Re Eliana Construction and Developing Group
[2022] VSC 23
•28 January 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 4331
| IN THE MATTER OF ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | |
| COMMONWEALTH BANK OF AUSTRALIA LTD (and others according to the Schedule) | Plaintiff |
| v | |
| JOHN STUART POTTS IN HIS CAPACITY AS FORMER LIQUIDATOR OF ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | First defendant |
| ANTHONY ROBERT CANT IN HIS CAPACITY AS LIQUIDATOR OF ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | Second defendant |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 28 January 2022 |
CASE MAY BE CITED AS: | Re Eliana Construction and Developing Group |
MEDIUM NEUTRAL CITATION: | [2022] VSC 23 |
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PRACTICE AND PROCEDURE – Application for a separate question – Application for separate question to be heard concurrently with separate but substantially overlapping proceeding – Where all parties before Court in other proceeding – Practical benefit – Application of directions to liquidator to third parties – Applications granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Miller | HWL Ebsworth |
| For the Defendant | Mr P Agardy | White Clelland |
HER HONOUR:
Before me are applications by the plaintiffs for a part of this proceeding to be heard separately, and together with a related proceeding which is shortly to commence. The proceedings may be summarised briefly:
(a) by proceeding S ECI 2018 0597 (the St George Proceeding), the Liquidator of St George Development Company Pty Ltd seeks a direction that he is justified and acting reasonably in proceeding in the liquidation on the basis that certain funds advanced from the two share and unitholders in St George, Luka Medical Centre Pty Ltd and Eliana Construction and Developing Group Pty Ltd, to St George, be treated as capital in nature (and ancillary procedural relief);
(b) by this proceeding (the Eliana Proceeding), the Mr Morgan and Mr Handberg (the Receivers of Eliana) and their appointing Bank claim that the liquidator and former liquidator of Eliana, the defendants Mr Cant and Mr Potts, breached common law, fiduciary and statutory duties in their liquidation of Eliana in treating moneys paid by St George back to Eliana as repayments of loans rather than as distributions of capital, on the basis that as capital the moneys were attached by the fixed potion of the Bank’s Charge over the assets of Eliana.
The plaintiffs seek that the question of the nature of the contributions between Eliana and St George as capital or as loans to be heard together with the application for directions of the Liquidator. They say, and the other parties substantially agree, that the question of the contributions’ nature is common to both proceedings. Each party has filed affidavit evidence in the St George Proceeding, and submissions on its central question. The hearing of the proposed separate question in the Eliana Proceeding would adopt that evidence and those submissions without addition or amendment. The parties in each proceeding agree there will be no delay or prolongation of the St George Proceeding by the granting of the present applications.
For the reasons that follow I grant the applications.
Background
The St George Proceeding was commenced on 9 July 2021 by filing of an interlocutory process in an extant proceeding by which the liquidator had previously, in 2018, sought and received other directions relating to his liquidation of St George, in respect of other moneys flowing between it, Eliana, and Luka. The Eliana Proceeding was filed in November 2021. By leave, a statement of claim and defence have been filed. Luka, the Receivers (but not the Bank), and Mr Cant (but not Mr Potts) through Eliana have by leave entered appearances in the St George Proceeding as interested parties. The Eliana Proceeding concerns only the Receivers and Bank suing through Eliana as plaintiffs, and Mr Cant and Mr Potts as defendants. There are further questions in the Eliana Proceeding relating to the scope and extent of the Bank’s Charge in respect of the disputed moneys (whatever their characterisation) and the liability if any of the defendants as a result.
As may be appreciated, both proceedings centrally concern the proper characterisation of moneys passing between St George and Eliana. That question forms essentially the entirety of the St George Proceeding, and a threshold question in the Eliana Proceeding.
Each party now agrees and submits that two questions posed by the form of relief sought in the originating process in the Eliana Proceeding be heard separately (under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules)), and concurrently with the St George Proceeding (under r 9.12 of the Rules). They are the plaintiffs’ prayer for:
(a) “A declaration that the funds contributed by Eliana to [St George] were capital contributions” (question 2); and
(b) “A declaration that the payment of $600,000 from [St George] to Eliana on 17 April 2017 was a capital distribution from St George to Eliana under the SGD Trust” (question 3);
(together, the trial of these issues is the proposed separate question).
The parties say the form of question 2 is entirely identical with the substance of the direction sought in the St George Proceeding. Question 3 must as a matter of course follow from question 2, which concerns the “funds contributed” from Eliana to St George (that is, all of them); ergo the “funds distributed” must take their character from the former. No party suggests question 3 is an any broader or different enquiry than question 2.
Principles and submissions
The principles applicable to the determination of an application under r 9.12 and under r 47.04 are well understood.[1]
[1]See, eg, Traditional Values Management Ltd v Taylor & Ors [2012] VSC 299, [10]-[11] (Ferguson J) (r 9.12) and Murphy v Victoria (2014) 45 VR 119, [2014] VSCA 238 (Nettle AP, Santamaria & Beach JJA) (r 47.04).
