Rambaldi v Spalla
[2005] VSC 162
•6 May 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 5889 of 2005
IN THE MATTER OF IRLMOND PTY LTD
(RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 066 314 870)
| GIUSEPPE MICHELE RAMBALDI | Plaintiff |
| v | |
| ANTHONY PATRICK SPALLA AND OTHERS | Defendants |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 May 2005 | |
DATE OF RULING: | 6 May 2005 | |
CASE MAY BE CITED AS: | Rambaldi v Spalla | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 162 | |
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Liquidator – Litigation funding – Funding withdrawn – Settlement – Conditional on consent of liquidator’s firm by afternoon of day of hearing - Liquidator’s originating process seeks order that officers of company be authorised to conduct the litigation – Liquidator preferring no order be made - Officers seek the order – Insufficient information whether litigation in company’s best interests – No order made.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R.S. Randall | Frenkel Partners |
| For the Defendants | Mr A.P. Spalla (In Person) |
HIS HONOUR:
A somewhat unsatisfactory situation has been presented to the Court on this application. The application, brought by Giuseppe Michele Rambaldi, as liquidator of Irlmond Pty Ltd (“the company”), was filed only late yesterday afternoon and in effect is required to be decided today, because of a time stipulation in conditional terms of settlement entered into by the liquidator last Friday, 29 April 2005, at a mediation of the Federal Court proceedings referred to below. The application is made by originating process supported by an affidavit sworn by the liquidator. With considerable speed the first defendant, Mr Anthony Patrick Spalla, has filed an affidavit and appeared before me today.
On the basis of the liquidator’s affidavit the originating process seeks an order that the officers of the company be authorised to conduct certain named litigation (being Federal Court proceedings V3203 of 2002, V54/05 and V83/05) on behalf of the company. It also sought such further or other orders as the Court deemed appropriate.
As the winding up is a creditors’ voluntary winding up, in which Mr Rambaldi was appointed on 7 February 2001, the application is made under s.511 of the Corporations Act 2001 which, by sub-s.(1)(b), attracts the power in s.471A(1A)(d) to authorise a person to exercise a power as an officer of the company.
Although the originating process sought an order in those positive terms, counsel for the liquidator told me that guidance was sought, and he did not contend for a particular disposition of the application. Nevertheless, he made clear that the liquidator’s preference was that the Court decline to make the order. He also said that the liquidator was not seeking from the Court any advice as to whether or not the terms of settlement reached at the mediation on 29 April should be ratified. In the circumstances of the case it was considered appropriate to put the matter to the Court to determine whether the officers should be authorised to conduct the litigation.
As I have said, the context in which the application arises is that of litigation which has been going on for some time in the Federal Court. The litigation arises out of the conduct of a receivership of the company. The applicants to the litigation are Mr Spalla, Andrew David Bentley Still and the company. The respondents are the receivers and their firm, companies which held debentures granted by the company and who appointed the receivers, and some other parties. The litigation, which comprises a proceeding commenced in 2002 and two related matters which are appeals in that proceeding, seems not to have passed the pleading stage. Indeed, it seems that the applicants are up to the fourth statement of claim, and that next Tuesday there is due to be heard an appeal by the company from a judgment which dealt unfavourably with the third amended statement of claim. The mediation on 29 April was held as a result of the Federal Court referring the proceeding to mediation.
I am told that the amounts claimed by the company are substantial. There is no counterclaim. The applicants, but in particular the company as the party subject to the receivership and which is said to have been left with nothing in the end result, is claiming some millions. Under the fourth amended statement of claim the amount sought, I am told, is $1.3M, whereas with the claims struck out of the third amended statement of claim the total would be about $10.5M. I was told that the costs of the respondents have been stated to exceed $1.3M.
