Becwell Legal Services Pty Ltd, in the matter of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement) v McMaster (No 2)
[2012] FCA 1132
•19 October 2012
FEDERAL COURT OF AUSTRALIA
Becwell Legal Services Pty Ltd, in the matter of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement) v McMaster (No 2) [2012] FCA 1132
Citation: Becwell Legal Services Pty Ltd, in the matter of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement) v McMaster (No 2) [2012] FCA 1132 Parties: BECWELL LEGAL SERVICES PTY LTD ACN 116 449 506 v BRIAN KEITH MCMASTER, SCOTT BRADLEY KERSHAW AND CLIFFORD STUART ROCKE EACH IN HIS CAPACITY AS DEED ADMINISTRATOR OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696 and GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696 File number: NSD 1966 of 2011 Judge: YATES J Date of judgment: 19 October 2012 Legislation: Corporations Act 2001 (Cth) ss 588FDA, 588FE, 1321(1)(ca) Dates of hearing: 16, 30 August 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 17 Counsel for the Plaintiff: Mr TM Thawley Solicitor for the Plaintiff: Munro Lawyers Counsel for the Defendants: Ms K Dawson Solicitor for the Defendants: Corrs Chambers Westgarth
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1966 of 2011
IN THE MATTER OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696
BETWEEN: BECWELL LEGAL SERVICES PTY LTD ACN 116 449 506
PlaintiffAND: BRIAN KEITH MCMASTER, SCOTT BRADLEY KERSHAW AND CLIFFORD STUART ROCKE EACH IN HIS CAPACITY AS DEED ADMINISTRATOR OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696
First DefendantsGRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696
Second Defendant
JUDGE:
YATES J
DATE OF ORDER:
19 OCTOBER 2012
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The proceeding be adjourned for further directions at 9.30 am on 7 November 2012.
2.The costs of and incidental to the defendants’ interlocutory application dated 27 July 2012 be the plaintiff’s costs in the proceeding.
Note: Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1966 of 2011
IN THE MATTER OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696
BETWEEN: BECWELL LEGAL SERVICES PTY LTD ACN 116 449 506
PlaintiffAND: BRIAN KEITH MCMASTER, SCOTT BRADLEY KERSHAW AND CLIFFORD STUART ROCKE EACH IN HIS CAPACITY AS DEED ADMINISTRATOR OF GRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696
First DefendantsGRIFFIN ENERGY GROUP PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 008 681 696
Second Defendant
JUDGE:
YATES J
DATE:
19 OCTOBER 2012
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The defendants seek a temporary stay of this proceeding until 7 November 2012, being the date seven days after the anticipated completion of examinations to be conducted pursuant to s 596A of the Corporations Act 2001 (Cth) (the Act) in the Supreme Court of Western Australia. The first defendants seek to examine a number of directors of Griffin Energy Group Pty Limited (GEG), including Donald Pearson, who is also the plaintiff’s sole director and a legal practitioner. The plaintiff opposes the defendants’ application.
The defendants had originally sought an order in more general terms, namely that the proceeding be stayed pending the completion of the examinations. At the time that the original order was sought the date for the holding of the examinations had not been allocated by the Supreme Court. Following argument in respect of the defendants’ application in that form, and in the knowledge that the first return date of the examination summonses in the Supreme Court was imminent, I adjourned the hearing of the application to enable more precise information to be obtained as to when the examinations were likely to take place. On the adjourned hearing of the application there was evidence before me that the examinations would commence on 22 October 2012, with an estimated duration of eight hearing days.
In the principal proceeding the plaintiff seeks declarations and orders under s 1321(1)(ca) of the Act against the failure of the first defendants to deal with and admit proofs of debt. In essence the plaintiff seeks to have its proofs of debt, lodged in its capacity as a creditor of GEG and of The Griffin Coal Mining Company Pty Limited (GCMC), adjudicated by the Court. The proofs of debt rely on a retainer agreement alleged to have been entered into by the plaintiff, GEG and GCMC on 1 October 2009 for the provision of legal services by the plaintiff to GEG and GCMC.
