Re Perrinepod Pty Ltd (in liq)
[2014] WASC 347
•24 SEPTEMBER 2014
RE PERRINEPOD PTY LTD (in liq); EX PARTE GIOVANNI MAURIZIO CARRELLO as Liquidator of PERRINEPOD PTY LTD (in liq) [2014] WASC 347
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 347 | |
| 24/09/2014 | |||
| Case No: | COR:132/2014 | 6 AUGUST 2014 | |
| Coram: | MASTER SANDERSON | 6/08/14 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Entry into litigation funding agreement approved | ||
| A | |||
| PDF Version |
| Parties: | GIOVANNI MAURIZIO CARRELLO as Liquidator of PERRINEPOD PTY LTD (in liq) |
Catchwords: | Corporations law Whether party has a right to be heard about its right to be heard when liquidator proposes entering into litigation funding agreement Principles to be applied |
Legislation: | Corporations Act 2001 (Cth), s 477(2B) |
Case References: | Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357 Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 Deloughery v Weston [2010] NSWCA 148 First Strategic Development Corporation Ltd (in liq) v John Paul McLeod as Liquidator of First Strategic Development Corporation Ltd (in liq) [2011] QSC 143 Re 7 Steel Distribution (in liq) (Receivers & Mangers Appointed) [2013] NSWSC 669 Re Addstone Pty Ltd (in liq); Ex parte Macks (1998) 30 ACSR 177 Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 1293 Re Hamilton [2014] FCA 785 Re Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1034 Re Mustang Marine Australian Services Pty Ltd [2012] NSWSC 620 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
Perrinepod Pty Ltd (in liq)
GIOVANNI MAURIZIO CARRELLO as Liquidator of PERRINEPOD PTY LTD (in liq)
Plaintiff
Catchwords:
Corporations law - Whether party has a right to be heard about its right to be heard when liquidator proposes entering into litigation funding agreement - Principles to be applied
Legislation:
Corporations Act 2001 (Cth), s 477(2B)
Result:
Entry into litigation funding agreement approved
Category: A
Representation:
Counsel:
Plaintiff : Mr P A Tottle & Ms E McCloskey
Non-party : Mr D John
Solicitors:
Plaintiff : Tottle Partners
Non-party : Herbert Smith Freehills
Case(s) referred to in judgment(s):
Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357
Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209
Deloughery v Weston [2010] NSWCA 148
First Strategic Development Corporation Ltd (in liq) v John Paul McLeod as Liquidator of First Strategic Development Corporation Ltd (in liq) [2011] QSC 143
Re 7 Steel Distribution (in liq) (Receivers & Mangers Appointed) [2013] NSWSC 669
Re Addstone Pty Ltd (in liq); Ex parte Macks (1998) 30 ACSR 177
Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 1293
Re Hamilton [2014] FCA 785
Re Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1034
Re Mustang Marine Australian Services Pty Ltd [2012] NSWSC 620
1 MASTER SANDERSON: By originating process filed 10 July 2014 the plaintiff applied for leave to enter into a litigation funding agreement. The application was made pursuant to s 477(2B) of the Corporations Act 2001 (Cth). It was supported by an affidavit of the plaintiff sworn 10 July 2014 which included among other annexures a copy of the Proposed Funding Agreement. The plaintiff sought an order that his affidavit in support of the application be placed in a sealed envelope and not be available for inspection by any party without leave of the court.
2 The originating process in conformity with usual practice was not served on any other party. However counsel instructed on behalf of Jean-Mic Perrine, Mercedes Perrine and Perrine Architecture Pty Ltd (the Perrines) appeared and sought leave to be heard. It was submitted on behalf of the Perrines, and not denied by counsel for the plaintiff, if the litigation funding agreement was approved action would be taken against the Perrines. Counsel for the plaintiff submitted the Perrines not only did not have a right to be heard but they did not have a right to be heard as to whether they should be heard. After hearing brief submissions from both counsel I adjourned the matter and allowed counsel for the Perrines to make submissions on the question raised. At the resumed hearing I gave counsel for the Perrines an opportunity to make further oral submissions. I then determined the Perrines did not have the right to be heard as to whether they had a right to be heard - all of this after having heard from counsel. All in all a rather odd situation.
3 I advised the parties I would publish reasons for my decision. These are those reasons.
4 The relevant facts can be summarised in this way. Georgiou Building Pty Ltd and Perrinepod Pty Ltd entered into a joint venture in 2009. The joint venture broke down in the first half of 2010 and since then there has been acrimonious ongoing litigation between the Perrines and the Georgiou Group. This litigation has to it a number of facets. First, there was a Construction Contracts Act 2004 (WA) determination in favour of Georgiou Building against Perrinepod. That determination was unsuccessfully appealed. The determination was relied upon by Georgiou Building in successfully applying to windup Perrinepod. Mr and Mrs Perrine and Perrinepod (prior to its liquidation), pursued Supreme Court proceedings against the Georgiou Group and Georgiou Building. Most recently Georgiou Building funded the liquidator of Perrinepod in conducting a public examination of Mr and Mrs Perrine.