The materials with which I have been provided include the third and fourth amended statements of claim, but not any – if there be any - of the respondents’ pleadings or other documents filed in the proceeding. Nor have I been provided with an opinion by counsel or solicitor as to the merits of the claims in the fourth amended statement of claim and the claims struck out of the third amended statement of claim and the subject of the appeal. I can read the third and fourth amended statements of claim exhibited to Mr Spalla’s affidavit and note the breadth of the matters alleged, but I am not otherwise informed of the relevant matters, such as the likely success of the appeal and at trial, in order that I might be able to form a view, even in the most tentative way, as to whether the continuance of the litigation would be in the best interests of the company, if I were to make the order sought in the originating process.
The settlement reached by the liquidator is that the company withdraw or discontinue its appeal and release the opposite parties from its claims, the opposite parties release the liquidator and the company from claims, and they agreed to bear their own costs and release each other from any adverse costs order. I referred earlier to the settlement being conditional. Following the above terms there followed a clause which provided that the terms were “subject to and will not otherwise take effect unless on or before 5.00pm on Friday 6 May 2005 the liquidator procures his firm’s consent to the Deed and its operation. Its operation is otherwise irrevocable.” The settlement did not deal with claims in the proceeding by Mr Spalla and Mr Still. The liquidator agreed on the terms without consulting Mr Spalla or Mr Still.
The liquidator had been conducting the litigation for the company with the protection of a litigation funding agreement under which the litigation funder agreed to indemnify him in respect of adverse costs orders.
The litigation funder had, in the afternoon on 29 April and before the liquidator reached the settlement, given a notice of withdrawal from the funding agreement. The funding agreement itself gives the litigation funder the right to withdraw funding on seven days’ notice in writing.
It was in these circumstances that the mediation occurred and the liquidator made the agreement but, as I have said, no agreement was made concerning the claim of Mr Spalla and Mr Still. That has led to considerable disquiet on their part, which Mr Spalla has expressed before me this morning. The disquiet is as to the actions of the liquidator, alleged to be wrongful, in settling the company’s case.
The statements that he made and the emotion that lay behind them are well to be understood when one appreciates that after a substantial period of years and the effort that has been put into the litigation, that within a matter of days the proceeding on behalf of the company has been, or is seemingly about to be, brought to an end and he is here in court to try to work out what is to happen next.
Nevertheless, it is not to be overlooked that on 11 February 2005 the liquidator wrote to Mr Spalla informing him that the litigation funder had advised that it will withdraw from the funding agreement, either before or after the appeal is heard. The liquidator advised that when that happened the company would not be able to proceed with any action unless a satisfactory funding arrangement was in place. In the circumstances, cash in trust was the only satisfactory arrangement, and he estimated a minimum amount of $2M was required on terms and conditions acceptable to him. The liquidator stated that unless a satisfactory funding arrangement was in place prior to the litigation funding being withdrawn, he will be forced to negotiate a settlement with the respondents prior to the withdrawal so as to maximise the chances of a better return, if any, for the respondents. The liquidator requested advice and evidence of satisfactory alternative funding arrangements, including the amount, within seven days.
No response to that letter has been placed before me. I note that in written advice of counsel for the liquidator, dated 3 May 2005, it is said that Mr Spalla has not provided a satisfactory response to the letter. Whatever response may have been given, Mr Spalla has not proposed a funding arrangement to the satisfaction of the liquidator.
As mentioned, the originating process seeks an order under s.511 of the Corporations Act that the officers of the company be authorised to conduct the litigation. Mr Spalla seeks that order. I have great sympathy for the position of Mr Spalla. In the suddenness of the withdrawal of the litigation funding and the settlement, and in the context of the imminence of the hearing in the Federal Court, Mr Spalla and Mr Still have been placed in an extremely difficult position. It is to be regretted, but it should not be overlooked that there was a warning and foreshadowing of what has happened in the 11 February letter.
