Ford, In the matter of Zhong Ao Zhi Hong Investment Holding Pty Ltd (Receivers and Managers Appointed)
[2021] FCA 1373
•4 November 2021
FEDERAL COURT OF AUSTRALIA
Ford, In the matter of Zhong Ao Zhi Hong Investment Holding Pty Ltd (Receivers and Managers Appointed) [2021] FCA 1373
File number: VID 596 of 2021 Judgment of: O’BRYAN J Date of judgment: 4 November 2021 Catchwords: PRACTICE AND PROCEDURE – interlocutory application for expedited hearing – applicable principles Legislation: Corporations Act 2001 (Cth) s 424
Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AE, 37AG
Cases cited: Awan v Minister for Immigration, Multicultural and Indigenous Affairs (2002) 120 FCR 1
Hird v Chief Executive Officer of the Australian Sports Anti-Doping Authority [2014] FCA 1090
Hogan v Australian Crime Commission (2010) 240 CLR 651
Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2007] FCA 1443
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 23 Date of hearing: 4 November 2021 Counsel for the Plaintiff: Mr H Austin QC with Mr G Ayres Solicitor for the Plaintiff: Allens Counsel for the Interested Party: Mr D Harrison Solicitor for the Interested Party: Darrer Muir Fleiter Lawyers
ORDERS
VID 596 of 2021 IN THE MATTER OF ZHONG AO ZHI HONG INVESTMENT HOLDING PTY LTD (RECEIVERS AND MANAGERS APPOINTED) ACN 615 017 582
BETWEEN: MARTIN FORD AND DANIEL WALLEY IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF ZHONG AO ZHI HONG INVESTMENT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 615 017 582)
Plaintiffs
AND: GEORGE STATHOPOULOS
Interested Party
ORDER MADE BY:
O’BRYAN J
DATE OF ORDER:
4 NOVEMBER 2021
THE COURT ORDERS THAT:
Expedition
1.The hearing of the proceeding be expedited.
Joinder and claims
2.Any application by any person to be joined as a defendant to the proceeding:
(a)to oppose the relief sought by the plaintiffs; or
(b)to seek any relief in the proceeding,
is to be filed and served by 4pm on 12 November 2021.
Points of claim and defence
3.By 4pm on 12 November 2021, each of the plaintiffs and any person seeking relief in the proceeding under order 2 is to file points of claim in support of the relief sought by them.
4.By 4pm on 19 November 2021, each party opposing relief sought by another party is to file points of defence in response to the other party’s points of claim.
Discovery and subpoenas
5.By 4pm on 19 November 2021, each party make any request for discovery from other parties by category or description.
6.By 4pm on 23 November 2021, each party notify any objection to discovery, and provide discovery in any category (or part of a category) that is not objected to.
7.By 4pm on 26 November 2021, each party make any application to the Court for discovery in categories to which objection has been taken, with any such applications to be determined by a Registrar of the Court.
8.By 4pm on 26 November 2021, each party make any application to the Court for leave to issue subpoenas.
Evidence
9.By 4pm on 10 December 2021, each party file and serve any affidavits, expert evidence and a list of documents on which it intends to rely at trial.
Mediation
10.The parties are to attend mediation before a mediator agreed between the parties to be completed by 4pm on 16 December 2021.
Further case management
11.The proceeding be listed for further case management at 9.30am on 17 December 2021.
Confidentiality
12.Subject to further order, pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice, the documents or parts of documents listed in the Annexure to these orders be suppressed and not be published other than:
(a)to the Court and staff of the Court;
(b)to external solicitors and counsel engaged by any party to the proceeding for the purpose of the conduct of the proceeding.
13.Subject to further order, the documents or parts of documents listed in the Annexure to these orders be treated as confidential for the purpose of r 2.32 of the Federal Court Rules 2011 (Cth).
Other
14.There be liberty to apply.
15.Costs be reserved.
ANNEXURE
1.The following parts of the affidavit of Martin Francis Ford sworn 13 October 2021:
(a)confidential annexure MF-2; and
(b)confidential annexure MF-6.
2.The following parts of the affidavit of Martin Francis Ford sworn 26 October 2021:
(a)in paragraph 13, all of the words and the table following the first sentence;
(b)the whole of paragraph 15; and
(c)in paragraph 17, the last sentence.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
O’BRYAN J
Introduction
The plaintiffs are joint and several receivers and managers (Receivers) of Zhong Ao Zhi Hong Investment Holding Pty Ltd (Receivers and Managers Appointed) (ACN 615 017 582) (Company), having been appointed to the Company on 6 July 2021. The main asset of the Company is a very substantial and valuable property known as “Aitken Hill Conference and Events Venue”, which is located in Craigieburn, Victoria (Property).
