Re 22 Park Street Pty Ltd (rec & mgr apptd) (No 2)
[2021] VSC 588
•16 September 2021 (ex tempore); written reasons published 17 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 04256
| MARIA LANTOURIS | Plaintiff |
| v | |
| 22 PARK STREET PTY LTD (RECEIVER AND MANAGER APPOINTED) (ACN 608 062 880) | First Defendant |
| SIMON NELSON IN HIS CAPACITY AS RECEIVER AND MANAGER OF 22 PARK STREET PTY LTD (RECEIVER AND MANAGER APPOINTED) (ACN 608 062 880) | Second Defendant |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 7, 15, 16 September 2021 |
DATE OF JUDGMENT: | 16 September 2021 (ex tempore); written reasons published 17 September 2021 |
CASE MAY BE CITED AS: | Re 22 Park Street Pty Ltd (rec & mgr apptd) (No 2) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 588 |
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CORPORATIONS LAW — Section 240 Corporations Act 2001 (Cth) — Leave to compromise and settle claims in a proceeding commenced on behalf of a company under ss 236 and 237 of the Corporations Act 2001 (Cth) — Best interests of the company — Global settlement with other proceedings — Discontinuance of one proceeding and dismissal of another as part of the settlement terms — Notice to receiver of making of an application under s 240 of the Corporations Act 2001 (Cth) — Receiver of the company heard on the application — Leave to compromise and settle claims granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Ribbands | Melbourne Legal Chambers |
| For the Defendants | Mr DJ Williams QC | Aitken Partners Pty Ltd |
HIS HONOUR:
Introduction and summary
The plaintiff, Maria Lantouris (Ms Lantouris), seeks leave pursuant to s 240 of the Corporations Act 2001 (Cth) (Act) to compromise and settle claims brought on behalf of 22 Park Street Pty Ltd (Company) against the first to seventh defendants in County Court proceeding CI-20-01142 (LSC Proceeding) on the terms set out in a deed of settlement dated 19 May 2021 (Settlement Deed). Leave is required because the Company’s claims in the LSC Proceeding were brought pursuant to leave granted under s 236 of the Act by Almond J on 27 November 2020.
Ms Lantouris relied upon an affidavit of Mr Mario Merlo, her solicitor and the solicitor for the plaintiffs in the LSC Proceeding (LSC Plaintiffs), sworn 9 June 2021. Confidential exhibits to that affidavit included the Settlement Deed and a written advice regarding the merits of the Company’s claims (Confidential Merits Advice) from counsel for the plaintiffs in the LSC Proceeding , who also appeared on this application — as he did before Almond J in November 2020. Ms Lantouris also relied upon a confidential written submission dated 4 August 2021 and a reply confidential written submission dated 1 September 2021.
Notice of the application, including access to the confidential material relied upon by Ms Lantouris, was given to Simon Nelson in his capacity as receiver and manager of the Company (Receiver) and he was represented by solicitors and senior counsel at the hearing, and at earlier directions hearings. The Receiver relied upon three confidential affidavits of his former solicitor, Mr Begg, dated 26 July 2021 and (two) dated 11 August 2021, and upon his own confidential affidavit dated 27 August 2021. The Receiver also relied upon a confidential written submission dated 27 August 2021.[1]
[1]There remains an issue between Ms Lantouris as sole director and shareholder of the Company and the Receiver as to whether the Receiver’s appointment is valid, although that is not a matter for determination upon this application. The issue is further referred to in the Background section of these reasons below.
For the reasons that follow leave pursuant to s 240 of the Act should be granted to Ms Lantouris, and to the extent necessary, the Company, to compromise and settle the claims against the first to seventh defendants in the LSC Proceeding on the terms set out in the Settlement Deed.
Background
The orders granting leave to bring the LSC Proceeding on the Company’s behalf
This is the second application in relation to the compromise of the LSC Proceeding. The first application was urgently determined in May 2021 and my reasons were published in Re 22 Park Street Pty Ltd (rec & mgr apptd)[2] (Re 22 Park Street). In that application leave was granted pursuant to s 240 of the Act to compromise and settle, for a modest sum,[3] the claim against the eighth defendant in the LSC Proceeding. Although the detail of that application need not be repeated or addressed, the background to the grant of leave under s 236 of the Act by Almond J in November 2020 is relevant and it is convenient and efficient to repeat in almost identical terms what I then said on the topic,[4] which I do below.
[2][2021] VSC 247.
[3]See Re 22 Park Street (No 1), [4], [32].
[4]Re 22 Park Street [2021] VSC 247, [7]–[16].
