Ashmere Cove Pty Ltd v Beekink (No 2) - [2007] FCA 1421

FEDERAL COURT OF AUSTRALIA
Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421
PRACTICE AND PROCEDURE – declaratory relief – power to grant declaration – factors affecting discretion to grant declaration – power to grant declaration that respondent liable to a person other than applicant
JOINDER OF PARTIES – factors affecting discretion to order joinder – applicants suing former directors and company in liquidation for breach of duty – application to join company insurers as respondents to obtain declaration that insurers liable to indemnify directors – unlikelihood of any judgment being satisfied by corporate respondent – need to avoid multiplicity of proceedings
Corporations Act 2001 (Cth) s 471B
Trade Practices Act 1974 (Cth)
Federal Court of Australia Act 1976 (Cth) s 21, s 22, s 23
Insurance Contracts Act 1984 (Cth) s 51
Bankruptcy Act 1966 (Cth)
Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 139 ALR 663 cited
JN Taylor Holdings Ltd (In Liquidation) v Alan Bond (1993) 59 SASR 432 cited
Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corporation [1977] 1 NSWLR 43 cited
Gardner v Dairy Industry Authority (1977) 52 ALJR 180 cited
Re Multi-tech Services Pty Ltd (In liq); Heard v Commonwealth Trading Bank of Australasia (1982) 30 SASR 218 cited
CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (In Liquidation) (1997) 2 VR 256 cited
Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19 cited
Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd [1982] 2 QD R 301 cited
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 cited
Spalla v St George Motor Finance Ltd (No 6) [2004] FCA 1699 cited
ASHMERE COVE PTY LTD , CG SUPER PTY LTD, CHORAL PTY LTD, PULLINGTON INVESTMENTS PTY LTD, GERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES, MANTAL BREWING SERVICES PTY LTD, CATHERINE EMMA HUSK, MIKAYLA KIM DUNNE AND JENNIFER ANNE ALLEN, BLYTH NOMINEES PTY LTD, JOHN ANDREW MASLEN AND JOAN CARMEL MASLEN AND CREATION PTY LTD v PETER CORNELIUS BEEKINK , HERSH SOLOMON MATJELES, GREGORY PHILLIP GAUNT, GIOVANNI MAURIZIO CARRELLO (LIQUIDATOR) OF KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQ) AND KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQ)
WAD 305 OF 2006
FRENCH J
11 SEPTEMBER 2007
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 305 OF 2006

BETWEEN:

ASHMERE COVE PTY LTD
First Applicant

CG SUPER PTY LTD
Second Applicant

CHORAL PTY LTD
Third Applicant

PULLINGTON INVESTMENTS PTY LTD
Fourth Applicant

GERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES
Fifth Applicant

MANTAL BREWING SERVICES PTY LTD
Sixth Applicant

CATHERINE EMMA HUSK
Seventh Applicant

MIKAYLA KIM DUNNE AND JENNIFER ANNE ALLEN
Eighth Applicant

BLYTH NOMINEES PTY LTD
Ninth Applicant

JOHN ANDREW MASLEN AND JOAN CARMEL MASLEN
Tenth Applicant

CREATION PTY LTD
Eleventh Applicant

AND:

PETER CORNELIUS BEEKINK
First Respondent

HERSH SOLOMON MATJELES
Second Respondent

GREGORY PHILLIP GAUNT
Third Respondent

GIOVANNI MAURIZIO CARRELLO (LIQUIDATOR) OF KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQ)

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] FCA 1421
Decision Date: 11 September 2007

CaseChat Overview and Summary

In the matter of Ashmere Cove Pty Ltd v Beekink (No 2), the former investors in a registered management scheme brought proceedings against the ex-directors of Knightsbridge Managed Funds Ltd (KMF), the company itself, and sought to join its insurers as respondents. The former directors are Peter Cornelius Beekink, Hersh Solomon Majteles, and Gregory Phillip Gaunt. KMF was the responsible entity for the Clifton Partners Finance Mortgage Scheme, a registered management scheme that involved making loans secured by mortgages over property. The investors allege that KMF breached its fiduciary duties and statutory obligations in the management of the Scheme. The company was covered by a Professional Indemnity Insurance Policy during the relevant period, but the insurers have declined to provide indemnity on the basis of an exclusion clause in the policy. The liquidator of KMF is not prepared to contest the insurers’ refusal to indemnify. The investors seek a declaration that the insurers are liable to indemnify the company.

The primary legal issues that the court needed to address were whether the insurers could be joined as respondents and whether the investors could obtain a declaration against the insurers that would prevent them from contesting any claim for indemnity by the liquidator following a judgment against the company. The court found that the insurers could be joined as respondents because the declaration obtained by the investors against the insurers would not legally prevent the insurers from contesting any claim for indemnity by the liquidator following a judgment against the company. The court also found that the investors had a sufficient interest in the proceedings to seek a declaration against the insurers. The court held that the insurers' exclusion clause did not apply to the claims made by the investors, and that the insurers were liable to indemnify the company.