The first defendants were voluntary administrators appointed to GEG and GCMC on 3 January 2010. On 28 February 2011 Deeds of Company Arrangement (DOCA) were executed in respect of both GEG and GCMC. The first defendants thereupon became the deed administrators, together with Mark Francis Xavier Mentha in the case of the GCMC DOCA. On the same day, the GCMC DOCA was wholly effectuated and a notice was lodged with the Australian Securities and Investments Commission to that effect.
Under the terms of the DOCAs, certain claims against GCMC were transferred to GEG to be dealt with on the terms of the GEG DOCA. The proof of debt lodged by the plaintiff in its capacity as a creditor of GCMC is one such claim. There have been over 400 proofs of debt received by the first defendants for claims with a combined value of $1.3 billion.
A defence was filed on 8 February 2012. Apart from putting in issue certain allegations made in the statement of claim, the defence includes allegations to the following effect:
(a)Mr Pearson breached his duties as a director of GEG and GCMC by causing the plaintiff to enter into the retainer agreement.
(b)Further or alternatively Mr Pearson, by causing the plaintiff to enter into the retainer agreement, breached his fiduciary duty not to act in a manner which preferred his own personal interest over the interests of GEG and GCMC, respectively.
(c)The plaintiff was involved in Mr Pearson’s alleged breaches of duty.
(d)A person adjudicating the proofs of debt lodged by the plaintiff with the first defendants (the GEG claim and the GCMC claim) would take into consideration the involvement of the plaintiff in Mr Pearson’s alleged breaches of duty and because such a person would have the power and/or right to apply to the Court for an order for compensation from the plaintiff as a result of its involvement in Mr Pearson’s breaches of duty, such person would have the right and/or obligation to set off the amount of compensation against the GEG claim and the GCMC claim and, in those circumstances, the hypothetical adjudicator would not admit either proof of debt.
(e)The entry into the retainer agreement was a voidable transaction within the meaning of s 588FE of the Act. This is a consideration a person adjudicating on the GEG claim and the GCMC claim could or would take into account and that person would not admit either proof of debt.
(f)Further or alternatively, entry into the retainer agreement was an unreasonable director-related transaction within the meaning of s 588FDA of the Act and, in a liquidation of GEG or GCMC, would be voidable pursuant to s 588FE(6A) of the Act. In those circumstances the hypothetical adjudicator would not admit either proof of debt.
(g)Further or alternatively the GEG claim and the GCMC claim were not “true liabilities” of GEG and GCMC respectively. In such circumstances a person adjudicating on the claims would not admit either proof of debt.
The first defendants have served a draft proposed amended defence and cross-claim, following orders made by me on 27 June 2012. On 13 August 2012 the plaintiff advised the defendants that it consented to the filing of an amended defence and cross-claim in that form. It has also sought further particulars of it.
The defendants have not as yet filed the proposed pleading.
The first defendants say that, in the examination proceedings currently before the Supreme Court, they intend to examine Mr Pearson in his capacity as a director of GEG and GCMC in relation to a number of matters, including:
(a)Whether a tax receivable of $61.3 million recorded in the accounts of GCMC as a receivable from Devereaux Holdings Pty Limited (Devereaux) (the ultimate holding company of GEG) is a GCMC receivable which is presently due and payable;
(b)Tax advice given by the plaintiff to GCMC and whether this advice was provided in accordance with the retainer agreement or any prior retainer agreement;
(c)Whether there are any claims available against any person, including the plaintiff, in relation to various tax advice and tax loss allocation matters; and
(d)The financial position of GCMC, Mr Pearson’s knowledge of it at the time of entry into the retainer agreement, and whether the existence of the tax receivable in the accounts of GCMC was a relevant matter in the consideration of GCMC’s insolvency.
The first defendants believe that these and other issues will arise during the examination proceedings, which may be relevant to the adjudication of the plaintiff’s proofs of debt, such as:
(a)Whether there is any additional claim which may be set off against the plaintiff’s proofs of debt; and
(b)Whether the plaintiff was not in fact available to provide advice to GCMC at call during any part of the term of the retainer agreement.