The history to the grant of leave to Ms Lantouris to bring the LSC Proceeding on behalf of the Company was addressed in the revised ruling of Almond J dated 27 November 2020 (Almond J Ruling), to which I refer. As is apparent from that ruling, the application was dealt with urgently in circumstances where the LSC Proceeding had been commenced with the Company as one of the plaintiffs without first obtaining leave to do so. At the urging of the solicitors for the Receiver, it appears that those advising Ms Lantouris concluded that, because the Company was in receivership, it was necessary for her to seek leave under s 236 of the Act to bring the Company’s claims in the LSC Proceeding on its behalf.[5]
[5]There is a question as to whether that was the necessary or correct course to adopt at the time. However, this was not raised before Almond J or on the applications before me. In any event, because the LSC Proceeding was in fact brought with leave granted (nunc pro tunc) under s 236 of the Act, s 240 of the Act is relevantly engaged. As to the position of directors when a company is in receivership, and their ability to bring a claim on behalf of such a company, see, for example, Ernst & Young (Reg) v Tynski Pty Limited [2003] FCAFC 233 ( Branson, Marshall and Stone JJ); Deangrove Pty Ltd (Rec & Mgrs Aptd) v Commonwealth Bank of Australia [2001] FCA 173 (Sackville J); Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199 (Street J); Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2006] FCA 1163 (French J); Huntingdale Village Pty Ltd v Mallesons Stephen Jaques [2013] WASC 48 (Le Miere J); and Tred Nominees Pty Ltd (recs & mgrs apptd) v Albarran [2021] VSC 494 (Hetyey AsJ). See also Keay’s Insolvency: Personal & Corporate Law and Practice, (10th ed), 2018, M Murray and J Harris at [18.530]–[18.535].
Although the application for leave under s 236 of the Act was opposed by the Receiver,[6] Almond J determined that Ms Lantouris’ application should succeed. By orders made on 27 November 2020 he ordered that:
(a) The plaintiff has leave nunc pro tunc pursuant to s 237 of the Corporations Act 2001 (Cth) to bring the County Court Proceeding on behalf of the Company.
(b) The plaintiff pay 50% of the second defendant’s costs of and incidental to the proceeding, to be assessed by the Costs Court on the standard basis in default of agreement.
[6]It was not suggested that the Receiver would pursue the action on behalf of the Company.
The orders also recorded the undertakings given by Ms Lantouris (as plaintiff) and her solicitor as follows:
(a) Upon the plaintiff’s solicitor undertaking by counsel that he will not seek to recover from the Company any costs, charges or expenses of and incidental to the pursuit of the [LSC Proceeding] other than where and to the extent that an amount has been recovered by the Company from any of the defendants to the [LSC Proceeding].
(b) Upon the plaintiff by her counsel undertaking that she will bear liability for payment of the costs, charges and expenses of and incidental to the Company’s pursuit of the [LSC Proceeding] to the extent that any such amount remains due from the Company to its solicitor.
(c) Upon the plaintiff by her counsel undertaking that she will indemnify the Company in relation to any adverse order for costs that might be made against the Company by any of the defendants to the [LSC Proceeding].
(d) Upon the plaintiff by her counsel undertaking to keep the receiver of the Company informed of the progress of the [LSC Proceeding].
The LSC Proceeding, the Makada Proceeding, and the Settlement Deed
The first defendant in the LSC Proceeding is Boris Mutavdzija (Mr Mutavdzija), a solicitor, who it is alleged failed to satisfactorily discharge his duty of care to the three LSC Plaintiffs, being Ms Lantouris, her mother, Ms Vasiliki Sevdalis (Ms Sevdalis), and the Company (LSC Plaintiffs). The claimed breaches of duty include allegations regarding the wrongful distribution of sale and loan proceeds. These are said to have occurred when Mr Mutavdzija was acting for the LSC Plaintiffs in connection with, among other things, a proposed loan to Ms Lantouris and the Company (Abbotsford Loan). The Abbotsford Loan was to be used to fund in part the purchase of a property at 22 Park Street, Abbotsford (Abbotsford Property) from a former mortgagee exercising its power of sale over that property. The Abbotsford Property was at that time registered in the name of Ms Sevdalis and her son, Nicholas Sevdalis (Dr Sevdalis), with Ms Sevdalis holding 19 of 20 equal undivided shares and the remaining undivided share being held by Dr Sevdalis.
As was the case when Ms Lantouris sought leave to proceed with the LSC Proceeding in November 2020, Ms Lantouris remains the sole director and shareholder of the Company.
The second to seventh defendants in the LSC Proceeding[7] (collectively, the Abbotsford Lenders) were the lenders who, through their solicitors Ajzensztat Jeruzalski & Co Lawyers, made the Abbotsford Loan to Ms Lantouris and the Company using what has been described by counsel for the LSC Plaintiffs as an asset-based lending model.
[7]The claim against the eighth defendant, another solicitor, was resolved by agreement and is the subject of my reasons in Re 22 Park Street [2021] VSC 247.
After the Abbotsford Property was acquired by the Company using the Abbotsford Loan to partially fund the purchase price, Ms Lantouris and the Company almost immediately defaulted. The Abbotsford Lenders exercised their rights as mortgagee and sold the Abbotsford Property to a third party. In the LSC Proceeding Ms Lantouris and the Company allege that the Abbotsford Lenders engaged in misleading and deceptive conduct and unconscionable conduct in connection with the provision of the Abbotsford Loan and the acquisition of the Abbotsford Property.
The trial of the LSC Proceeding was due to commence on 17 May 2021 and was to be heard together with County Court Proceeding CI-20-01141 (Makada Proceeding). The Company is not a party to the Makada Proceeding. The plaintiffs in the Makada Proceeding (Makada Plaintiffs) made a loan (Northcote Loan) to Ms Lantouris and 17 Green Street Pty Ltd in connection with the refinancing of Ms Lantouris’ long-term family home at 17 Green Street, Northcote (Northcote Property). The Northcote Loan was secured by a mortgage over the Northcote Property and a guarantee from Ms Lantouris. In the Makada Proceeding the Makada Plaintiffs sought possession of the Northcote Property and payment of an amount in excess of $2.4 million said to be owing in respect of principal, interest and costs associated with the Northcote Loan.
