests, there are outstanding interlocutory steps that have been delayed as a result of the stay. The hearing of the defendant's strike out application has been deferred. However it can be reprogrammed and it is not necessary, as the orders relating to that interlocutory application presently stand, for the Director Interests to file a defence until the strike out issue is resolved. There may have been a short delay to the court-directed mediation but such delay is unlikely to have any significance to the overall mediation process. 23 I do not consider there is any apparent material prejudice to the Director Interests apart from the change to the current status quo in that the operating stay will no longer be in place. 24 The Mitchell Interests have indicated that they consent to the extension of time and were not heard on this application. The Administrators were not heard on the application. In correspondence there was some suggestion that the Administrators (the ninth and tenth defendants) and each of Adaman Resources and Adaman Minerals (the eleventh and twelfth defendants) had indicated that they would only consent to an extension of time if Remagen provides security for their costs. However, they do not raise any prejudice from the delay in providing security for the benefit of the Director Interests. The security the subject of this application was not provided for the costs of the ninth to twelfth defendants. The question of whether any security should be provided for their costs is separate to whether the extension of time should be granted and can be addressed in due course, should any application be brought. 25 In circumstances where the delay in payment was short, the security has been paid, the non-compliance with the order was not of the nature of blatant disregard for the Court's authority and where there is no material prejudice to the defendants save for the lifting of the stay, I consider the interests of justice favour the grant of the extension of time. The refusal to extend time has the serious consequence that the proceeding would remain stayed, a proceeding that is substantive in nature, that has been defined by way of a statement of claim and that has been directly and indirectly the subject of a number of applications to date. These matters taken together provide a sound reason for the variation. The interests of justice and the efficient management of the proceeding weigh heavily in favour of the extension of time being granted. 26 Accordingly I order that pursuant to s 56(3) of the Act and r 1.32 of the Rules the time for compliance with order 1(b) of the orders made on 2 July 2021 requiring the first plaintiff to pay security in the amount of $75,000 by way of payment into Court be extended to 16 July 2021. 27 For completeness, I note that it was submitted at the first hearing on behalf of the Remagen Interests that order 2 of the orders of 2 July 2021 involved some tension in interpretation. It was submitted that as r 19.01(1)(b) provides that the Court may order that an applicant's proceedings be stayed until security is given, the order could be interpreted as meaning the stay was to be lifted in any event upon payment. I do not accept that submission, having regard to the terms of the orders. It must be recalled that the parties drafted and consented to those orders. More properly, it might be said that order 2 of the 2 July 2021 orders was made under r 19.01(1)(c), which provides that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceedings be stayed or dismissed. However, the two relevant paragraphs of the rule are not mutually exclusive. Rule 19.01(1)(b) grants to the Court the specific power to stay proceedings until security is given: it does not follow that any time stipulation for payment of that security is to be ignored. If that were the case, subject to any further orders, a party obliged to pay security would in effect have the power to control the pace and progress of litigation by unilaterally deciding when it might tender payment of security. That is not the intent of r 19.01 or s 56 of the Act. In any event, the terms of the orders are clear in this case. The Court had the power under the Rules to make order 2 regardless. Further, Mr Raftery did not say that he thought he could pay the security at any time in order to lift the stay. 28 The Director Interests seek costs of the application, including the costs of the adjourned hearing. The Remagen Interests resist a costs order. I see no reason why the usual costs position should not apply. In the absence of the consent of all parties concerned, the Remagen Interests were obliged to seek relief and explain the position to the Court. The hearing was adjourned in their interest to enable them to address issues as to the nature of the evidence, issues raised by the Director Interests but as to which the Court also had concerns. 29 There will be an order that the plaintiffs are to pay the costs of the first and third to eighth defendants of the application, including the adjournment, to be assessed by a Registrar of this Court on a lump sum basis if not agreed. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Remagen Lend ADA Pty Ltd, in the matter of Adaman Resources Pty Ltd (Administrators Appointed) v Contento Investments Pty Ltd

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