It seems evident that the liquidator himself prefers, for reasons of costs in the litigation including the risk of further adverse costs orders, to not continue with the claim of the company in accordance with the settlement, but the settlement is conditional on the consent of the liquidator’s firm by 5.00pm today. That condition produces a pressure or urgency in the consideration of the present application. I repeat, however, that no direction is sought by the liquidator as to whether such consent should be given, and perhaps that is not surprising given that the consent in question is that of the firm and not merely that of the liquidator. Nevertheless it is the liquidator who would bring the matter to the firm and it is consistent with his position following the withdrawal of the litigation funding and entry into the terms of settlement, and the absence of a satisfactory alternative funding arrangement, that he would favour the consent being given. That is supported by the statement of counsel that the liquidator’s preference is that I not make the order sought in the originating process. Finally, counsel said that whatever order I made would be taken into account in deciding whether to consent. I note that neither counsel for the liquidator nor Mr Spalla addressed any submissions as to the effect that an order authorising Mr Spalla to conduct the litigation would have on the decision, indeed the ability, of the liquidator’s firm to consent to the terms of settlement.
It was, of course, for the commercial judgment of the liquidator, in the first instance, as to whether to make the settlement agreement. As to consent of the firm, the partners do not have the same relevant obligations and responsibilities as the liquidator, but perhaps there is a financial interest that is relevant to them insofar as their firm is concerned. I may assume that this is how the condition as to consent is to be understood, but beyond that I do not otherwise know what factors are or will be relevant to the firm.
I cannot advise the firm, of course, and would not do so and much hesitate to advise the liquidator in what seems to me to be a not unusual decision to be made by him in the context of litigation. Nevertheless, and doubtless out of some thought for the other interests involved, he has brought this application which may be thought to have been designed to draw Mr Spalla to seek authority to conduct the litigation under the guise of the originating process. As I have said, Mr Spalla takes the opportunity to seek that authority. He wishes to be able to conduct the litigation and, as discussed with counsel, I could make such an order under s.511(1)(b) of the Act if, in my view, it was otherwise appropriate to do so.
As I mentioned in argument, the difficulty that I have with taking that course is the insufficiency of information that I have in relation to the company. As I have said, I have great sympathy for the position of Mr Spalla. I think he has been placed in a very difficult position but what I am concerned with is the wider consideration of the company, its creditors and members. That goes beyond the position of the liquidator too, of course. It is the overall interest with which I am concerned and it is in respect of materials that would relate to that overall interest that I am of the view that I lack sufficient information to be able to make an informed assessment. That particularly concerns the Federal Court proceeding upon which - as to the chances of success or benefit to the company - I am utterly unable to form any view whatsoever.
It seems to me that in those circumstances I am not in a position to make the order that is sought in the originating process however much I might otherwise have been disposed to do so. As I mentioned also to Mr Spalla, I do not even have a proposal by which the position of the company in relation to the adverse costs orders which are to be released under the settlement could be secured, that is to say if authority was given to Mr Spalla to continue with the proceeding, that the company would be no worse off than it would be in that respect under the settlement. Nor do I have any assurance beyond that stated by Mr Spalla, as to how the company’s ongoing costs are to be paid.
To say these things is not to criticise Mr Spalla having regard to the shortness of time which has elapsed since the settlement last week and the bringing on of the application, although he was warned in the 11 February letter of the likely withdrawal of litigation funding and of the need for a new arrangement. Further, by a letter on 3 May 2005 the liquidator gave Mr Spalla the opportunity (before his firm decided whether to consent to the settlement) to deposit a minimum of $2M into his trust account in accordance with the 11 February letter, or procure the appointment of a substitute liquidator, or obtain the approval of the Court for the officers of the company to conduct the litigation on its behalf. The liquidator requested a response by 5.00pm yesterday.
Apart from complaining of the liquidator’s actions, Mr Spalla’s response has been to request me to make the order sought in the originating process. I do not feel, in short, that I am in a position to direct the liquidator, even if I regard the matter more broadly, upon the matter. Indeed, the more one considers it, the only aspect which is brought forward is that which is stated in the originating process. I think for the reasons that I have mentioned I am not able to determine that it is appropriate to make that order. Accordingly, for the reasons that I have attempted to express now, I make no order on the originating process.
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