Australian Securities and Investments Commission v Knightsbridge Managed Funds Limited [No 3] - [2008] WASC 231

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION -v- KNIGHTSBRIDGE MANAGED FUNDS LIMITED [No 3] [2008] WASC 231

CORAM: EM HEENAN J

HEARD: 24 SEPTEMBER 2008

DELIVERED : 24 SEPTEMBER 2008

PUBLISHED : 20 OCTOBER 2008

FILE NO/S: COR 76 of 2001
Consolidated by Orders dated 26 October 2007

MATTER :Section 601ND, s 601NF and s 6012EE of the Corporations Law of Western Australia
and
Knightsbridge Finance Mortgage Scheme
(ARSN 091 023 979)
and
Unregistered Managed Investment Schemes

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND
KNIGHTSBRIDGE MANAGED FUNDS LIMITED (ACN 089 532 169)
First Defendant
KNIGHTSBRIDGE FINANCE PTY LTD (ACN 008 716 872)
Second Defendant

FILE NO/S :COR 151 of 2007
GIOVANNI MAURIZIO CARRELLO
Plaintiff

Catchwords:

Liquidation - Corporations Act 2001 (Cth) - Application by liquidator for leave to enter into obligation where performance may take more than three months - Trust obligations - Managed investment scheme under court-appointed winding up - Litigation funding agreement (LFA) - Potential effect on beneficiaries - Relevant considerations - Approval subject to undertaking by litigation funder to accept any variations to LFA which may later be ordered by the court - Notice to beneficiaries

Legislation:

Corporations Act 2001 (Cth)

Result:

Leave to enter proposed LFA agreement subject to conditions

Category: B

Representation:

COR 76 of 2001

Consolidated by Orders dated 26 October 2007

Counsel:

Plaintiff:     No appearance
First Defendant              :     Mr K L Christensen
Second Defendant         :     Mr K L Christensen

Solicitors:

Plaintiff:     No appearance
First Defendant              :     Christensen Vaughan
Second Defendant         :     Christensen Vaughan

COR 151 of 2007

Counsel:

Plaintiff: Mr K L Christensen

Solicitors:

Plaintiff: Christensen Vaughan

Case(s) referred to in judgment(s):

Australian Securities & Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339
Bond v The Queen [2000] HCA 13; (2000) 201 CLR 213
Byrnes v The Queen [1999] HCA 38; (1999) 199 CLR 1
Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551
Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661
Meadow Springs Fairway Resort Ltd (In Liq) (ACN 084 358 592) v Balanced Securities Ltd (ACN 083 514 685) (No 2) [2008] FCA 471
Re Addstone Pty Ltd (In Liq) (1998) 83 FCR 583
Re Knightsbridge Managed Funds Ltd (In Liq) ex parte Carrello [2007] WASC 306

