Wingecarribee Shire Council v Lehman Brothers Australia Limited

GENERAL DIVISION NSD 2492 of 2007

AND: LEHMAN BROTHERS AUSTRALIA LIMITED (IN LIQUIDATION) (ACN 066 797 760)

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 These proceedings commenced before me in 2007 as a claim solely by Wingecarribee Shire Council. The proceeding was based on the consequences of Wingecarribee Council having acquired financial products known shortly as CDOs, namely, collateralised debt obligations. The financial products became somewhat publicly more known as a result of what became the global financial crisis, part of which was concerned with the collapse in the United States of America of Lehman Brothers' parent. 2 The amendment application today has arisen because a number of other local government authorities throughout Australia allege that they also had dealings with Lehman Brothers in relation to similar instruments. 3 Lehman Brothers initially went into administration under a deed of company arrangement. In October last year, I ordered that it be placed in liquidation (City of Swan v Lehman Bros Australia Ltd (No 2) [2009] FCA 1160) following a decision of the Full Court, subsequently upheld by the High Court, that the deed was invalid: City of Swan v Lehman Brothers Australia (2009) 179 FCR 243; affirmed: Lehman Brothers Holdings Inc v City of Swan (2010) 265 ALR 1. 4 The parties have subsequently engaged in very constructive negotiations to convert the proceedings into a class action under Part IVA of the Federal Court of Australia Act 1976 (Cth) and to proceed with a timetable that today was described as ambitious, but nonetheless, hopefully, practicably achievable. The proposed timetable is intended to prepare the matter for hearing and, in the interim, provide each of the parties with sufficient information and explanation of the other's cases, so that a mediation may be possible by the end of this year. The parties have discussed, and Lehman Brothers does not oppose, the making of orders today that will give effect to that timetable. 5 Each has made detailed and helpful written submissions about the Court's powers to convert these proceedings into a class action from the form in which Wingecarribee Council alone had commenced them. In Watson v AWB Limited [2007] FCA 1367, Gyles J determined that he would follow a number of other decisions by single judges of the Court who had held that there was power under Part IVA to grant leave to amend proceedings, not initially commenced under it, so as to convert them to representative proceedings. This is not an occasion, in light of the position the parties have taken, where it is necessary or desirable to engage in any reconsideration of the course of authority in the Court that has determined that this power exists. 6 Section 33C(1) enables proceedings to be commenced under Part IVA. The section does not require that any proceedings brought under the Part must always originate as proceedings under it. There is a reasonable basis to consider that the section is intended to be expansive, rather than constrictive, of the Court's powers. It is quite inappropriate to read provisions conferring jurisdiction or conferring powers on a court by making implications or imposing limitations which are not found in the express words: Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc (1994) 181 CLR 504 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ. In addition, the Court has powers to permit the amendment of proceedings. Those powers of amendment are not displaced by anything expressly said in Part IVA. 7 The initial proceeding brought by Wingecarribee Council identified a matter within the jurisdiction of the Court. Other councils now claim that similar issues relating to that controversy have arisen between them and Lehman Brothers from their acquisition of similar financial products. Those councils may well have been part of the Wingecarribee Council matter as it was originally commenced: cp Re Wakim; Ex parte McNally (1999) 198 CLR 511 at 585-587 [139]-[145] per Gummow and Hayne JJ. However, in any event, there is now before the Court an application to determine what is claimed to be a wider controversy between the various proposed subgroups of Councils that dealt with Lehman Brothers and it in relation to the provision to them of CDO products. In addition, s 22 of the Federal Court of Australia Act requires the Court to determine all matters in controversy in one proceeding if that is possible, as I explained in Strong Wise Ltd v Esso Australia Resourses Pty Ltd (No 2) [2010] FCA 575 at [53]-[55]. 8 Because Lehman Brothers is in liquidation, it is necessary to grant, if the proceeding is to proceed in the Court, leave to begin and proceed with it under s 471B of the Corporations Act 2001 (Cth). The parties recognise that a substantial controversy between them has arisen in the liquidation. These proceedings will assist the liquidators in determining the admission of debts in the liquidation, and in determining a significant range of issues that would, in any event, be highly likely to require litigation. 9 For these reasons, it seems to me to be appropriate to grant the amendment and to grant leave under s 471B so as to the proceedings to be commenced by the new applicants, and to proceed with all of the applicants against Lehman Brothers. 10 The parties are yet to address some formal questions for the purposes of the conduct of proceedings under Part IV referred to in Practice Note CM 17, including questions relating to opt out notices. This has not yet been done, no doubt because the parties have been in concentrated and productive discussions with a view to isolating the essential issues that need to be litigated and propounding a timetable that is calculated to bring the proceedings on efficiently for hearing if they are unable to be resolved at the proposed mediation. I have indicated that these other issues can be dealt with in a directions hearing early next month. 11 For all these reasons, I am satisfied that the orders which the applicants now propose, and that have been amended in discussions between counsel and myself in the course of today, are appropriate. I will make those Orders. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.