The allegations against Mr Mutavdzija in the LSC Proceeding regarding the alleged unauthorised distribution of trust funds (which were denied and in respect of which no adjudication has taken place) were said to have involved a wrongful distribution of:
(a) a combined amount of $198,000 held by Mr Mutavdzija’s firm (Stern Legal) on behalf of Ms Lantouris and said to comprise part of the funds from the Northcote Loan; and
(b) a combined amount of $560,359 held by Mr Mutavdzija’s firm on behalf of Ms Sevdalis, and said to comprise the surplus proceeds of sale when the Abbotsford Property was sold to the Company by the former mortgagee.
The loss claimed by the LSC Plaintiffs was addressed in part in paragraph 23 of the Amended Statement of Claim dated 18 March 2021 and included amounts equal to the unauthorised distributions.
By their defences filed in the LSC Proceeding, Mr Mutavdzija and the Abbotsford Lenders each denied that they were liable to the LSC Plaintiffs as alleged or at all.
A mediation involving all parties to both the LSC Proceeding and the Makada Proceeding occurred, although the proceedings did not resolve. Negotiations continued thereafter in tandem with trial preparation and ultimately resulted in a settlement in principle being reached on 17 May 2021, the day the trial was listed to begin. The parties subsequently exchanged executed counterparts of the Settlement Deed on 19 May 2021, later leading to the bringing of this application for leave under s 240 of the Act.
The Settlement Deed is not confined to the settlement of the LSC Proceeding, but embodies a single global settlement of the LSC Proceeding and the Makada Proceeding, with all active parties to those proceedings being parties to the Settlement Deed.[8] The terms of the settlement are expressed to be confidential, but the carve outs include being able to disclose its terms to the extent necessary to obtain the grant of leave under s 240 of the Act. I have had regard to the full terms of the Settlement Deed.
[8]The eighth defendant to the LSC Proceeding is not a party, having entered a separate deed at an earlier time. See Re 22 Park Street [2021] VSC 247.
The settlement is expressed to be conditional upon leave being granted under s 240 of the Act ‘… to enter into the settlement set out in …’ the Settlement Deed. As to the substantive content of the Settlement Deed, it is sufficient for present purposes to make the following truncated observations regarding some of its relevant features and terms:
(a) A ‘Settlement Sum’ is to be paid to the LSC Plaintiffs by Mr Mutavdzija in settlement of the claims against him (LSC Settlement Sum).
(b) Ms Lantouris and Ms Sevdalis are to pay an amount materially greater than the LSC Settlement Sum to the Makada Plaintiffs in settlement of the Makada Proceeding
s(Makada Settlement Sum).
(c) The LSC Settlement Sum is to be paid to the Makada Plaintiffs as part of the Makada Settlement Sum. The balance of the Makada Settlement Sum, together with interest, is to be paid by a specified agreed time and is subject to agreed specified security arrangements between the Makada Plaintiffs, Ms Lantouris and Ms Sevdalis.
(d) No money is to be paid to the LSC Plaintiffs by the Abbotsford Lenders.
(e) The LSC proceeding is to be discontinued with no order as to costs.
(f) The claims and counterclaims in the Makada Proceeding are to be dismissed with no order as to costs, but subject to the Makada Plaintiffs’ right of reinstatement.
(g) The Settlement Deed contains mutual releases and covenants not to sue in unremarkable form.
(h) The consideration set out in the Settlement Deed is expressed to have been given by all parties with an express denial of liability and solely for the purpose of avoiding litigation.
(i) The law of Victoria governs the Settlement Deed, with the parties submitting to the non-exclusive jurisdiction of the courts of Victoria.
(j) The Settlement Deed includes a number of conventional terms commonly seen in terms of settlement.
Counsel appearing for Ms Lantouris on this application had an informed understanding of much of the background to the LSC Proceeding and the Makada Proceeding, having appeared for Ms Lantouris before Almond J in November 2020, having been trial counsel briefed for the LSC Plaintiffs in the LSC Proceeding and Ms Lantouris in the Makada Proceeding, and having appeared for Ms Lantouris in the first leave application in May 2021. Counsel addressed the merits of the Company’s claims in the Confidential Merits Advice and in confidential parts of his written submissions. These matters were also addressed in confidential parts of the affidavit material relied upon by Ms Lantouris and by the Receiver. Although I have had full regard to this material and the opinions expressed, because of the privileged and confidential nature of various aspects of the material I do not propose to set it out here. To the extent necessary further references are made to the material and the submissions later in these reasons.
The issue regarding the validity of the appointment of the Receiver
As observed in Re 22 Park Street,[9] the position of the Receiver may not be straightforward and it is again convenient to repeat what I there said about the issue.
[9]Re 22 Park Street [2021] VSC 247 [13]–[16].
