Bolitho v Banksia Securities Limited (No 7)
[2020] VSC 204
•27 April 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2012 07185
| LAURENCE JOHN BOLITHO | First Plaintiff |
| AUSTRALIAN FUNDING PARTNERS LIMITED (ACN 167 628 597) | Second Plaintiff |
| v | |
| BANKSIA SECURITIES LIMITED (ACN 004 736 458) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | John Dixon J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 April 2020 |
DATE OF RULING: | 27 April 2020 |
CASE MAY BE CITED AS: | Bolitho & Anor v Banksia Securities Limited & Ors (No 7) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 204 |
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PRACTICE AND PROCEDURE — Mediation — Group proceeding — Application for approval of litigation funder’s commission and plaintiff’s costs in context of previously approved settlement of the proceeding — Allegations of breach by litigation funder and former legal representatives of overarching obligations under the Civil Procedure Act2010 (Vic), duties owed at law and professional conduct rules — Whether judicial mediation appropriate — Practice Note SC GEN 6 - Judicial Mediation Guidelines.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms S M Jacobson | Crow Legal |
| For Australian Funding Partners Limited | Mr S Horgan QC | Arnold Bloch Leibler |
| For Mr Lindholm in his capacity as special purpose receiver of Banksia Securities Limited (receivers and managers appointed) (in liquidation) | Mr J Redwood | Maddocks |
| For the Contradictor | Mr P Jopling QC with Ms J Collins | Corrs Chambers Westgarth |
| For Mr N O’Bryan AM QC | Mr M Costello | MinterEllison |
| For Mr M Symons | Mr R G Craig SC | Obst Legal |
| For Mr A Zita/Portfolio Law Pty Ltd | Mr C G Juebner | Colin Biggers & Paisley |
HIS HONOUR:
The trial of the issues remitted to me by the Court of Appeal in connection with the approval of the settlement of this group proceeding is fixed for Monday 27 July 2020. Originally set down on an estimate of 16 days, no party can now provide a firm estimate of the likely length of the trial.
Apart from the preparation of expert evidence, which is progressing according to a timetable of directions, the parties have substantially prepared the lay evidence and documents for the trial.
In anticipation of the completion of trial preparation, the second plaintiff (AFPL) seeks an order that I refer the remitter to Efthim AsJ for judicial mediation. For present purposes, I take this to be an application to refer the remitter to an associate judge for judicial mediation.
Section 66 of the Civil Procedure Act2010 (Vic) provides that a court may make an order referring a civil proceeding to appropriate dispute resolution and that such an order, where the referral is to a mediation, may be made without the consent of the parties. Rule 50.07 of the Supreme Court (General Civil Procedure) Rules 2015 provides that at any stage of a proceeding, the court may, with or without the consent of any party, order that the proceeding or any part of the proceeding be referred to a mediator.
The court’s practice in respect of judicial mediation is set out in Practice Note SC GEN 6 – Judicial Mediation Guidelines that commenced on 1 January 2020 and applies to all referrals to judicial mediation on or after that date. Presently relevant is clause 4.6 of the Practice Note:
There are proceedings which, as a matter of policy, may not be appropriate for judicial mediation. The following disputes will not ordinarily be referred for judicial mediation:
·cases involving the resolution of a matter of public importance which, in the public interest, ought to be heard in open court; and
·cases in which the commission of a crime or serious misconduct is alleged in the context of a civil proceeding.
AFPL’s application for referral to judicial mediation is supported by Mr O’Bryan, Mr Symons, Mr Zita/Portfolio Law Pty Ltd (together, the Lawyer Parties). It is not opposed by the SPR or Mr Bolitho, but it is opposed by the Contradictor.
The procedural history of this litigation, the chronology of the insolvency administration, and the substance of the issues between the parties generally in the litigation and that have been raised for determination on the remitter from the Court of Appeal, are set out in Bolitho v Banksia Securities Ltd (No 6) (Banksia No. 6),[1] and earlier decisions referenced in that ruling.
[1][2019] VSC 653.
Relevant, for present purposes, is the fact that the issues raised for determination include allegations of serious misconduct by AFPL and the Lawyer Parties in the context of a civil proceeding, meaning that, as a matter of policy and in accordance with the Practice Note, the remitter is not appropriate for judicial mediation. However, the court’s statement of its practice as to what is unsuitable for judicial mediation is not absolute. The question arises whether the circumstances of this remitter are extraordinary, meaning that the remitter does not fall within the policy considerations that require its exclusion from judicial mediation.
No party developed a submission on this question.
It is neither possible nor appropriate to anticipate what course negotiations at a mediation might take. It is safe to assume that the parties, including the Contradictor on behalf of debenture holders not otherwise represented by Mr Bolitho and AFPL, will need to compromise, to some extent, their respective claims to reach a settlement agreement with reasonable prospects of obtaining court approval. By this statement, I am simply referring to the nature of the mediation process and not expressing any view about the possible outcome at trial.