EM HEENAN J: The heading and number of these proceedings, as recorded in the registry, refer to only part of much broader litigation. The proceedings which are the subject of COR 76 of 2001, were commenced early in 2001 and were followed by both defendants, Knightsbridge Managed Funds (KMFL) and Knightsbridge Finance Pty Ltd (KFPL), going into liquidation. They remain in liquidation and Mr G M Carrello is the liquidator appointed. More significantly, those original proceedings led to orders made by Pullin J to wind up several managed investment schemes, the details of which are fully set out in his Honour's decision: Australian Securities & Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339. By order of Pullin J in those proceedings made on 13 December 2001, Mr Carrello was appointed as the person responsible for ensuring the winding up of the investment schemes pursuant to s 601ND, 601NFand 601EE of the Corporations Act 2001 (Cth). Those orders included, at [27] and [28], the grant of liberty to apply by Mr Carrello for directions and further orders in relation to the exercise of his powers and the discharge of his duties relating to the winding up of the managed investment schemes, and with respect to any proposed action to recover moneys or other property, or to seek damages or compensation for the breach of any obligation or to enforce any liability owed to members.
The progress towards the liquidation of KMFL and KFPL need only be mentioned briefly here. KFPL was placed in voluntary administration on 29 January 2001 and KMFL was placed in voluntary administration on 20 February 2001 from which dates, respectively, Mr Carrello was appointed and acted as the voluntary administrator of the two companies. On 15 May 2001, Mr Carrello was appointed liquidator of KFPL and on 8 October 2002, he was appointed liquidator of KMFL. From this it is apparent that Mr Carrello has several distinct, but overlapping, roles in relation to the administration of the companies in liquidation and the winding up of the managed investment schemes. He is the liquidator of each of the two defendants and is responsible for their winding up. He is also the person responsible for the administration and winding up of the managed investment schemes.
The difference between these several roles of Mr Carrello and the identification of how, as the person responsible for the winding up of the managed investment schemes, he holds the beneficial interests in those scheme assets on trust for the beneficiaries, notwithstanding that he also held the legal interest in those assets (but not the beneficial interest) in his role as liquidator of one or both of the companies, subject only to the possibility of rights of exoneration by the legal owner trustee, for the benefit of either of the companies, is somewhat intricate but has been set out in my earlier decision of Re Knightsbridge Managed Funds Ltd (In Liq) ex parte Carrello [2007] WASC 306 [11] ‑ [20] (Re Knightsbridge).
The issues considered in Re Knightsbridge were also applications by Mr Carrello, as liquidator, for leave of the court pursuant to the Corporations Act to enter into an obligation which might involve the performance of duties for more than three months. It also involved the approval of a proposed litigation funding agreement, (LFA), for proceedings then pending in the Federal Court of Australia to which KMFL was a party.
For reasons which I set out in coming to my decision to grant leave as sought, but on conditions to enter into the LFA for the proposed Federal Court proceedings in October 2007 I pointed out that, in effect, Mr Carrello needed two sets of approvals by the court for the course of action which he was then proposing. One approval was for leave under s 477(2B) of the Corporations Act to enter into an agreement on behalf of the companies in liquidation which may entail discharge by performance more than three months after the agreement was entered into and, secondly but concurrently, directions and approval by the court for Mr Carrello, as the person responsible for the winding up of the managed investment schemes, and pursuant to [27] and [28] of the orders of Pullin J of 13 December 2001, to enter into the proposed LFA as part of the course of the winding up of the managed investment schemes.
The application before me in October 2007, Re Knightsbridge, was the subject of fresh and separate proceedings in COR 151 of 2007. However, in the course of dealing with that application and in my earlier reasons for decision, I pointed out that the dual character of Mr Carrello's roles, first as liquidator and secondly as the person responsible for the winding up of the managed investment schemes, meant that the necessary approval by a court, both under the Corporations Act as sought and, secondly, pursuant to the liberty to apply reserved by Pullin J in his orders of 13 December 2001, meant that the application should also have invoked the liberty to apply reserved in COR 76/01. For that reason, I ordered that the two actions, COR 151/07 and COR 76/01 be consolidated and that Mr Carrello be given liberty to apply in COR 76/01 simultaneously with the application which he had made in COR 151/07. Despite that order for consolidation, it appears that, at least in the title and in the numbering of these proceedings, that order has not been carried into effect. Nevertheless, this present application bears the same dual character as the previous application which I dealt with in late October 2007 and invokes powers arising from both sets of proceedings. I am, therefore, despite the title to this action, treating this as a dual application in the consolidated proceedings COR 76/01 and COR 151/07. It is to be hoped that the parties will act, as soon as practicable, to perfect the order for consolidation which was previously made on 26 October 2007 by taking steps to amend the title to the proceedings to reflect the consolidation.