The Receiver was appointed on 9 November 2017 by Argyle Lending Pty Ltd (Argyle) in connection with a loan or other amount said to be owing by Ms Lantouris to Argyle and which was said to be secured by a general security agreement signed on 25 July 2017, which included security over the Company. As observed by Almond J when the application for leave under s 236 of the Act was made before him, the court was informed that Argyle had sued Ms Lantouris in a (different) County Court proceeding (Argyle Proceeding) seeking recovery of the claimed amount. The court was also informed at that time that one possible outcome of the Argyle Proceeding was that the County Court could find that no money was payable by Ms Lantouris to Argyle and that there was, therefore, no basis for the appointment by Argyle of the Receiver to the Company in the first place. At the time of the application before Almond J, judgment in the Argyle Proceeding was reserved.
On 25 March 2021, Judge Ryan handed down reasons in the Argyle Proceeding dismissing Argyle’s claim against Ms Lantouris, and it seems, determining that there never was any money owed by Ms Lantouris to Argyle. The court was informed that final orders were made dismissing Argyle’s claim on 30 April 2021.
At the hearing of the first application before me in May 2021, the court was informed that Ms Lantouris and the Company contend that, in light of the judgment in the Argyle Proceeding, there was never any basis for the appointment of the Receiver to the Company, and that the appointment is and was invalid.[10] At that time counsel for the Receiver confirmed that no application had yet been made to set aside the appointment, which remains the position to date. In an exchange with the Bench, on 10 May 2021 counsel for the Receiver also properly acknowledged that if Judge Ryan’s decision is not overturned the Receiver will have been appointed where there may be no debt, but also said that it may be a separate question as to whether the appointment is invalid. In part this was said to be based on the fact that the appointment was made under a general security agreement that was not the subject of the proceeding before Judge Ryan in the Argyle Proceeding. The court was also informed that the decision of Judge Ryan in the Argyle Proceeding is to be appealed, although at that time the required steps had not been taken. The application for leave to appeal has now been filed and served but has not yet been heard or determined.
[10]Which was also deposed to by Mr Merlo in his second affidavit filed in connection with the application the subject of the reasons in Re 22 Park Street.
The invalidity or otherwise of the appointment of the Receiver was not an issue before the court in the May 2021 leave application and is not an issue for determination here. Whilst it remains something that the Receiver and his counsel and solicitors need to continue to reflect upon and consider carefully, this is not a controversy that can or should be determined by the court on the current application before me. As counsel for Ms Lantouris properly recognised, as things stand the Receiver remains the receiver and manager of the Company.
The Receiver’s position on the application
The Receiver initially opposed the application in part. Although the Receiver had no objection to the quantum of the settlement with Mr Mutavdzija, or the walkaway position with the Abbotsford Lenders, he raised an objection to the grant of leave because no part of the LSC Settlement Sum was to be paid to the Company. However, the Receiver’s position changed.
After the first day of the hearing the application was adjourned for a few days to enable the parties further to consider their positions and to continue discussions that had been occurring in the lead up to the hearing. When the hearing resumed on 15 September 2021 the court was informed that, subject to the execution of a deed that was proposed to be signed later in the day, agreement had been reached between Ms Lantouris and the Receiver that an amount of money would now be paid by Ms Lantouris to the Company and the Receiver (Company Settlement Sum). In substance this was said to represent a share of the LSC Settlement Sum for the Company.
The court was informed that a little more than half of the Company Settlement Sum is to be paid in respect of the Receiver’s agreed costs of this proceeding, with the balance to remain with the Company. The proposed confidential settlement deed (Receiver Settlement Deed) was provided to the court and I have considered all of its terms, including the amount of the Company Settlement Sum.[11]
[11]Which was accurately described by counsel for Ms Lantouris as being a relatively modest amount.
Senior counsel for the Receiver informed the court on 15 September 2021 that, subject to the execution of the Receiver Settlement Deed, the Receiver supported Ms Lantouris’ application. The court was subsequently informed that the Receiver Settlement Deed had been executed by the parties to it, namely, Ms Lantouris, the Company, and the Receiver. Except for one minor correction of no relevant consequence for present purposes, the executed document was in identical terms to the unexecuted document.
Section 240 of the Act – principles and observations[12]
[12]That which follows is largely drawn from my reasons in Re 22 Park Street.
Section 240 is part of Part 2F.1A of the Act and provides as follows:
Proceedings brought or intervened in with leave must not be discontinued, compromised or settled without the leave of the Court.
The learned authors of Ford, Austin and Ramsay’s Principles of Corporations Law[13] observe that the section ‘… is meant to prevent any collusion between the applicant and the defendant which might benefit the applicant but not be in the best interests of the company. For example, it is meant to prevent directors who might be defendants making a payment to the applicant with the intention of persuading the applicant to discontinue the legal proceedings on behalf of the company.’
[13]RP Austin and IM Ramsay, LexisNexis Butterworths, Ford, Austin and Ramsay’s Principles of Corporations Law, (online at 6 May 2021) [10.240.21].
The section was the subject of consideration by Barrett J in Carpenter v Pioneer Park (in Liquidation),[14] where his Honour observed as follows when dealing with proposed orders on an application by the plaintiff for derivative leave to bring a claim on behalf of a company:
[14][2004] NSWSC 1007.