By originating application filed on 14 October 2021, the Receivers have applied under s 424 of the Corporations Act 2001 (Cth) for the following orders:
(a)a direction that they are justified in proceeding on the basis that the Company is not bound by the document titled “Binding Heads of Agreement / Letter of Intent” dated 24 February 2021 (Heads of Agreement), purportedly entered into with the Stathopoulos Family Trust and executed by George Stathopoulos as trustee of the Stathopoulos Family Trust;
(b)further to paragraph (a), a direction that they are justified in proceeding on the basis that the Company is not bound by the Heads of Agreement to enter into a contract for the sale of the Property to the Stathopoulos Family Trust as purchaser named in the Heads of Agreement on the terms set out in the Heads of Agreement or at all;
(c)in the alternative to paragraphs (a) and (b) above, a direction that they are justified in proceeding on the basis that the Company is not bound by the Heads of Agreement on the basis that:
(i)the Heads of Agreement was terminated by the conduct of the parties to it; and/or
(ii)the Heads of Agreement was mutually abandoned by the parties to it.
The originating application was supported by an affidavit of Martin Francis Ford sworn 13 October 2021 (First Ford Affidavit). Mr Ford is one of the Receivers and is a partner of the firm PricewaterhouseCoopers and a registered liquidator. Mr Ford swore a second affidavit dated 26 October 2021 (Second Ford Affidavit).
The originating application was initially listed for return before a Registrar of the Court on 26 November 2021.
On 1 November 2021, the Receivers filed an interlocutory process seeking orders for an expedited hearing of the originating application. That application was supported by a third affidavit sworn by Mr Ford on 1 November 2021. Mr Ford swore a fourth affidavit on 3 November 2021.
The originating application and interlocutory process and supporting affidavits have been served on the Company and on Mr Stathopoulos.
The interlocutory process came before me today in my capacity as duty judge. At the interlocutory hearing, Mr Stathopoulos appeared by counsel as an interested person.
For the reasons given below, I am persuaded that the Receivers have established a case for an expedited hearing of their application, although the expedition should not be such as to prevent a fair trial of issues that may be put in contest by Mr Stathopoulos. I will therefore make orders that require the parties to prepare the matter for trial with expedition, attend mediation, and then return to the Court for further case management before the Christmas vacation period.
Background
Shortly after their appointment, the Receivers were approached by Mr Stathopoulos, who claimed to have a binding heads of agreement under which the Company had agreed to sell the Property to him for a purchase price of $90.5 million, prior to the appointment of the Receivers. On 4 August 2021, Mr Stathopoulos’ solicitor provided to the Receivers a document entitled “Binding Heads of Agreement / Letter of Intent” dated 24 February 2021 (being the Heads of Agreement referred to in the originating application).
For the reasons set out in the First Ford Affidavit, the Receivers are unable to conclude that the Heads of Agreement is a legitimate document or otherwise binding on the Company. The evidence adduced by Mr Ford raises a serious question for trial whether the Heads of Agreement is a legitimate document.
In parallel, the Receivers have been conducting a sale process in respect of the Property. On 29 October 2021, the Receivers caused the Company to enter into a contract of sale in respect of the Property with one of the bidders for a purchase price of $142 million (Contract of Sale). Settlement is due on the later of 90 days after the contract date or 10 business days after the satisfaction of “Special Condition 31”. That condition is that Mr Stathopoulos’s claim, and this proceeding, is resolved (or waived by the parties) within six months of the contract date. Each party to the Contract of Sale has the right to extend the date by which the condition must be satisfied to the date that is 12 months after the date of contract (ie, until 29 October 2022).
In the Second Ford Affidavit, Mr Ford deposed that there are significant costs involved in holding the Property while waiting for settlement under the Contract of Sale. Mr Ford estimated that monthly holding costs, including insurance, utilities, Receivers’ fees and other costs, would be in the amount of approximately $160,000 per month. This means that if the settlement of the Property is deferred from 90 days from the execution of the contract of sale until, for example, 12 months, the resulting additional holding costs incurred during a further nine month period would amount to approximately $1.44 million. In addition to the holding costs, the Loan Note Facility secured by the Property would continue to accrue interest charges in the amount of approximately $456,000 per month.
The hearing of the proceeding should be expedited
The Court has broad discretion to order expedition of a proceeding. The relevant factors depend on the particular case, but they include whether a party would suffer some significant practical disadvantage, or irreparable loss, if the proceeding were not expedited: Hird v Chief Executive Officer of the Australian Sports Anti-Doping Authority [2014] FCA 1090 at [18]-[19] per Kenny J (referring to appeals but stating principles that are of general application). The factors also include whether witness evidence is needed, and if so the availability of witnesses, or whether the questions in the proceeding can be determined on the documentary materials: see Awan v Minister for Immigration, Multicultural and Indigenous Affairs (2002) 120 FCR 1 at [42] per North J; Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2007] FCA 1443 (Meadow Springs) at [52] per French J. In an insolvency context, mounting costs and liabilities are particularly relevant: Meadow Springs at [38].