The defendants submit that the advantage of having a stay is clear: they will be in a position through the examinations to assess and obtain further information in relation to various existing, as well as other potential, aspects of the present case. They submit that this is important in the context of any deed administration where, as here, the deed administrators were not officers involved in GEG or GCMC at the time of the relevant acts or occurrences and where they need to inform themselves as best they can as to the affairs of those companies. They submit that they are trying to piece together, and understand, matters arising in the context of a lengthy and complex administration. They say that as a result of obtaining information from the examinations they are likely to be better able to assess the case they have to meet and to prosecute any cross-claim they might seek to bring. They submit that the Court should enable the first defendants to conduct this litigation in a manner that ensures that any legitimate defence of the plaintiff’s claims can be brought, informed by information which will be made available by the examination proceedings.
They acknowledge that the granting of a stay will disadvantage the plaintiff by delaying, to some extent, the determination of the principal proceeding with the consequent delay in having a dividend paid to it in respect of the admissible portion, if any, of its proofs of debt. They stress, however, that the stay sought is only a temporary one.
They point to the potential for such a stay to avoid a wastage of time and resources. For example, although the defendants have prepared and served their amended defence and cross-claim, they say that the information that may be available to them as a result of the examinations could well lead them to propose further amendments, in which event steps taken under the current proposed amended defence and cross-claim, if filed, may be wasted or may need to be repeated. They point to the desirability of refining their defences and cross-claim accordingly.
They also call in aid public interest considerations. For example, they submit that the outcome of the principal proceeding will affect all the creditors of GEG and GCMC. In relation to claims against GCMC, they submit that the acceptance of the plaintiff’s proof of debt will cause the deed fund to be diminished such that GCMC’s other creditors would receive payment of a lesser proportion of their claims. In relation to claims against GEG, they submit that there would be a similar impact to the extent that there is any money available for distribution.
The plaintiff submits that no stay should be granted. Its position is as follows. The present possibility of relevant facts emerging in examination proceedings is not an appropriate basis for making an order staying the principal proceeding. There is no reason why the proposed amended defence and cross-claim should not be filed now and no reason why steps should not be taken under it. In the event that the conduct of the examinations gives rise to the need to make any further amendment to the pleadings then the defendants can apply to make an amendment at that time. It is not appropriate to stay the principal proceeding simply because of the possibility that it might be necessary to make amendments at some unidentified future time. The same position obtains in relation to the filing of the defendants’ affidavit evidence. There is no foundation for a conclusion that the defendants will be significantly prejudiced, or prejudiced in any real sense at all, if a stay is not granted.
In my view the appropriate course is not to stay the proceeding but simply to adjourn it to 7 November 2012 at 9.30 am for directions. I propose to do this because I am persuaded that the most efficient way to proceed is to allow the defendants an opportunity to consider the information that, by then, will have been obtained from the examinations with a view to refining the defences and cross-claim they seek to bring in the present proceeding. I accept that the principal proceeding will be delayed by the period of that adjournment. This delay, however, is not so significant that it outweighs the advantage of bringing the pleadings into order in what would be, hopefully, one step, and then concluding the preparation of the matter for final hearing by (a) affording the defendants the opportunity to conclude, as expeditiously as possible, the filing and service of the remaining affidavit evidence upon which they propose to rely and (b) making consequential orders permitting the plaintiff to reply to the evidence in that form. In saying this I recognise that the defendants have already been granted indulgences in relation to the filing and service of the affidavits upon which they propose to rely. However, the plaintiff’s submissions at least recognise the possibility that information might be forthcoming from the examination hearings that could be relevant to whether the proofs of debt should be admitted. It would be desirable for the defendants’ affidavit evidence to be provided in as coherent and complete a form as possible, so that the plaintiff may then reply to what should be a complete body of evidence, to the extent that it considers it necessary to do so.
In my view the costs of this application should be the plaintiff’s costs in the proceeding. Although as a matter of substance the defendants have been successful over the plaintiff’s opposition, they have already been granted a number of indulgences as to time, and this is yet a further indulgence they have sought. This should be reflected in the award of costs. Moreover, it was not unreasonable for the plaintiff to oppose the defendants’ application as they had originally advanced it. As I have noted, the limited nature of the defendants’ application only became apparent after the parties had made their substantive submissions on the first day of the hearing.
I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 19 October 2012
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