Supabarn Supermarkets Pty Ltd v Eyre Kingston Pty Ltd

Supreme Court of NSW|2024-04-18|Before: Stevenson J

Solicitors: Corrs Chambers Westgarth (Plaintiff/Applicant) Norton Rose Fulbright (First Defendant/Respondent) Thomson Geer (Second Defendant/Applicant) File Number(s): 2023/207285

The evident object of the litigation

As can be seen, Supabarn and DTM are both ultimately owned by the Koundouris family and the Koundouris family, through DTM and Griffin Q, ultimately own half of Eyre Kingston. Thus, unless Eyre Kingston is willing and able by cross-claim to pass their claims on to Peet DM as Development Manager, Supabarn has no interest in recovering damages against DTM, and DTM has no interest in seeking to pass that claim on to Eyre Kingston.
It emerged during argument before me on 18 April 2024 that the object of this litigation, including Supabarn's claim against Eyre Kingston and DTM, and DTM's proposed cross-claim against Eyre Kingston, was to bring about this result, and to establish that Peet DM is ultimately liable for Eyre Kingston's alleged breach of the Minimum Requirements under the Agreement for Lease and for any further loss suffered by DTM.
Supabarn and DTM apprehend that a cross-claim by Eyre Kingston against Peet DM, assuming it could be prosecuted successfully, would be of value as it is likely that Peet DM has complied with its obligation under the Development Management Agreement to effect and maintain professional indemnity insurance cover. Supabarn and DTM also apprehend that, assuming Supabarn could make out its claims against Eyre Kingston and DTM under the Agreement for Lease concerning the Minimum Requirements, Eyre Kingston could pass on liability for those claims to Peet DM as Development Manager under the Development Management Agreement. I cannot make any assessment at this stage as to whether these matters will be established but will assume, for the purposes only of this application, that these matters are arguable.
The complication that has emerged is that, as I have said, shortly after the proceedings were commenced, Eyre Kingston was placed into liquidation. The decision to bring a cross-claim against Peet DM is now the responsibility of the liquidators of Eyre Kingston ("the Liquidators").
So far as Supabarn is concerned, if it does not obtain leave to proceed against Eyre Kingston, in the hope that this prompts Eyre Kingston, by the Liquidators, to bring a cross-claim against Peet DM, there is no point in its continuing to prosecute these proceedings.
Thus Mr Hartford-Davis told me, contrary to an assertion evidently earlier made in correspondence by those instructing him, "I'm not instructed that the claim would be pursued by Supabarn against DTM come what may even if leave were refused … because obviously enough the economic claims are the same between my client and [DTM]". Later, Mr Hartford-Davis made clear that if Supabarn did not obtain leave to proceed against Eyre Kingston, it would not proceed against DTM.

The state of the liquidation

The Liquidators' solicitor, Mr Nicholas White, has deposed that the Liquidators have "approximately $154,000 in funding available to them" as at 14 March 2024, not including "counsel's costs which have been recently incurred by the Liquidators but not yet invoiced".
In their Statutory Report to Creditors of 13 October 2023, the Liquidators state that Eyre Kingston has unsecured creditors of $57,156.
In argument before me it was common ground that it is unlikely that the Liquidators will be in a position to declare a dividend to Eyre Kingston's creditors and that, accordingly, it is unlikely that the Liquidators will be called upon to adjudicate on any of the proofs of debt lodged in the winding up, including that of Supabarn.
Thus, this is not a case where the debate is whether a plaintiff, faced with a defendant being placed into liquidation following the commencement of proceedings, should be confined to following the "more expeditious and less expensive" [3] procedure of proving in the winding up and having its claim determined by the liquidator, rather than having its claim determined by the Court following the plaintiff being given leave to prosecute the proceedings in the usual way. That is because it is common ground that it is unlikely that the Liquidators will make any such determination.
Thus, many of the issues debated in written submissions fell away, including those concerning such matters as: 1. whether there was a serious dispute about whether there is "solid foundation" for Supabarn's and DTM's cases; 2. whether granting leave would avoid a multiplicity of proceedings; [4] 3. whether Supabarn's and DTM's claims could efficiently and conveniently be dealt with in a proof of debt process; [5] 4. whether there was the inevitability or the "high likelihood" of an appeal from a rejection by the Liquidators of Supabarn's or DTM's proofs of debt; [6] or 5. whether granting of leave would unduly interfere with or distract the Liquidators from performing their statutory duties. [7]