[41] The liquidator’s para (c) envisages a role for the liquidator in any decision to compromise or settle the proceedings brought by Mr Carpenter on the company’s behalf. This, to my mind, would be contrary to the legislative scheme. That scheme envisages that the person granted leave will have responsibility for the proceedings to the exclusion of the normal decision makers whose unwillingness or inability to set the company in motion in the ordinary way forms part of the statutory basis for allowing the applicant to become the decision maker in their place. The particular matter of compromise or settlement (as well as discontinuance) is, in any event, dealt with in s 240:
Leave to discontinue, compromise or settle proceedings brought, or intervened in, with leave
Proceedings brought or intervened in with leave must not be discontinued, compromised or settled without the leave of the Court.
[42] This provision provides a sufficient safeguard. If Mr Carpenter sought leave to enter into a compromise or settlement on behalf of the company, the court might well consider it appropriate that the liquidator have an opportunity to make submissions on the question whether leave should be granted. Section 240 does not apply, of course, where a creditor or contributory sues in the name of a company in liquidation, exercising leave granted by the court pursuant to its inherent power. But the court, in granting leave, can impose a term to the same effect.
These matters were subsequently referred to by Mansfield J in Rafferty v National Australia Bank Ltd,[15] where he said as follows in respect of s 240 of the Act:
[10] Clearly such a provision is intended to ensure that the court have the opportunity to prevent any collusion between the plaintiff and the defendant in the particular circumstances, and perhaps more widely to oversee the question whether the proposed resolution is in the best interests of the company. The court may permit others whose interests may be affected to be heard before deciding whether to grant leave to compromise a proceeding brought with leave under s 237(2): Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 211 ALR 457 per Barrett J at [41].
[15][2011] FCA 169.
Section 240 was also addressed in a different context by Stewart J in Nation Energy (Australia) Pty Ltd v Paltar Petroleum Ltd (Administrators Appointed).[16] One of the issues that arose in that case related to the question of dismissal versus discontinuance, where Stewart J observed as follows:
12. As indicated, the proceeding against Paltar was brought with leave under s 237 of the Act. Section 240 provides that proceedings brought with leave “must not be discontinued, compromised or settled without the leave of the court”. Section 240 does not mention dismissal of the proceeding.
13. Nation Energy seeks the dismissal on the basis that it is by agreement of the parties, with the result that the proceeding against Paltar is to be treated as having been “settled”, and that that settlement provides for, or justifies, the dismissal. On that basis, Nation Energy seeks leave under s 240 for the proceeding against Paltar to be dismissed.
14. With respect to the order that it seeks actually dismissing the proceeding against Paltar, Nation Energy relies on s 241 of the Act which gives to the court a broad supervisory power to make any orders, and give any directions, that it considers appropriate in relation to proceedings brought or intervened in with leave: Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; 53 ACSR 732 at [15] per Austin J. None of the particular types of orders listed in paragraphs (a) to (d) of s 241 specifically covers the dismissal order that is presently sought, but that list – which is prefaced by the word “including” – is clearly not exhaustive and the wording of the section is wide enough to enable the court to make such a dismissal order: Isak Constructions v Faress [2005] NSWSC 679 at [11] per Campbell J; Magafas v Carantinos [2008] NSWSC 691 at [15]-[23] per Einstein J.
15. Given that the power under s 241 is supervisory of proceedings commenced with leave under s 237, and the interests of the company are central to the granting of such leave, the interests of the company must be central to the exercise of the power under s 241. In considering what is in the best interests of the company, it is necessary to consider the prospects of success of the action, the likely costs and likely recovery if the action is successful and likely consequences if it is not: Robash Pty Ltd v Gladstone Pacific Nickel Pty Ltd [2011] NSWSC 1235; 86 ACSR 432 at [57] per Ball J.
[16][2019] FCA 1473 (Nation Energy). See also Nation Energy (Australia) Pty Ltd v Paltar Petroleum Ltd (Administrators Appointed) (No2) [2020] FCA 271 (Stewart J), including the observations regarding the best interests of the company at [13].
Stewart J was ‘… satisfied that the parties had “settled” the case as between Nation Energy and Paltar on the basis that it should be dismissed, [and] that there [was] appreciably good reason why the proceeding should be dismissed …’.[17] The circumstances involved in Nation Energy were different to those now under consideration because, among other things, the application was not only for leave to compromise the proceeding but for orders actually dismissing the proceeding as well as granting leave.
[17]Ibid, [18].
It is not surprising that s 240 of the Act addresses discontinuance expressly, and separately, to compromise and settlement. The step of discontinuance can be taken by a party[18] without there being any compromise or settlement. There is also no statutory impediment under s 240 of the Act to the court granting leave in respect of a settlement or compromise that involves dismissal (or other types of orders), subject to the court’s discretion otherwise being exercised judicially and in accordance with principle. The decision in Nation Energy did not suggest otherwise, and this also sits comfortably with the observations of Stewart J in that case that he was ‘… satisfied that the parties have “settled” the case as between Nation Energy and Paltar on the basis that it should be dismissed …’.[19]
[18]Subject to compliance with relevant rules of court.
[19]Ibid, [18].