The court allowed the insurers to be joined as respondents and ordered that the investors have leave to proceed against the company. The court also ordered that the insurers file and serve their defences by a specified date and that the investors file and serve any reply by another specified date. The directions hearing was adjourned to a later date. The court's decision ensures that the investors can pursue their claims against the ex-directors and the company, and that the insurers are held liable for their obligations under the Professional Indemnity Insurance Policy.

Orders

Orders of the court

On the Applicants’ motion filed 13 April 2007:

1. The applicants have leave to join Employers Reinsurance Corporation (ARBN 072 715 738) and Suncorp Metway Insurance Limited (ACN 075 695 966) as further respondents to these proceedings and Employers Reinsurance Corporation and Suncorp Metway Insurance Limited be joined as sixth and seventh respondents respectively herein.

2. The applicants have leave to amend the substituted statement of claim in terms of the minute of proposed amended substituted statement of claim filed on 13 April 2007.

3. The minute of proposed amended substituted statement of claim filed on 13 April 2007 stand as the statement of claim, and filing and service thereof be dispensed with.

4. The applicants have leave to amend the originating process filed on 27 October 2006 in terms of the minute of proposed originating process filed on 13 April l2007.

5. The minute of proposed originating process filed on 13 April 2007 stand as the application and filing and service thereof be dispensed with.

6. That the Court header be amended and Suncorp Metway Insurance Limited (ACN 075 695 966) be named as the sixth respondent.

7. That the Court header be amended and Employers Reinsurance Corporation (ARBN 072 715 738) be named as the seventh respondent.

8. The sixth and seventh respondents file and serve their defences by 9 October 2007.

9. The applicants file and serve any reply by 23 October 2007.

10. The directions hearing be adjourned to 30 October 2007 at 11am (WST).

11.

Background

Background to the litigation

Investors in a registered management scheme commenced proceedings against the former directors of the company which was the responsible entity for the scheme. They also seek leave to proceed against the company which is now in liquidation. The company was covered by a Professional Indemnity Insurance Policy during the relevant period and gave notice to its insurers of the claims against it. The insurers have declined to provide indemnity relying upon an exclusion clause in the policy. The liquidator of the company is not prepared to contest the insurers’ refusal to indemnify. The applicant investors now seek to join the insurers as respondents and to seek a declaration that they are liable to indemnify the company. That joinder is opposed largely on the basis that a declaration obtained by the applicant investors against the insurers would not legally prevent the insurers from contesting any claim for indemnity by the liquidator following a judgment against the company. For the reasons that follow, I propose to allow the insurers to be joined. As a consequence, I will also order in the related application in WAD 307 of 2006 that the applicants have leave to proceed against the company.Factual and procedural background Peter Cornelius Beekink, Hersh Solomon Majteles and Gregory Phillip Gaunt are former directors of Knightsbridge Managed Funds Ltd (KMF), formerly known as Australian Managed Funds Ltd. KMF is in liquidation. On 27 October 2006 former investors in a scheme said to have been managed by KMF commenced proceedings against the three former directors, KMF itself and the liquidator of KMF (subsequently discontinued as against the liquidator). Three days later, an application was filed in this Court seeking the leave of the Court under s 471B of the Corporations Act 2001 (Cth) (the Act) to begin and proceed with the action against KMF. Altogether there are eleven applicants, some of whom are corporations and some of whom are natural persons. In a substituted statement of claim, filed 20 February 2007, it is alleged that from 22 December 1999 KMF was the responsible entity for the Clifton Partners Finance Mortgage Scheme (the Scheme), a registered management scheme under ch 5C of the former Corporations Law. The Scheme involved making loans secured by mortgages over property and otherwise on terms and conditions specified by KMF from time to time. It is alleged that KMF appointed Knightsbridge Pty Ltd, which was formerly Clifton Partners Pty Ltd, as the custodian of the assets of the Scheme within the meaning of a Constitution and Compliance Plan lodged by KMF with the Australian Securities and Investments Commission (ASIC) under Ch 5C. Knightsbridge Pty Ltd was to act as KMF’s agent in the management of the Scheme, the origination of loans and in ensuring compliance with the terms of any prospectus issued by KMF. It was also required to comply with the lawful directions of KMF and ensure compliance with the requirements of the Corporations Law. Knightsbridge is still referred to in the pleading as Clifton Partners and will be so described in these reasons.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FRENCH J

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Established by: FRENCH J

Full text does not contain this section.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 305 OF 2006