The status quo

It thus appears likely that if Supabarn and DTM are not given leave to proceed with their claim and proposed cross-claim: 1. these proceedings will come to an end; 2. accordingly, no claim will be made in these proceedings against Peet DM; and 3. proofs of debt lodged with the Liquidators will not be adjudicated by reason of there being insufficient funds for declaration of a dividend to creditors.
On the other hand, if Supabarn and DTM are given the leave to proceed against Eyre Kingston: 1. the Liquidators appear not to have funds necessary to defend the claims; and 2. Supabarn and DTM: 1. will, I would assume for present purposes, be able to establish what loss they have suffered; but 2. will not recover that loss by proving for that loss in the winding up unless the Liquidators are persuaded to cause Eyre Kingston to prosecute the proposed cross-claim against Peet DM.
The following questions thus arise: 1. would granting Supabarn and DTM leave to proceed make any difference to these circumstances; and, 2. if so, is any such difference a reason to grant leave?

The offers

In that regard, the Liquidators have received a number of offers concerning the funding of a cross-claim by Eyre Kingston against Peet DM.
On 19 October 2023, Supabarn offered to "purchase the assignment of Eyre Kingston's choses of action against Peet [DM] to Supabarn" for $50,000 plus "5% of Net Proceeds of any Settlement or Judgment recovered against Peet [DM]".
That offer has lapsed.
Supabarn's position now is that, if it is granted leave to proceed against Eyre Kingston, it will undertake to: 1. pay Eyre Kingston's reasonable costs of preparing and filing a cross-claim against Peet DM; and 2. submit to such order as the Court considers just for the indemnification of Eyre Kingston against any adverse costs order arising from any such cross-claim.
On 16 February 2024, DTM offered to purchase an assignment of Eyre Kingston's rights against Peet DM for $150,000 plus "6.5% of Net Proceeds of any Settlement or Judgment recovered by DTM against Peet DM".
DTM's solicitors wrote to the solicitors for the Liquidators: "… if [Eyre Kingston's] claim against Peet DM were assigned to DTM and litigated by DTM in the Proceedings, the Liquidators would not need to incur any real costs in respect of DTM's claims. Those entities with a real economic interest in the Proceedings would be active parties, including Peet DM which is the corporation which has the obvious interest in defending such claims. [Eyre Kingston] could take no active role in the Proceedings. To the extent that may be thought to be overly optimistic, our client accepts that leave to proceed against [Eyre Kingston] should be conditional on our client not enforcing against [Eyre Kingston] or its assets without leave of the Court."
On 5 April 2024, DTM made a "Revised Offer" the terms of which included: "3.5.4 The Liquidators and [Eyre Kingston] formally consent to leave being granted to both Supabarn and DTM to proceed against [Eyre Kingston] pursuant to their separate s 471B applications in the Proceedings and the Liquidators and [Eyre Kingston] must do all things reasonably necessary to procure such leave being urgently granted, including, without limitation signing consent orders, filing and reading evidence and making submissions supporting the s 471B Leave applications. The parties will use reasonable endeavours to have each of the grants of leave made subject to a condition to the effect that DTM and Supabarn will not enforce any judgment against [Eyre Kingston] or its property without leave of the Court. If the condition set out in clause 3.4 [8] has been satisfied but Leave under s 471B of the Corporations Act has not been granted to both Supabarn and DTM in the Proceedings by 30 June 2024, then DTM may, thereafter, in its sole discretion, by notice in writing to the Liquidators and [Eyre Kingston], terminate the Deed. 3.5.5 On Leave being granted under s 471B of the Corporations Act to Supabarn and DTM in the Proceedings, [Eyre Kingston] must file and maintain submitting appearances in respect of the claims brought by each of Supabarn and DTM against [Eyre Kingston] in the Proceedings. Subject to the Liquidators complying with their obligations to consent to Leave being granted to each of Supabarn and DTM under s 471B no costs will be sought in the Proceedings against the Liquidators in respect of their s 471B Leave applications. 3.5.6 DTM will apply to join Peet DM to the Proceedings and use reasonable endeavours to ensure that the assigned Rights are litigated in the Proceedings."
The Revised Offer also included an agreement that any such assignment would be subject to the Liquidators obtaining the Court's approval under s 477(2B) of the Corporations Act, and subject to the Liquidators having liberty to apply to revoke leave granted under s 471B of the Corporations Act in the event of an "Adverse Event", defined to mean: "a. material events have occurred in the Proceedings which, in order for the Liquidators to meet their duties as Liquidators of [Eyre Kingston], the Liquidators acting reasonably consider require the Liquidators to seek to procure the withdrawal by [Eyre Kingston] of its submitting appearance and for [Eyre Kingston] to take active steps in defending the Proceedings; and b. [Eyre Kingston] does not have sufficient funds available to it or cannot procure sufficient funding to cover the costs of [Eyre Kingston] undertaking those active steps."