The Federal Court litigation

The Federal Court proceedings which are the subject of the first LFA and which now, at the appeal stage, involve a second LFA which I am now being asked to approve, are described in my earlier decision Re Knightsbridge [21] ‑ [33]. Stripped of the many complexities, the principal interests of KMFL and KFPL in the Federal Court proceedings were to assert and to defend the claim that KMFL was a secured creditor of Meadow Springs in respect of a fund held by Meadow Springs resulting from the settlement of a claim which Meadow Springs had brought against a former valuer for alleged breach of duty in valuing a proposed development property. In this respect, the Knightsbridge companies were faced with claims from other sources that, firstly, it was not a creditor of Meadow Springs; that if, contrary to the first contention, it was a creditor it was not a secured creditor and, thirdly, that if contrary to those submissions the Knightsbridge companies were secured creditors, then for a series of reasons their security was deferred to the interests of those other claimants.
In considering that application in October 2007, I described the potential interests of the two Knightsbridge companies in being involved in the Federal Court proceedings, the potential advantages which would flow to the beneficiaries of the managed investment schemes if the Knightsbridge companies were successful, the details of the LFA then under consideration and other factors relevant when considering an application for approval of such an LFA. It is unnecessary to repeat those examinations on this occasion other than to say that I am satisfied that the same principles apply to this present application.
The Federal Court proceedings, to which I have referred, proceeded to trial before Siopis J in Perth on 29 October 2007. After a lengthy and complicated trial, Siopis J gave reasons for his decision in the Federal Court proceedings on 9 April 2008, Meadow Springs Fairway Resort Ltd (In Liq) (ACN 084 358 592) v Balanced Securities Ltd (ACN 083 514 685) (No 2) [2008] FCA 471. After further submissions, Siopis J made orders disposing of those proceedings on 29 May 2008 together with supplementary orders on 10 June 2008. So far as is presently relevant, the orders made by Siopis J resulted in substantial success for the Knightsbridge parties. The effect of the decision is to be found in the two orders already mentioned which, dealing with the Knightsbridge interests, provide:
(a) Order 29 May 2008:
C: the Knightsbridge orders
8. It is declared that the charge ('the WCH Charge') granted on 24 September 1999 by Meadow Springs to the first named second defendant ('WCH') is valid and enforceable in accordance with its terms.
9.It is declared that on or about 7 April 2004 the WCH Charge was assigned by WCH to the second named second defendant ('KMF').
10.It is declared that the WCH Charge secures payment of all amounts advanced and interest (less any repayments) to Meadow Springs from the Knightsbridge Finance Pty Ltd trust account in connection with the Meadow Springs Fairway Resort project under the terms of the loan agreement made on 24 September 1999 between WCH and Meadow Springs and Meadow Springs is bound by the said loan agreement.
11.It is declared that the WCH Charge does not secure repayment to KMF of the legal costs of reinstating WCH.
12.It is declared that the WCH Charge secures payment to KMF of KMF's legal costs and expenses incurred in the Federal Court action WAD 126 of 2004.
13.KMF is to account for all sums it says are secured by the WCH Charge.
14.On or before 30 June 2008 KMF is to file and serve:
14.1a detailed account of all sums it says are secured by the WCH Charge which account is to be prepared in accordance with the reasons for decision dated 9 April 2008; and
14.2an affidavit exhibiting all vouchers and other accounting records relied upon in support of the sum claimed.
15.The question of the sums secured by the WCH Charge is referred to the District Registrar who will take the account in the manner he direct and who may, if he thinks it appropriate to do so, refer any question of principle to a Judge for determination.
…
(b) Order of 10 June 2008:
1.The orders made on 29 May 2008 are to be supplemented by the orders set out below.
2.It is declared that the parties' respective claims on the sums held by Meadow Springs' liquidator, representing the balance of settlement proceeds of Federal Court action WAD 126 of 2004, rank in the following priority:
2.1First, $115,000 payable by Meadow Springs and its liquidator, jointly and severally, to IMF under the terms of a litigation funding agreement dated in or about August 2004 ('the IMF Agreement');
2.2Second:
(a)the sum of $3,611,029.83 payable to Balanced under the Balanced Charge (in accordance with order 5 of the orders of 29 May (the 29 May orders)) together with Balanced's costs of this proceeding assessed under order 4, that amount assessed under order 6 of the 29 May orders (if any) and any amount found due to Balanced in relation to Additional Interest Rate Charges referred to in order 7 of the 29 May orders; and
(b)the sum assessed to be due and payable to KMF under the WCH Charge under order 15 of the 29 May orders and KMF's costs of this proceeding assessed under order 4.
pari passu;
2.3Third, the sum of $2,199,750 payable by Meadow Springs, and its liquidator, jointly and severally, to IMF under the terms of the IMF agreement;
2.4Fourth, all sums secured by a charge (the Hurly and Casey Charge) granted on 24 September 1999 by Meadow Springs in favour of the third defendants;
2.5Fifth, the sums payable to Meadow Springs' unsecured creditors in accordance with s 555 and s 556 of the Corporations Act 2001 (Cth).
3.Meadow Springs' claim and IMF's cross‑claim are otherwise dismissed.
4.…
5.IMF is to pay:
5.1…
5.2KMF's costs, including any reserved costs, of KMF's cross‑claim and IMF's cross‑claim.
The precise monetary effect of the judgment and declarations of Siopis J are not the subject of evidence in the present application before me, quite possibly because they are yet to be completely worked out. Nevertheless, it is apparent that KMFL succeeded in establishing the validity of its secured claim to the proceeds of moneys held by Meadow Springs totalling some $6.40 million. It also obtained the declaration made in the supplementary orders of 10 June 2008 that, subject to the priority of the relatively small amount of $115,000 payable by Meadow Springs and its liquidator to IMF under the August 2004 IMF agreement, KMFL ranked next in priority to the funds held by Meadow Springs but pari passu with Balanced Securities Ltd whose entitlement was declared to be $3,611,029.83, and subject to the eventual determination of the precise amount due to KMFL under its security following the taking of the account ordered by the registrar of the Federal Court. In particular, KMFL succeeded in obtaining a declaration that the larger claim of $2,199,750 payable by Meadow Springs to IMF ranked subsequent to its own secured interests and that certain other secured debts and unsecured liabilities ranked subsequent to that.