In Rafferty v National Australia Bank Ltd, Mansfield J referred to the ability of the court in appropriate circumstances to grant leave in relation to confidential terms even where they had not been fully disclosed to the court and it was apparent that they had been agreed ‘… on an arms length and proper basis.’ It was further observed by Mansfield J that ‘[t]here will be circumstances in which it is appropriate for the court to be informed of the full terms of the proposed compromise of proceedings so that the court may be satisfied that all interests potentially adversely affected by any such compromise have an opportunity to participate and be heard’.[20] Given the facts of that case and that a third party who may have been affected had not been heard, the court concluded that it was ‘… appropriate to act a little cautiously ...’. Orders were made granting leave but staying the effect of the orders for 14 days and giving the third party a seven-day period within which to file and serve any objection.
[20]Rafferty v National Australia Bank Ltd [2011] FCA 169, [12].
I also refer to the observations of Croft J on the topic of confidentiality and settlement approval in Re Banksia Securities Limited (Rec & Mgr Apptd) (in liq) (No 2), which were made in a related but different context when addressing court approval of a group settlement.[21]
[21][2018] VSC 47, [9]–[11]. I have sought to be mindful of considerations such as those raised by Croft J when referring in these reasons to confidential materials and submissions relied upon in connection with this application.
Ms Lantouris’ submissions
Counsel for Ms Lantouris submitted that leave to proceed with the settlement should be granted because it was in the best interests of the Company in the circumstances. The range of circumstances relied upon were referred to in the written and oral submissions and included the following:[22]
[22]But noting that various matters referred to are described in a less fulsome way than they might otherwise have been given the confidential and privileged nature of various parts of the evidence.
(a) The arms-length nature of the settlement and that it was reached after a period of protracted negotiations following mediation and achieved on the eve of a lengthy joint trial of the LSC Proceeding and the Makada Proceeding.
(b) The content of the Confidential Merits Advice — and the position having been able to be properly and fully assessed with the closest of scrutiny as the trial was to commence on the day the settlement in principle was reached.
(c) The views expressed by the LSC Plaintiffs’ solicitor, Mr Merlo, in his affidavit.
(d) The consistent position of the Abbotsford Lenders and the decision of the Court of Appeal in Jams 2 Pty Ltd v Stubbings.[23]
[23][2020] VSCA 200.
(e) Costs and related risks if the Company’s claims did not succeed and the avoidance of such risks.
(f) The Receiver’s position that it did not take issue with the quantum of the LSC Settlement Sum or the walk away settlement position reached with the Abbotsford Lenders. In this context it was emphasised that it was the Settlement Deed in question that was being considered and not a separate settlement or compromise involving only the LSC Plaintiffs and LSC defendants and that such a settlement does not exist.
(g) The central claims of Ms Lantouris and Ms Sevdalis in relation to the alleged unauthorised distributions by Mr Mutavdzija of the surplus loan funds and sale proceeds and claimed links between the LSC Settlement Sum and these claims.
(h) That which it was contended would follow for and in relation to the Company and the LSC Proceeding if leave to proceed with the settlement is not granted, with costs and other risks being emphasised, as well as the limited quantum of the LSC Settlement Sum.
(i) If leave is granted it remains open for the Receiver to claim in another proceeding that the Company was entitled to an amount of money from Ms Lantouris or Ms Sevdalis equal to an (unspecified) share of the LSC Settlement Sum. In this context it was said that it was not being contended that the Settlement Deed or the grant of leave would preclude the Company from making such a claim.
(j) The Receiver effectively acting in the position of a contradictor on the application.
(k) Almond J having determined it was in the best interests of the Company for the claims in the LSC Proceeding to proceed as they did, notwithstanding the potential for some conflict of interests, which were known at that time. In this context counsel and solicitors who act for all three LSC Plaintiffs assured the court that they were mindful of their position and of their responsibilities to the court and to the parties. Notwithstanding these issues, it was submitted that in all the circumstances, the court can be satisfied that the grant of leave is appropriate — again emphasising the role and position of the Receiver.
(l) Almond J rejecting a submission from the Receivers that the grant of leave to conduct the claims on behalf of the Company should be subject to conditions that: Ms Lantouris’ solicitors should be replaced with independent solicitors to conduct the LSC Proceeding; the Receiver should be provided with all documents relevant to the Company’s claim in the LSC Proceeding; and the Receiver should be entitled to be involved in decisions in respect to compromise of the claims and other significant strategic decisions.
(m) The terms and operation of ss 7, 8 and 9 of the Civil Procedure Act 2010 (Vic) (CPA).
It was emphasised that the Receiver was the other relevant party protecting the interests of the Company and that the Receiver now supported the grant of leave to proceed with the LSC Settlement Deed.
Receiver’s submissions
Although the Receiver supported the position of Ms Lantouris, prior to the entry into the Receiver Settlement Deed he had taken a different position. It is therefore appropriate to say a little more about that previous position.
As mentioned above, the Receiver did not question or take any issue with the quantum of the LSC Settlement Sum or the walk away settlement position reached with the Abbotsford Lenders. At the heart of the Receiver’s initial concern was the fact that the Company was not receiving any funds under the Settlement Deed because the terms of the Settlement Deed required the LSC Settlement Sum to be paid to the Makada Plaintiffs as part of the Makada Settlement Sum, with no part of the LSC Settlement Sum to be paid to the Company. The Receiver had therefore submitted that the court could not be satisfied that the entry into the Settlement Deed was in the best interests of the Company.