The Liquidators' enquiries of CIC Projects

Earlier, on 22 December 2023, the Liquidators' solicitors wrote to the solicitors for CIC Projects. As I have set out, CIC Projects is the 50% shareholder in Eyre Kingston and is ultimately owned by Peet Ltd. The Liquidators' solicitors enquired as to whether CIC Projects "would agree to fund the Liquidators to cause [Eyre Kingston] to participate" in these proceedings.
The Liquidators' solicitor, Mr White, deposed that as at 14 March 2024 the Liquidators had not received any "funding proposal" from CIC Projects. However, Mr Burnett, who appeared for the Liquidators before me, stated that discussions were "ongoing". In a further affidavit made on 23 April 2024, Mr White deposed that "another party", evidently CIC Projects, had made a "Further Offer" to the Liquidators, the terms of which are confidential but which "proffers a higher certain return than the Revised DTM Offer". There is a suggestion in correspondence between the solicitors for the Liquidators and those for the party making the Further Offer that I might be shown, on a confidential basis, the terms of the Further Offer. It would not be appropriate for me to see the terms of such an offer unless, at the least, the solicitors for Supabarn and DTM also saw it. In any event, I do not think it necessary that I know any more than I have already been told.
It is hard to see what interest CIC Projects would have in acquiring an assignment of Eyre Kingston's causes of action against DTM, other than to bring any such cause of action to an end.
However that may be, Mr White deposed that each of the "Further Offer" and the "Revised DTM Offer" remain open and that "the Liquidators are in the process of considering the Revised DTM Offer and the Further Offer and expect to be in a position to respond to those offers in the near term".

Should leave be granted?