The appeals

The orders and declarations of Siopis J have resulted in a series of appeals and cross‑appeals by other parties to that litigation. The evidence before me revealed the following:
(a)an appeal by IMF challenging the finding in relation to the priority of the secured charges and advancing other issues;
(b)an appeal by Meadow Springs challenging the finding that the share of the moneys held was payable in the priorities so declared and advancing other contentions;
(c)a notice of contention by Balanced Securities seeking to uphold the judgment on additional grounds;
(d)a cross‑appeal by Balanced Securities challenging the finding that fees payable by Meadow Springs to IMF amounting to $115,000 took priority over other secured claims;
(e)a notice of contention by Balanced Securities that the orders of Siopis J should be upheld on additional grounds;
(f)a cross‑appeal by Westralian Capital Holdings and the two Knightsbridge companies challenging the finding that fees totalling $115,000 payable by Meadow Springs to IMF took priority over their secured claims.
It therefore follows, that apart from its proposed cross‑appeal challenging the finding of Siopis J that the fees of $115,000 payable by Meadow Springs to IMF took priority over the secured claims of Balanced Securities and the Knightsbridge companies, the Knightsbridge interests are largely seeking to defend the appeal and the other cross‑appeals and to maintain the positions adjudged by Siopis J. Were IMF to succeed in the principal appeal, then the Knightsbridge claims of priority would be defeated and their secured claim would be relegated to a far inferior and disadvantageous ranking.
In his affidavit of 10 September 2008 filed in the present proceedings, Mr Carrello deposes that the appeals and cross‑appeals have been listed for hearing in the Full Court of the Federal Court for 17 and 18 November 2008. He also states that he has been advised by his solicitor and the senior counsel who appeared for Westralian Capital Holdings and the Knightsbridge companies at the trial that Knightsbridge has a more than reasonable chance of succeeding in the appeals and that it is proper for Mr Carrello, as liquidator and the person responsible for the winding up of the managed investment schemes, to conduct the defence of the appeals.
Obviously, it is not for this court to attempt to forecast the result of the appeals or cross‑appeals in the Federal Court but, rather, to be satisfied that there are reasonable grounds for the Knightsbridge companies to expend further time and resources in the defence of the judgment given by Siopis J and, to the extent to which it may be significant, to embark on the cross‑appeal to seek priority of its claims, pari passu with Balanced Securities, over the debt of $115,000 declared and to be payable in advance by Meadow Springs to IMF.
The very comprehensive reasons for decision given by Siopis J and the advice to Mr Carrello by his solicitors and counsel are more than enough to satisfy me that the Knightsbridge companies have reasonable grounds to defend the appeal. I am also satisfied that it is reasonable in the circumstances for the Knightsbridge companies to embark on the cross‑appeal, which is of limited dimension and is unlikely to consume significantly more additional resources or time in the conduct of the appeals. Furthermore, if the Knightsbridge companies were not to be represented in the appeal and cross‑appeals or to be heard on those appeals, there is the risk that they may be prejudiced in the result because, in proceedings of this complexity, the Full Court of the Federal Court on the appeal would be deprived of the assistance which could be provided by examining all the issues on the appeal from the viewpoint of the Knightsbridge companies and Western Capital. In this regard I have again given consideration to the factors mentioned by Mansfield J in Re Addstone Pty Ltd (In Liq) (1998) 83 FCR 583 and the other authorities referred to in [35] of my reasons for decision in Re Knightsbridge.