The Receivers submitted that there is a need for the proceeding to be heard and determined as expeditiously as possible for the following reasons:
(a)First, the Receivers may not be able to complete the sale of the Property until the proceeding is determined.
(b)Second, if the proceeding is not determined before the expiry of the 12 month period for satisfaction of the condition precedent, the Contract of Sale will cease to be binding and a new sale process may then need to be held, wasting time and resources.
(c)Third, there is a commercial interest in the Receivers being able to complete the sale as soon as possible as:
(i)this would limit the execution risk presented by an extended settlement period; and
(ii)pending completion of the sale, costs of approximately $160,000 and interest of approximately $456,000 are accruing each month.
At the hearing today, Mr Stathopoulos’ position with respect to the originating application had not been finally determined. Nevertheless, the hearing was conducted on the basis that it was likely that Mr Stathopoulos would apply to be joined as a defendant to the proceeding to oppose the relief sought by the Receivers and may also file his own application (in this proceeding) seeking relief against the Company in the form of an order for specific performance of the Heads of Agreement.
Mr Stathopoulos did not oppose orders for an expedited hearing, although he submitted that appropriate steps should be allowed to enable him to prepare his case. In particular, Mr Stathopoulos sought orders enabling the filing of points of claim and points of defence and orders for discovery and the issue of subpoenas.
I am satisfied on the evidence that it is appropriate to make orders for the hearing of the proceeding on an expedited basis. The primary considerations are the current timeframe for satisfaction of the condition precedent in the Contract of Sale and the costs being incurred by the Receivers in holding the Property and being unable to complete its sale under the Contract of Sale. However, those considerations must be balanced against affording Mr Stathopoulos a fair opportunity to prepare any case for trial. Weighing the various factors, I consider the following orders should be made:
(a)first, requiring Mr Stathopoulos to decide whether he wishes to be joined to this proceeding to oppose the orders sought by the Receivers and to bring his own application for relief;
(b)second, requiring all parties seeking relief to file points of claim to be determined by the Court, and then to respond with points of defence;
(c)third, requiring the parties to exchange proposed discovery categories and to provide discovery in agreed categories, and to set a time by which any application for discovery and for leave to issue subpoenas is to be made;
(d)fourth, requiring the parties to file their lay and expert evidence, including all documentary evidence;
(e)fifth, requiring the parties to attend mediation once those steps have been taken.
The proceeding will then be returned to Court for further case management, with the aim of setting the matter down for trial at the earliest available date.
Suppression orders
The Receivers seek suppression orders in respect of:
(a)confidential annexures MF-2 and MF-6 to the First Ford Affidavit; and
(b)some parts of the Second Ford Affidavit.
The exercise of the Court's power under s 37AF of the Federal Court of Australia Act 1976 (Cth) to make a suppression order is controlled by two other statutory provisions. First, s 37AE provides that, in deciding whether to make a suppression order, the Court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice. Second, s 37AG(1) stipulates the grounds on which a suppression order may be made, one of which is (relevantly) that the order is necessary to prevent prejudice to the proper administration of justice. As observed by the High Court in Hogan v Australian Crime Commission (2010) 240 CLR 651 at [30] (with respect to the predecessor provision to s 37AG (1)(a) – s 50 – which was in substantially identical terms), "necessary" is a strong word and it is insufficient that the making of a suppression or non-publication order appears to be "convenient, reasonable or sensible".
Mr Ford gave the following evidence in support of the suppression orders sought:
(a)Confidential annexure MF-2 to the First Ford Affidavit is a copy of the Loan Note Facility in favour of a parent company to the Company, being obligations in respect of which the Receivers were appointed. Mr Ford deposed that the Loan Note Facility is confidential and commercially sensitive, including because knowledge of the terms of those documents might affect the process for the sale of the Property (which, I observe, remains conditional).
(b)Confidential annexure MF-6 to the First Ford Affidavit is a draft valuation of the Property from Knight Frank dated 7 October 2021. Mr Ford deposed that the Valuation is confidential and commercially sensitive for the same reason.
(c)Some parts of the Second Ford Affidavit disclose details of the bids made for the Property. The Receivers submitted that disclosure of the details may adversely affect the interests of the Receivers and the Company in circumstances where the Contract of Sale remains conditional.
I am satisfied that a suppression order in respect of that limited range of evidence should be made on the basis that the order is necessary to prevent prejudice to the proper administration of justice. The proper administration of justice takes account of the potential damage to commercial interests by reason of disclosure of commercial confidential and sensitive information.
Conclusion
In conclusion, I will make an order that the hearing of the proceeding be expedited and otherwise make procedural orders in accordance with the foregoing reasons.
I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan. Associate:
Dated: 4 November 2021
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