The matters raised in support of this prior primary submission of the Receiver were addressed in the Receiver’s written submission and elaborated upon orally. Although I have had regard to all of these matters, they need not be set out here because the Receiver’s fundamental position, in support of which they were employed, was not maintained after it was agreed that the Company would effectively share in the LSC Settlement Sum through the receipt of the Company Settlement Sum in the manner contemplated by the Receiver Settlement Deed.
Ultimately, senior counsel for the Receiver submitted that the application should succeed and that leave should be granted to Ms Lantouris to proceed with the settlement on behalf of the Company pursuant to the terms of the Settlement Deed. The Receiver strongly supported the application and submitted that, having regard to the circumstances (which had been addressed at some length by counsel for Ms Lantouris), and because the Company was now to share in the LSC Settlement Sum in the way set out in the Receiver Settlement Deed, it was in the best interests of the Company to grant Ms Lantouris leave to proceed with the settlement.
Although it was common ground that the agreed position between the parties did not relieve the court of its judicial task under s 240 of the Act, the Receiver further submitted that the Receiver’s support of the application was a powerful discretionary factor in favour of granting the relief sought. In this context attention was drawn to the Receiver and Ms Lantouris being the only two people with any material interest in the Company, and Ms Lantouris being the Company’s sole director and shareholder.[24]
[24]For completeness I add that there was a term of the Company Settlement Deed preserving Ms Lantouris’ and the Company’s right to continue to contest the validity of the appointment of the Receiver.
Consideration and disposition
In the circumstances, and having regard to the principles and observations regarding s 240 of the Act earlier referred to, it is appropriate to grant leave to Ms Lantouris — and to the extent that it is required, the Company — to compromise and settle the LSC Proceeding on the terms contained in the Settlement Deed.
Ms Lantouris was at all relevant times, and remains, the sole shareholder and director of the Company and there is no evidentiary or other basis for being concerned about possible collusion or other relevantly questionable conduct between Ms Lantouris and one or more of the defendants to the LSC Proceeding or the Makada Proceeding. It is apparent that the settlement reached between the LSC Plaintiffs and the first to seventh defendants in the LSC Proceeding reflects an arms-length transaction involving an agreement that was arrived at after extended negotiations, including negotiations before and after mediation. It was not suggested to be otherwise and the evidence did not raise any cause for a concern of this kind.
The solicitor and counsel for the Company in the LSC Proceeding have had extended involvement with the LSC Proceeding, the claims made, the parties, and the subject matter of the proceeding. The evidence demonstrated that they are each firmly of the opinion that the settlement is in the best interests of the Company and it is evident that those opinions are genuinely held. So much is apparent from Mr Merlo’s affidavit and from counsel’s Confidential Merits Advice — which was further reinforced by counsel’s written and oral submissions.
I have had regard to the terms of the Confidential Merits Advice, although in the circumstances of this case, and taking into account the ultimate common position of the plaintiff and the Receiver, it is neither necessary nor desirable to record its terms here. Subject to the observations made later in these reasons regarding an issue of conflict, it is sufficient to say that there does not appear to be any material basis on the evidence to raise any substantive concerns regarding the content of the advice regarding the merits of the claims brought by the Company in the LSC Proceeding. Whilst there may have been scope for the advice to be more detailed in various respects, in the circumstances of this case that observation does not weigh at all heavily in the balance.
I also accept that counsel’s advice supports the submission that the settlement the subject of the Settlement Deed is in the best interests of the Company. This was the case when considered separately from the Receiver Settlement Deed. That further benefits will now flow to the Company and the Receiver as a result of the terms of the Receiver Settlement Deed further enhances the position of the Company and the settlement being in its best interests. Although the terms of the Receiver Settlement Deed are understandably not incorporated as part of the Settlement Deed, they form part of the relevant circumstances to be taken into account in the exercise of the court’s discretion, which was common ground between the parties.
I also accept that a number of the other factors raised in the submissions support, individually and in combination, the contention that the grant of leave to proceed with the settlement is in the best interests of the Company, taking into account, as I do, the different interests of Ms Lantouris and the Receiver. As Ms Lantouris submitted, these factors include the following:
(a) The position of the Receiver and his ultimate strong support of the application.
(b) The consequences that will or may follow for the Company if leave is not granted. These include the costs and expenses and costs order risks if the LSC Proceeding were to continue and the Company’s claims were to fail. Whilst it is appreciated that the Company is to be indemnified by Ms Lantouris in respect of adverse costs orders, it does not follow that such risks are to be put to one side or ignored — noting also that the Company’s costs, expenses, and any costs order liabilities would likely be paid out of the fruits of any successful claims in any event.
(c) The challenges that solicitors and counsel, and the Company itself, may face regarding the further pursuit of the LSC Proceeding on behalf of the Company given the tensions that may arise between obligations under the CPA and the continued pursuit of aspects of the Company’s claims.
(d) The apparent, but understandable, absence of any appetite on the part of the Receiver to take over the LSC Proceeding if leave is not granted.