I am satisfied that it is in the interests of the persons entitled in the winding up of managed investment schemes, and consistent with his duties as liquidator of the two Knightsbridge companies, for Mr Carrello to engage in the defence of the appeals and to advance the limited cross‑appeal which has been instituted.
The question now turns to whether or not it is also reasonable for him to enter into the new LFA to undertake this enterprise.
Mr Carrello has deposed that he does not have any funds with which to defend the appeals and that he has therefore approached Hillcrest Litigation Services Ltd ('Hillcrest') to provide a proposal for further funding for the appeals. Hillcrest is the litigation funder which had supported the Knightsbridge companies in the proceedings in the Federal Court leading to the decision of Siopis J. In the view of Mr Carrello, it is unlikely the litigation funding could be obtained from any other source because, among other reasons, IMF (Australia) Ltd is the only other litigation funder active in the industry in Western Australia.
The evidence discloses that the costs to Hillcrest of funding the original proceedings in the Federal Court totalled $335,876.45 (plus GST). Hillcrest received an entitlement to 35% of the resolution sum for the funding of the original proceedings under the first LFA. The formula proposed by Hillcrest for the funding of the defence of the appeal and the pursuit of the small cross‑appeal is to seek an entitlement to an additional percentage of the resolution sum on the basis that each 1% increase in the resolution sum should entitle Hillcrest to an amount of $9,596.45. So, for example, if the costs of the appeal for Knightsbridge were to amount to $60,000 (plus GST) in accordance with estimates provided by the Knightsbridge solicitors, to include disbursements, the additional percentage recoverable by Hillcrest would be 6.25%.
Unless the Knightsbridge companies were to be successful in their cross‑appeal, their position would not improve if the appeals by IMF and Meadow Springs were to succeed. If the Knightsbridge cross‑appeal were to succeed and the debt due by Meadow Springs to IMF of $115,000 were to lose its priority over, or even perhaps be deferred to, the secured claims of Balanced Securities Ltd, Westralian Capital Holdings and the two Knightsbridge companies, the improvement in the position of the Knightsbridge companies is only likely to be relatively minor. Accordingly, it is therefore obvious that no formula which linked the remuneration of the litigation funder to the benefits which might be obtained by the Knightsbridge parties being successful in the appeal would be likely to return any significant remuneration in addition to that already earned by Hillcrest under the first LFA.
When it is realised that Hillcrest would be contributing approximately $60,000 or more towards the conduct of the defence of this appeal, and the small cross‑appeal, it is obvious that it should be entitled to recover at least that sum as the price for its funding together with suitable return for the capital advanced and the risks undertaken. Those risks include the possibility that it may not be able to recover the costs of $335,000 already expended in relation to the trial of the action or not recover those costs fully. Furthermore, Hillcrest will bear the risk that it may have to meet any costs payable by the Knightsbridge companies for appeals and/or the original action if the appeals were to succeed. In this respect, there are likely to be at least two sets of costs which could be recovered by the opposing parties, namely, the costs for IMF and the costs for Meadow Springs. It is not possible to determine these with any precision but it is reasonable to assume that they would each be of similar order, or greater, than the costs incurred by Knightsbridge in the defence of the Federal Court claims. It follows, therefore, that there is a large potential liability for Hillcrest if the appeals were to succeed.
As I observed in [43] of my decision in Re Knightsbridge, the remuneration sought by the litigation funder may seem high but it appears to be in keeping with amounts which have been approved in relation to other similar litigation and is not unreasonable having regard to the potential losses and liabilities which Hillcrest would incur if the appeal were to fail.