I pause to note that if I thought judicial mediation was appropriate, I would authorise the Contradictor to attend and participate in the mediation on behalf of unrepresented debenture holders, notwithstanding that the SPR would also attend and represent the interests of all debenture holders. Any judge invited to approve a settlement reached at the mediation would be informed and assisted by the Contradictor’s opinion as to the reasonableness of the settlement.
Although the list of issues to be determined on the remitter has been subject to revision since my ruling in Banksia No. 6, and further revisions are foreshadowed, it is sufficient to refer to that ruling for an explanation of the general nature of the allegations of breach of the overarching obligations under the Civil Procedure Act, of duties arising at law and owed to debenture holders, and duties pursuant to professional conduct rules that constitute the allegations of serious misconduct before the court in the proceeding. An issue on the remitter is whether there was any conduct that might constitute serious misconduct. A further issue is the extent to which, by reference to this conduct if proved, the court should reduce or disallow AFPL’s claims for legal costs and funding commission, and whether AFPL and/or the Lawyer Parties should be ordered to pay any sum into the proceeds of the settlement with The Trust Company (Nominees) Limited, or indemnify debenture holders for losses they have or will suffer by reason of such conduct.
In respect of allegations of this sort, the court has both a statutory and an inherent jurisdiction to enforce statutory and professional standards. Central to the allegations made under the Civil Procedure Act is the operation of s 28, in defining the interaction between Part 4A of the Supreme Court Act 1986 (Vic) and the allegations of breach of overarching obligations, and s 29 that, on proof of a breach of an overarching obligation, regulates the power of the court to make any order it considers appropriate in the interests of justice.
Although, ultimately, if the court was moved to grant relief by reference to such allegations, it may well do so by orders with financial consequences, the public interest in the proper administration of justice nonetheless remains a constant underlying imperative influencing the exercise of the jurisdiction whether the court be exercising its inherent jurisdiction or discharging its responsibilities under the Civil Procedure Act.
In Yara Australia Pty Ltd v Oswal, the Court of Appeal said about s 29:
Yet as we have observed, sanctions imposed for a breach of any overarching provisions have been a rarity at first instance. When no party invites the court to determine whether there has been a breach of the Act, there may be a judicial disinclination to embark upon such an own-motion inquiry for fear that inquiry as to a potential breach may be time consuming and may require the introduction of material that was not before the court as part of the proceeding. Such fears cannot relieve judges of their responsibilities. But we would not wish it to be thought that a judicial officer at first instance must undertake a substantial inquiry when considering whether there has been a contravention of the Act. As the sanction for a breach will usually lie in an appropriate costs order, a judge may at the conclusion of the reasons for judgment immediately invite oral submissions as to why there should not be a finding that the Act was contravened. The judge may in a relatively brief way deal with that issue in providing succinct reasons for a finding that there has been a breach of the Act and how that finding affects the orders for costs that are to be pronounced.[2]
[2](2013) 41 VR 302, 311–12 [27].
An essential feature of the proper administration of justice in this context is that it be transparent and open, a requirement appropriately discharged in this case by a trial of the issues arising on the remitter, followed by a reasoned judgment.
In the relevant sense, the mediation process is fundamentally different. It is a confidential process. It is not intended to be transparent and, by its very nature, cannot be open. Allegations of serious misconduct will, in a mediation, be allocated a value that reflects a negotiation based in risk assessment and other considerations beyond what would strictly be before the court, or be available to a court as a remedy for a plaintiff or a solution to the issue for a defendant.
In one sense, the extent of any discount of its claim accepted by AFPL in a settlement might provide a broad and imperfect recognition of a remedy for the benefit of debenture holders in respect of that conduct. However, it is most likely that the manner in which a negotiated compromise accommodated the allegations of serious misconduct would be substantially, if not fully, obscured. Settlement is likely to be on confidential terms, with a denial of liability, and although aspects of the agreement will likely be revealed by the process of approval, the manner in which significant allegations of misconduct have been resolved in the proceeding will not be transparent.
It is, of course, part of the essence of the mediation process that it lacks transparency and enables resolution by confidential negotiations without admission of responsibility or specific attribution of payments being made against causes of action being compromised. The overwhelming percentage of writs issued in the court are resolved by alternative dispute resolution and not by judgment, so it cannot be, and is not, said that the opaque process of mediation does not play a role in serving the proper administration of justice. The exception necessarily invokes either the notion that the case raises a matter of public importance which, in the public interest, ought to be heard in open court, or the commission of a crime or serious misconduct that, in the proper administration of justice, ought not be resolved in secret behind closed doors.