Rule 9.12 provides that:
(1) Where two or more proceedings are pending in the Court, and—
(a) some common question of law or fact arises in both or all of them;
(b) the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions; or
(c) for any other reason it is desirable to make an order under this Rule—
the Court may order the proceedings to be consolidated, or to be tried at the same time or one immediately after the other, or may order any of them to be stayed until after the determination of any other of them.
(2) Any order for the trial together of two or more proceedings or for the trial of one immediately after the other, shall be subject to the discretion of the trial Judge.
In Coonwarra Pty Ltd v Cornonero Pty Ltd; GJB Building Pty Ltd v AI & PB Property Ltd,[2] I briefly summarised the well-established principles in this way:
[2][2021] VSC 59.
As the language of the rule indicates, the Court has a wide discretion in respect of an application of this kind. Factors that will inform the exercise of the discretion are recognised to include:
(a) whether the proceedings are broadly of a similar nature;
(b) whether there are common issues of fact and law;
(c) the extent of overlap in witnesses;
(d) the risk of inconsistent findings;
(e)the prospect of multiple appeals with substantial delays if the proceedings are not tried at the same time;
(f) the time savings and efficiencies that might be achieved;
(g) the stage each proceeding has reached; and
(h) the effect on the prospects of non-judicial resolution.
Those matters are to be considered in the context of the overarching purpose of the just, efficient, timely and cost effective resolution of the real issues in dispute, and the entitlement of the parties to a fair trial. (Citations omitted)
On the question of hearing the proposed separate question together with the St George Proceeding, the plaintiff provided written submissions, which were adopted by the other parties. The parties submitted that:
(a) The factual and legal overlap in questions of relief is substantial;
(b) The overlap of witnesses is total;
(c) There is a risk of inconsistent findings should the proposed separate question (or the Eliana Proceeding generally) be heard separately from the St George Proceeding, turning as the question does on the characterisation of contested payments with somewhat lacking documentation, and about which two camps of professional liquidators are at odds;
(d) The hearing together of the two proceedings would be efficient given their overlap, avoiding having the Court ask the same question twice; and
(e) As to the stage of each proceeding, while the St George Proceeding is ready to be tried and the Eliana Proceeding has only recently been filed, the parties submit, and the Liquidator agrees, there is no likely prospect of delay given the substantial overlap of the two proceedings and the parties’ positions that all their materials are already before the Court.
Rule 47.04 provides:
The Court may order that—
(a)any question in a proceeding be tried before, at or after the trial of the proceeding, and may state the question or give directions as to the manner in which it shall be stated;
(b)different questions be tried at different times or places or by different modes of trial.
The principles by which the Court may order a question be tried separately are similarly clear and not in dispute. Rule 47.04 confers on the Court a discretion to order that questions within a proceeding be tried separately, whether before, at or after trial. In Murphy v Victoria,[3] the Court of Appeal approved Croft J’s formulation of the statement of principles in the following terms:
[3](2014) 45 VR 119, [2014] VSCA 238 (Nettle AP, Santamaria & Beach JJA) [28], citations omitted.
1)A separate trial should be ordered under r 47.04 only with great caution and only in a clear case.
2)The attraction of trials of issues rather than of cases in their totality, ‘are often more chimerical than real’, so that separate trials should ‘only be embarked upon when their utility, economy and fairness to the parties are beyond question’.
3)The advantages of trying separate questions for one party may unfairly disadvantage another party, including because the questions will be determined without the benefit of all the evidence relevant to the proceeding.
4)There should be no trial of a separate question on the basis of assumed facts unless the facts are agreed or can readily be determined judicially. Otherwise, the parties remain free to dispute the relevant facts at any later trial.
5)As a general rule, it is inappropriate to order that a preliminary issue be isolated for determination unless the determination of the issue in favour of the plaintiff or the defendant will put an end to the action, or where there is a clear line of demarcation between issues and the determination of one issue in isolation from the other issues in the case is likely to save inconvenience and expense.
6)Factors which tell against making order under r 47.04 include that the separate determination of the question:
a)may give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial;
b)may result in significant overlap between the evidence adduced on the hearing of the separate question and at trial; possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding; and
c) may prolong rather than shorten the litigation.
In exercising the discretion to order the trial of a separate question the Court must further the overarching purpose of the Civil Procedure Act 2010 (Vic) and the Rules which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.
On whether there should be a separate question tried, the parties submitted that:
(a) there is a “clear line of demarcation” between the issues in questions 2 and 3 (which relate solely to the characterisation of the disputed payments) and the remainder of the Eliana Proceeding (which turns on the construction of the Charge in capturing the payments under its fixed or floating portions, and how, if at all, the defendants are liable to the plaintiffs as a result);
(b) that determination of the separate question gives efficiency benefits as saving Court time and costs in determining the separate question already in essence before the Court as the St George Proceeding, leaving the remainder of the Eliana Proceeding on closely confined issues, with an estimate of 2-4 days;
(c) there is limited overlap in the evidence going to the proposed separate question and that on the remaining issues in dispute; and
(d) neither proceeding will be prolonged by the hearing of the separate question.