Counsel for the liquidator responsible for the winding up of the investment schemes, Mr Carrello, submitted that leave to enter into the LFA in respect of the proposed appeals pursuant to s 477(2B) of the Corporations Act 2001 and, in addition, leave pursuant to the liberty to apply reserved in the orders of Pullin J of 13 December 2001 was necessary because the appeal proceedings were fresh proceedings. He also submitted that the leave granted by my orders of 26 October 2007 in Re Knightsbridge, did not extend beyond the conduct of the original proceedings in the Federal Court and cited, in support of those submissions, the recent decision of Barrett J in Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551 which, so the submission ran, was not directly on point but was, nevertheless, analogous. Carpenter v Pioneer Park Pty Ltd was an application for leave under s 237 of the Corporations Act for a member of a company to institute, on behalf of the company, an appeal from a decision in respect of which that same member had, with leave, brought a derivative action on behalf of the company but had failed and where the company was in liquidation. Barrett J decided that the only power to grant leave in such circumstances reposed in the exercise of the court's inherent jurisdiction and that the application for leave pursuant to s 237 could not be maintained in light of the decision of the NSW Court of Appeal in Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR 661. That is because the company was then in the course of being wound up so that any decision as to whether the company should bring proceedings should be made by the liquidator ‑ subject to the exercise of the inherent jurisdiction of the court. Nevertheless, Carpenter v Pioneer Park Pty Ltd does indicate that where leave to bring proceedings is necessary and has been granted in relation to the trial of an action, such grant of leave does not extend to the prosecution or defence of an appeal which, being entirely statutory, is a new proceeding: Byrnes v The Queen [1999] HCA 38; (1999) 199 CLR 1 [51], and Bond v The Queen [2000] HCA 13; (2000) 201 CLR 213 [20].
I accept that, for present purposes, the institution of an appeal or cross‑appeal, or the defence of an appeal instituted by another party, is a fresh proceeding, so that if applicants, such as the Knightsbridge parties in the present case, require leave to pursue or defend the proceedings it is not covered by the grant of anterior leave to bring or defend proceedings at first instance.
When considering whether or not leave should be granted to the individual member of a company to initiate an appeal on behalf of the company under s 237 of the Corporations Act, Barrett J in Carpenter v Pioneer Park Pty Ltd [34] concluded that the decided cases caused attention to be focused on three main matters, namely:
(1)the question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success;
(2)the attitude of the liquidator to the question whether the proceedings should be pursued;
(3)the question whether 'practical considerations support the initiation of the proceedings' with particular reference to the financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.
The present application, being different in character, naturally gives rise to some difference in approach. However, I accept that the question of whether the proceedings proposed to be pursued have some solid foundation remains relevant and, for the reasons which I have already given and after examination of the issues, I am satisfied that the defence of the appeal and the proposed cross‑appeal does have such a foundation. The second factor, namely the attitude of the liquidator, does not arise because the present application is made by the liquidator who therefore, obviously, considers that it is in the interests of the company and his administration to participate as proposed in the proceedings.
The third question of whether 'practical considerations support the initiation of proceedings' arises, although from a different aspect. The very purpose of obtaining leave to enter into the LFA is to provide the practical support for the initiation of the proceedings. It may therefore be concluded, the terms of the support proposed and the remuneration sought by the litigation funder present the question whether, if arrangements of this kind are permitted by a grant of leave from the court, this will be in the interests of the company and those affected by the administration of the liquidation and/or the winding up of the managed investment schemes.
Primarily, this litigation is for the benefit of those persons entitled to participate in the fruits of the winding up of the managed investment schemes, namely the various members of those schemes. They are not members of the Knightsbridge companies and, apart from the legal liability of Knightsbridge for any costs orders, which has the potential to affect the company's members and creditors, the fruits of any successful outcome of the liquidation will not affect the creditors or members of the two companies. Having regard to the particular circumstances now before the court, I consider that the liquidator is well positioned to represent the interests of the creditors and shareholders of the Knightsbridge companies and I note that, at least up to this point, it has never been suggested that this litigation will or might have a significant impact upon them.