The objective of the exception is to preserve the propriety and integrity of judicial function essential for the public interest in the proper administration of justice, by excluding participation of a judicial officer in an opaque process as a mediator, attempting to resolve claims against parties who are subject to the court’s disciplinary supervision, or bound by statutory obligations that oblige a paramount duty to the court to further the proper administration of justice in relation to any civil proceeding. That is because the functions used and permitted for effective judicial mediation are not consistent with the judicial function required in cases that fall within the exception. To the extent that such an inconsistency exists, as it would in this case, the proper administration of justice is or may be seen to be compromised. In the circumstances of the present case, the fundamental public interest in the administration of justice should not be exposed to the possibility of compromise by the involvement of a judicial officer in a process resolving claims of this sort without complete transparency and considered open reasoning. The possibility of compromise is not avoided by the need for the court’s approval of any settlement.
I also take the following matters into consideration.
First, the court is committed to resolving disputes in the most efficient manner possible, including by the use of non‑adjudicative processes such as judicial mediation. Efficiency issues should be evaluated on the assumption that a mediation may resolve the dispute. An unsuccessful mediation will not greatly impact on the proceeding or the parties, either in terms of delay or cost. A successful mediation could expedite a modest final distribution to debenture holders and would save the parties the cost of a trial. It would also preserve court resources for other litigants.
Secondly, while the certainty of a settlement may avoid the prospect of further delay, in the overall context of the receivership and liquidation of Banksia Securities Limited, any further delay between a return to debenture holders following a successful mediation and a return following judgment on the remitter is, relatively speaking, not likely to be significant. Banksia’s collapse was in October 2012, more than seven and a half years ago. Were the remitter to settle at mediation, that settlement would require court approval, probably by another judge. The delay avoided would likely be no more than a matter of a few months, although the prospect of greater delay would increase if appeal processes were invoked following judgment on the remitter.
Thirdly, two factors may be more significant for debenture holders than avoiding delay: the certainty of the quantum of the final recovery, and the elimination of risk of dissipation or loss of remaining funds on the litigation. Legal costs are critical to each of these considerations. All parties would benefit through saving the cost of a trial, and it may be desirable for individual parties to have certainty as to where the burden of the costs will ultimately lie. However, and while I do not seek to downplay costs savings if a trial is avoided, the trial is substantially prepared and significant costs will have already been incurred.
During the course of the administration, there have been very substantial distributions to debenture holders, while only a small return remains locked up by the ongoing remitter. I bear in mind that debenture holders were owed approximately $663 million when receivers and managers were initially appointed in October 2012. As at 22 August 2019, seven distributions had returned to debenture holders 88.8 cents for each dollar of principal invested, or approximately $588 million. The sum presently being withheld and in contention is approximately $22 million. The debenture holders have already received substantial recovery and any remaining dividend, if the remitter resolved favourably for the interests of debenture holders, will be quite small.[3]
[3]Perhaps a further 3 cents in the dollar were it all distributed.
In these circumstances, the virtues of mediation in avoiding delay, cost, and uncertainty can be overstated.
That said, I also bear in mind that the administration has been lengthy, characterised by hard fought litigation, in which the SPR has ultimately been able to obtain satisfactory results while facing significant risk, cost, and delay. The age and demographic of the debenture holders is such that, although they have not been canvassed, their views, and those of the receiver’s committee, are likely to favour early compromise and finalisation of this administration. For present purposes, I will assume that, if canvassed, the debenture holders would favour referral to mediation.
The usual advantages of settlement at mediation would flow to AFPL and the Lawyer Parties supporting the referral. Risk would be resolved and there would be certainty. Most likely, there could be advantages to them through confidentiality as to the resolution of allegations of serious misconduct, but only to a degree; maintaining the confidentiality of a settlement of a group proceeding is often constrained by the statutory requirement that it be approved by the court.
Although I have given consideration to all of these factors, I am not persuaded that the characteristics of the remitter fall outside the ordinary features of litigation, particularly litigation for recoveries in circumstances of insolvency. These features of the circumstances of the remitter are not such as to enliven the exception in clause 4.6 of the Practice Note that there may be extraordinary cases involving the commission of a crime or serious misconduct that are suitable for judicial mediation.
The application that the proceeding be referred to a judicial officer for mediation is refused.
SCHEDULE OF PARTIES
S CI 2012 07185
BETWEEN:
| LAURENCE JOHN BOLITHO | First Plaintiff |
| AUSTRALIAN FUNDING PARTNERS LIMITED | Second Plaintiff |
| - and - | |
| JOHN ROSS LINDHOLM IN HIS CAPACITY AS SPECIAL PURPOSE RECEIVER OF BANKSIA SECURITIES LIMITED (ACN 004 736 458) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) | First Defendant |
| NORMAN O’BRYAN AM SC | Second Defendant |
| MICHAEL SYMONS | Third Defendant |
| ANTHONY ZITA AND PORTFOLIO LAW PTY LTD | Fourth Defendant |
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