(e) It being apparent on the evidence that the central claims against Mr Mutavdzija, who is the only defendant making a payment, can be seen to be — or at least include — the claims regarding the alleged unauthorised distribution of funds. These are not claims brought on behalf of the Company.
(f) The Receiver’s position regarding the settlement with the Abbotsford Lenders and his satisfaction with the quantum of the LSC Settlement Sum.
(g) The positive and certain removal of any risk that costs orders will be made against the Company in the LSC Proceeding.
(h) Compliance by the Company and practitioners with their respective obligations under the CPA by seeking to resolve the LSC Proceeding.
(i) The risks and uncertainty inherent in the litigation and, in the circumstances of this case, the absence of any evidentiary basis that there is or is likely to be a realistic prospect of materially improving the position of the Company by pursuing the litigation further.[25]
[25]Assuming the Company, solicitors and counsel were willing to do so — and could do so having regard to their respective obligations under the CPA.
It was also the case that even when initially opposing the application, the Receiver did not contend that it was likely or realistic to expect that an improved position for the Company could or would be obtained if the LSC Proceeding continued — which was an understandable position for the Receiver to take on the evidence.
The Settlement Deed contemplates the ‘discontinuance’ of the claims, which is expressly contemplated by the terms of s 240 of the Act. I refer to the observations made earlier in these reasons regarding s 240 of the Act and the discontinuance of proceedings.
In reaching the decision that I have, I have been mindful of the position of conflict that those advising the LSC Plaintiffs found themselves in — which was a position properly acknowledged by them and a matter expressly raised and addressed by counsel for the LSC Plaintiffs. Cost, expense, time, delay and urgency were raised as challenges in connection with the obtaining of separate advice for the Company and emphasis was placed on the Receiver acting in a quasi-contradictor role. There was also concern expressed that the other parties to the Settlement Deed may seek to explore how they might withdraw from the settlement if further time was taken to obtain approval. Senior counsel for the Receiver did not submit that the conflict should necessarily result in the Confidential Merits Advice and the solicitor’s advice being put to one side, although it was submitted that when considering the advice it remained appropriate to be mindful of the conflict issue, which I have been.
In the end, and weighing up all the circumstances, my disquiet regarding this conflict has not, in the rather unusual circumstances of this case, caused me concern to such a degree that I am unable to be satisfied that the grant of leave is in the best interests of the Company. In large part this is because the Receiver has played an important role in considering and protecting the interests of the Company, being a role somewhat akin to that of a contradictor as counsel for Ms Lantouris submitted. This has occurred in circumstances where the Company has never carried out any trading activities or carried on a business, and in general terms, the interests of the Company align with the Receiver (and his appointer) or Ms Lantouris as sole director and shareholder. Each of these parties support the application and submit that the grant of leave to proceed with the settlement is in the best interests of the Company.
I add that when I adjourned the hearing on 7 September 2021, the obtaining of separate advice was a matter that I foreshadowed with the parties might be required by the court and I indicated that this needed to be carefully considered by Ms Lantouris and the Receivers. As things transpired, the Receiver’s position changed in the way earlier referred to and, as I have said, in all of the circumstances the absence of such advice ought not in this case be an impediment to the grant of leave to proceed with the settlement. That said, if things had remained the same then the absence of separate advice for the Company may have proved to be an impediment to the grant of such leave.[26]
[26]My observations on this conflict topic are not intended to convey any endorsement or criticism of the position taken to date by those acting for the LSC Plaintiffs in this regard. That is not an issue before me for consideration or determination on this application. It may also be observed that the circumstances were not without complexity, involved additional issues and proceedings, and are not all known to me. It also appears that at the time leave to proceed was granted by Almond J in November 2020 it was known and contemplated that the same solicitors and counsel would continue to act for the LSC Plaintiffs.
For the avoidance of doubt, the observations I have made in these reasons regarding the change of position of the Receiver are not intended to convey any criticism of the initial position taken by the Receiver or his changed position. It is plain that the Receiver was well advised by senior counsel, whose considered submissions were of assistance to the court and self-evidently made in the Receiver’s and his appointer’s interests, and not the interests of Ms Lantouris. Having senior counsel for the Receiver act in this way has assisted in exposing the relevant matters for the court to consider.
Other matters
As I observed in paragraphs 55 to 58 of the reasons in Re 22 Park Street, there was a procedural irregularity in the way in which the May 2021 leave application was brought before the court. That irregularity remains for this application, but it is sufficient simply to refer to the observations made in Re 22 Park Street, which apply equally here.
Conclusion and proposed orders
Leave should be granted to Ms Lantouris pursuant to s 240 of the Act to compromise and settle the LSC Proceeding as against Mr Mutavdzija and the Abbotsford Lenders on the terms of the Settlement Deed.
I propose to make an order to the following effect:
Leave pursuant to s 240 of the Corporations Act 2001 (Cth) is granted to the plaintiff, and to the extent necessary, the first defendant, to compromise and settle County Court Proceeding CI-20-01142 against the first to seventh defendants to that proceeding on the terms set out in the deed of settlement dated 19 May 2021 and comprising confidential exhibit MM6 to the affidavit of Mario Merlo sworn 9 June 2021.
I will hear further from the parties on the question of costs, confidentiality, and the precise terms of the proposed orders.
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