However, the interests of the members of the various managed investment schemes are not directly represented, nor have they been put on notice of this application. To cater for any potential objection from any person or entity within that class, I made orders, when granting leave in Re Knightsbridge that a condition of the approval was that within a specified time Mr Carrello, or KMFL, should dispatch to each of the beneficiary mortgagees of the scheme:
(i)a copy of the proposed litigation funding agreement;
(ii)an explanatory memorandum detailing its significance in the proposed litigation and, in summary form, the remuneration or expenses which would be refundable to Hillcrest Litigation Services Ltd in the event of success of that litigation ‑ specifically drawing to the attention of beneficiaries, Hillcrest Litigation Services Ltd's entitlement to repayment under the agreement of which the agreement constitutes a novation;
(iii)a copy of these orders.
I also ordered that all or any of the beneficiaries under the schemes should have liberty to apply to the court within a specified period after receipt of those documents to seek an order which would have the effect of varying the terms of the litigation funding agreement. Further, that in the event of any such application being made, Hillcrest should be given notice of the application and should have the right to appear and be heard on or in opposition to the application but that Hillcrest should undertake to abide by any direction or order of the court made to vary the terms of the litigation funding agreement, subject to its rights to be heard and any rights of appeal.
The present applicants accept that similar conditions should be attached to any grant of leave in the present proceedings and have proposed a notice to beneficiary members of the schemes informing them of the nature of this application and the proposed litigation funding agreement and its effects. I am satisfied that such orders should be made on the present application and that Hillcrest has, by a written undertaking filed with this application, agreed to abide by any direction or order of the court made to vary the terms of the litigation funding agreement, if any.
For these reasons I am satisfied that the applicant should have leave as sought and that orders should be made as follows:
(1)Giovanni Maurizio Carrello as the person responsible for the winding up of the schemes may, in his capacity as liquidator of Knightsbridge Managed Funds Ltd and Knightsbridge Finance Pty Ltd, and in association with Westralian Capital Holdings Pty Ltd, defend and continue to defend the appeals brought by Meadow Springs Fairway Resort Ltd (In Liquidation) and IMF (Australia) Ltd in the Full Court of the Federal Court of Australia which are currently pending and which are numbered WAD 124 and 134 of 2008.
(2)The court approves of Giovanni Maurizio Carrello, in his capacity as the person appointed to wind up the schemes as trustee, and in his capacity as liquidator of Knightsbridge Managed Funds Ltd and Knightsbridge Finance Pty Ltd, accepting and entering into a proposed litigation funding agreement with Hillcrest Litigation Services Ltd in the form submitted to the court and comprising attachments JC 18 and JC 19 to the affidavit of Giovanni Maurizio Carrello sworn 10 September 2008, subject to the following conditions:
(a)within two days, the applicant shall dispatch to each of the beneficiary mortgagees of the schemes the document which is annexure JC 22 to the affidavit of Giovanni Maurizio Carrello sworn 24 September 2008;
(b)all or any of the beneficiaries under the schemes shall have liberty to apply to the court within 10 days of receipt of those documents to seek an order which would have the effect of varying the terms of the litigation funding agreement for the purpose of the said appeals;
(c)in the event of any such application being made, Hillcrest Litigation Services Ltd shall be given notice of the application and shall have a right to appear and to be heard on or in opposition to the application;
(d)Hillcrest Litigation Services Ltd undertakes to abide by any direction or order of the court made to vary the terms of the litigation funding agreement, subject to its right to be heard and any rights of appeal.
(3)To the extent that it is necessary, the applicant be given the requisite approval pursuant to s 477(2B) of the Corporations Act 2001 (Cth) to enter into the agreement referred to in order (2) above.
(4)The costs of the application be reserved.