The parties agree that in order to grant leave under s 471B I must find there to be "good reason" why a departure from the general procedure of lodging a proof of debt is justified, [9] and that the discretion is to be exercised judicially and fairly. [10]
The usual "good reason" to grant leave is that prosecution of the proceedings to judgment is a more convenient or efficient means by which to establish the amount for which the plaintiff will prove in the winding up. As I have explained, that is not a motivating factor here as, it is agreed, there is unlikely to be a dividend, and thus there is unlikely to be an adjudication by the Liquidators on any proofs of debt lodged in the winding up of Eyre Kingston, including by Supabarn or DTM.
Here, the "good reason" to grant leave was initially said to be that the granting of leave is likely to bring about a situation where the Liquidators will cause Eyre Kingston to accept one or both of Supabarn's and DTM's offers and commence proceedings, by way of cross-claim in these proceedings, in the name of Eyre Kingston against Peet DM as Development Manager under the Development Management Agreement; and thus to pass on to Peet DM any liability that Eyre Kingston has to Supabarn and DTM.
Thus, returning to the questions at [34], in oral address on 18 April 2024 Mr Hartford-Davis submitted that the combined effect of the offers made by Supabarn and DTM is to provide the Liquidators with a "relatively risk free option for the company in liquidation to sit back and allow Supabarn and DTM to pursue the real economic defendant [i.e. Peet DM], with some return to creditors in the form of [$]150,000 plus 6.5%".
Also on 18 April 2024, Mr Giles SC, who appeared with Mr Riordan for DTM, submitted that the "correct question is what is likely to happen on the balance of probabilities" and that the "rational probability is, faced with the offers, or nothing, the liquidators would act in the way which is prima facie consistent with their duties and is economically rational". Mr Giles submitted that I should draw the inference that, were I to grant leave under s 471B to Supabarn and DTM, "things will go ahead, but in any event, granting leave removes an objection to what's happening, the objection being that the liquidators don't want to be in a position where the companies are having proceedings run against them and they don't have any money". [11]
It now emerges that the Liquidators are also entertaining the Further Offer, the acceptance of which may well lead to a different outcome than the bringing of a claim by Eyre Kingston against Peet DM.
After receipt of Mr White's affidavit of 23 April 2024, [12] I received further submissions.
Mr Hartford-Davis and Mr Smith submitted: "There is a real risk that the bidding war (which benefits creditors) would be cruelled if leave to proceed were refused. This is because the causes of action, insofar as they presuppose loss to [Eyre Kingston], would be stymied by the fact that the proceedings in which [Eyre Kingston] was being pursued for that loss had been the subject of a statutory stay. Neither party would retain any incentive to bid for the causes of action. DTM would be reluctant to bid for causes of action which could not be pursued without leave to proceed being granted. The Peet interest would be reluctant to bid, indeed may withdraw its offer, if leave to proceed were refused because there would be no realistic possibility of it being sued on the causes of action it is 'buying to kill'."
I cannot see how refusing leave to proceed would affect, let alone put to an end, the "bidding war" said to be involved in the competing offers presently made to the Liquidators.
Mr Burnett informed me, and I accept, that the Liquidators have not yet formed a view about the merits of any claim Eyre Kingston might have against Peet DM. Mr Burnett submitted that, "in considering and responding to offers, the Liquidators will seek to adopt the approach that they consider is likely to achieve the best outcome for [Eyre Kingston]". I see no reason to doubt that.
I must, and do, assume that the Liquidators, as officers of the Court, will give careful consideration to what course, in the best interests of the creditors of Eyre Kingston, they will cause Eyre Kingston to take. The appropriate course is to leave the decision to the Liquidators. They are best placed to decide what should be done in the interests of the creditors of Eyre Kingston. I cannot see how the granting of leave under s 471B would assist the Liquidators exercise their functions, nor make any difference to their deliberations.
As to the submission that "DTM would be reluctant to bid for causes of action which could not be pursued without leave to proceed being granted", [13] I made this enquiry of the parties: "Further to Mr Hartford-Davis and Mr Smith's submissions at [8], and noting cl 3.5.4 of DTM's Revised Offer of 5 April 2024, do Supabarn and DTM contend that DTM could not, assuming it obtained an assignment from the liquidators of Eyre Kingston's rights against Peet DM, prosecute those rights against Peet DM absent the leave presently sought under s 471B?"
DTM replied: "We confirm that it is DTM's submission that it could not prosecute the assigned rights against Peet DM absent the leave presently sought under s 471B of the Corporations Act. But even if that is incorrect, it would present a significant commercial risk for the assigned claim to be advanced absent such leave, in the sense that it would give rise to a defence by Peet DM that no loss has been proven. … In short, the chose in action DTM proposes to acquire from [Eyre Kingston] is a claim to recover as damages from Peet DM the loss [Eyre Kingston] suffered in consequence of its liability to Supabarn and/or DTM. To prove that loss in advancing the putatively assigned cause of action against Peet DM, DTM submits it would be necessary that it prove that [Eyre Kingston] is actually (as distinct from notionally) liable to Supabarn or to it. That could only be achieved in both a procedural and substantive sense if DTM and Supabarn have leave to proceed against [Eyre Kingston] so as to permit them to prosecute their claims against [Eyre Kingston] to judgment. DTM further submits that in an action where it is necessary to prove [Eyre Kingston's] liability to DTM or Supabarn, in circumstances where EK disputes that liability, [Eyre Kingston] would, at least in the present circumstances, be a necessary party (thus giving rise to a need for leave to proceed under s 471B of the Act)."
But that submission assumes, as Mr Burnett pointed out, that a claim by Eyre Kingston against Peet DM could only be pursued by Eyre Kingston if Supabarn and DTM obtained leave to proceed against Eyre Kingston under s 471B. But that is not correct. If Eyre Kingston, by the Liquidators, were to bring a claim against Peet DM arising out of Supabarn's and DTM's claims against it, it would have to prove, as against Peet DM, and as an element of its cause of action against Peet DM, that it had a liability to Supabarn and DTM. Such a liability would neither be established nor denied by a granting or refusal of leave under s 471B to Supabarn and DTM. The position could be no different were the Liquidators to assign to DTM Eyre Kingston's rights of action against Peet DM.
As to "the Peet interest", [14] I cannot see why CIC Projects would be inclined to withdraw its offer were leave to proceed refused, as the prospect of DTM acquiring and then prosecuting Eyre Kingston's rights would remain; whether or not leave was given.
Mr Hartford-Davis and Mr Smith also submitted: "Given the state of play, and the undertakings offered by the Plaintiff and the Second Defendant as conditions to any grant of leave, no relevant party would be placed in a worse position were leave to be granted."
But the question is not whether any party would be worse if leave were granted. The question is whether there is "good reason" to grant leave.
I am not persuaded that there is good reason to grant leave.
Supabarn's and DTM's applications should be dismissed. The parties should confer and agree on the orders necessary to give effect to these reasons. If there is a dispute about costs, the parties should agree a timetable for written submissions. I will deal with any such question on the papers.
I stand the proceedings over for directions on 10 May 2024.