Consideration
There is evident sense in the applications. The parties in the Eliana Proceeding have what is a substantial and discrete part of their dispute before the Court ready to proceed, and that part will in substance proceed and be determined in the form of the St George Proceeding, in which the parties are (in the main) participating. A resolution of the proposed separate question together with the Liquidator’s coterminous application for directions will greatly narrow the issues in dispute in the Eliana Proceeding, and focus attention on entirely separate issues of the construction of the Charge and any resulting liability or defences. Further, the defendants have indicated an intention to cross examine at least one witness on their affidavit evidence filed in the St George Proceeding which equally weighs on the Eliana Proceeding, and the order for concurrent hearing of the two proceedings will allow that to happen without the risk of a witness being called back.
Here it may be asked what utility the order could provide where each side has committed itself to a position in the St George Proceeding and will attend Court to support it, irrespective of whether or not they do so in a hearing formally listed in both proceedings. Having nailed their colours to the mast in this way, it may be thought that the Eliana parties would be bound to those positions in subsequent proceedings.
In answer to this challenge, it is not immediately clear the parties would be so bound, and in obviating this difficulty a further benefit is apparent, namely rendering certain the Court’s task and the status and applicability of any decision arising from it. Should the proceedings be heard separately, with the St George Proceeding heard and determined as fixed, its outcome will be a form of judicial advice to the Liquidator. Such advice is ordinarily understood to be directed to the Liquidator alone, in their capacity as an officer of the Court, and providing them with some certainty in respect of their conduct of the liquidation. It is not ordinarily binding on third parties. Further, with the parties in Eliana not before the Court for the resolution of any question in their proceeding, it is questionable whether any advice to the Liquidator could found a res judicata or issue estoppel; the same substantial question as determined by the Court will strictly speaking stand unresolved as between the parties in the Eliana Proceeding.[4] While it may be unlikely that a party could subsequently seek to re-agitate the question, given both sides are before the Court in the St George Proceeding (albeit as interested parties), this issue is a source of some uncertainty and potential for later dispute, not least because not every party in the Eliana Proceeding will be before the Court in the St George Proceeding – as is the case of Mr Potts and the Bank, though they act in common with their other defendant or plaintiffs respectively.
[4]Re Lewis (as liquidator of Concrete Supply Pty Ltd) (2020) 145 ACSR 459, [31] (White J) (and the cases cited there).
The Court of Appeal in Murphy cautioned that “[t]he attraction of trials of issues rather than of cases in their totality, ‘are often more chimerical than real’, so that separate trials should ‘only be embarked upon when their utility, economy and fairness to the parties are beyond question’”.[5] Here, the utility, economy and fairness is evident. The parties are before the Court and ready to proceed in any event. They have laid out their cases and will argue them through whatever I order. Should I grant the applications, the Eliana Proceeding will be progressed and narrowed in an appropriate and convenient way; should I refuse to grant the applications, there is a risk that witnesses may have to be recalled or that the parties approach the Court to re-litigate the issue, especially in the uncertainty of the binding force of any direction given to the Liquidator to the Eliana parties. Such uncertainty and risk is avoided by simply recognising what is already occurring.
[5](2014) 45 VR 119, [2014] VSCA 238 (Nettle AP, Santamaria & Beach JJA) [28], citations omitted.
Given the somewhat unusual fact that the proposed separate question will in any event be tried before largely the same parties in the St George Proceeding, and satisfied of the clear line of demarcation between it and the remainder of the issues in the Eliana Proceeding, the better view is that it is the more certain, economical and prudent path to order the separate question be tried, and, given its complete overlap with the St George Proceeding, tried at the same time as it. If there is no great saving of time or other important reason to proceed this way, given the parties will do so anyway and the order would avert uncertainty and complexity in separately picking up the same points later (in the absence of binding determinations inter partes), it is pragmatic to allow the parties what they all seek, permissibly, to do.
SCHEDULE OF PARTIES
| COMMONWEALTH BANK OF AUSTRALIA LTD | First Plaintiff |
| ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | Second Plaintiff |
| BRETT LEIGH MORGAN AND GEOFFREY NIELS HANDBERG (IN THEIR CAPACITY AS JOINT RECEIVERS AND MANAGERS OF ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | Third Plaintiff |
| v | |
| JOHN STUART POTTS (IN HIS CAPACITY AS FORMER LIQUIDATOR OF ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | First Defendant |
| ANTHONY ROBERT CANT (IN HIS CAPACITY AS LIQUIDATOR OF ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 132 817 362) | Second Defendant |
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