Endnotes

As tenants in common of a Crown Lease.
Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law.
Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 at 317 (McPherson J, Campbell CJ and Sheahan J agreeing).
Commonwealth of Australia v Davis Samuel Pty Ltd (No 5) (2008) 164 ACTR 1; [2008] ACTSC 124 at [30] (Refshauge J), citing Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 at 242; [1996] FCA 233 (Tamberlin J); see also Timbercorp Finance Pty Ltd (in liq) v Vivian (2016) 114 ACSR 198; [2016] VSC 338 at [46] (Derham AsJ); Snelgrove v Great Southern Managers Australia Ltd (in liq) [2010] WASC 51 at [45] (Le Miere J).
BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (1998) 16 ACLC 1539 at 1544.
Capita Financial Group Ltd v Rothwells Ltd (No 2) (1989) 15 ACLR 348 at 352 (Rogers CJ); Re Jay-O-Bees Pty Ltd; Rosseau v Jay-O-Bees [2004] NSWSC 818; (2004) 50 ACSR 565 at [108] (Campbell J).
See, for example, Ibbco Trading Pty Ltd v HIH Casualty & General Insurance Ltd (in prov liq) (2001) 19 ACLC 1093; [2001] NSWSC 346 at [33]-[34] (Hunter J).
For approval under s 477(2B) of the Corporations Act: see [42] below.
Re Gordon Grant & Grant Pty Ltd (supra) at 317 (McPherson J, Campbell CJ and Sheahan J agreeing); Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 555; [1993] FCA 179 at [18] (Wilcox, Burchett and Beazley JJ); DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293; [2014] NSWCA 96 at [55] (Leeming JA, Bergin CJ in Eq and Meagher JA agreeing).
Commonwealth of Australia v Davis Samuel Pty Ltd (No 5) (supra) at [19]; Clean Energy Regulator v E Connect Solar & Electrical Pty Ltd [2023] FCA 1082 at [14] (Derrington J).
I took Mr Giles to be referring to Eyre Kingston when he referred to "the companies".
See [44] above.
As submitted by Mr Hartford-Davis and Mr Smith, see [54] above.
Referred to as such by Mr Hartford-Davis and Mr Smith, see [54] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 May 2024

Australian Consumer Law Corporations Act 2001(Cth)

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