5 In fact proceedings were commenced against the Perrines on 13 February 2014 (COR 27 of 2014). A number of affidavits amounting to in excess of 1,000 pages have been filed in support of the claim. Three subpoenas have been issued by the liquidator. The liquidator has recently agreed the proceedings ought proceed on the basis of pleadings. On 14 August 2014 Chaney J ordered the plaintiff to file and serve a statement of claim by 22 August 2014 (this was filed on 1 September 2014 and the plaintiff filed an amended statement of claim on 18 September 2014).
6 The liquidator claims Perrine Architecture received unfair preferences from Perrinepod. He also claims there were uncommercial transactions and/or uncommercial director related transactions between Perrinepod and Perrine Architecture. There is a further allegation Perrinepod traded whilst insolvent and Mr and Mrs Perrine (as the directors) and Perrine Architecture (as the parent of Perrinepod) are liable for losses sustained. The Perrines deny any liability.
7 Perrine Architecture is a substantial creditor of Perrinepod. There appears to be no challenge to Perrine Architecture's position as a creditor although it may be the quantum of the debt will be in issue.
8 The Perrines maintained they should be heard on the plaintiff's application because they have an interest in the outcome. They maintained they had an interest for two reasons. First, there are doubts as to commercial utility of the proceedings given the likely recovery even if successful. Second, and more importantly, it was alleged the present solicitors for the plaintiff in this application had a conflict of interest as they were also the solicitors for the liquidator in the proceedings against the Perrines. It is important to note at least in relation to the second of these complaints solicitors for the Perrines had written to the plaintiff's solicitors voicing their concern. A copy of that letter appeared as an annexure to the plaintiff's affidavit in support of the application.
9 The leading case on the issues raised in this application is the decision of the New South Wales Court of Appeal in Deloughery v Weston [2010] NSWCA 148. The facts of that case taken from the head note are as follows.
10 Barrett J heard in closed court an ex parte application by the special purposes liquidator (the SPL) for orders under s 477(2B) and s 511 of the Corporations Act 2001 relating to a litigation funding agreement. Barrett J granted the application and made confidentiality orders in relation to the application, the evidence, the agreement and his reasons for granting approval. He published separate reasons holding the SPL had been justified in making the application ex parte, and neither the committee of inspection (the COI) nor the general body of creditors had any right or interest that would be effected by the application, the orders of the court, or any steps that might be taken thereafter by the SPL pursuant to the court approval.
11 Three of the four members of the COI and some major creditors (the applicants) sought to set aside the ex parte orders. The application was referred to the Court of Appeal.
12 A strong court of Spigelman CJ, Giles JA and Handley AJA dismissed the appeal. Giles JA and Handley AJA (with whom Spigelman CJ agreed) when dealing with a right to be heard on whether there is a right to be heard said:
The right to be heard by a judicial officer before an order is made depends on the existence in fact of a relevant right, interest, or expectation that would or might be affected by the order. Where this is doubtful a judicial officer may err on the side of caution and allow the party or parties concerned to be heard. However if the judicial officer decides, correctly, that such a party has no relevant right, interest or expectation that party has no right to be heard. The right depends on the existence in fact of a relevant right, interest or expectation. There is no such thing as a free standing right to be heard [36]. (emphasis added)
13 Counsel for the appellants maintained that here the appellants had a right to be heard because they were substantial creditors in the winding up. Indeed they were substantial creditors - they had proved for just over $93 million. The court held that was not enough. The court was satisfied all relevant material had been brought to the attention of Barrett J by the SPL but in any event there simply was no right on the part of even a substantial creditor to be heard.
14 Counsel for the Perrines submitted five broad statements of principle could be drawn from the Deloughery decision.
15 First, a defendant in proceedings which are to be funded pursuant to a litigation funding agreement, which agreement is subject to the s 477(2B) application, do not have standing to be heard by reason only of the fact they are proposed defendants.
16 Second, the fact that the party is a creditor does not, without more, give that party a right to be heard in relation to the application.
17 Third, if in fact a consequence of the entry by the liquidator into the litigation funding agreement is that a relevant 'right, interest or expectation' of that creditor might be effected then the creditor does have a right to be heard.
18 Fourthly, the court has a discretion as to how it might inform itself as to whether a particular creditor has a relevant 'right, interest or expectation'. For instance, as noted in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 1293 if a creditor writes to a liquidator in respect of a litigation funding application and asks the letter to be drawn to the attention of the court, it is appropriate for the letter to be drawn to the attention of the court and the court to consider the matter raised.
19 Fifthly, once the court has informed itself in an appropriate way as to the relevant facts then it can decide whether the particular creditor has a relevant 'right, interest or expectation' that might be effected by the order approving entry into the litigation funding agreement. If the court decides the creditor has such an interest, it ought to hear from that party prior to making the order.
20 These five principles are I think consistent with cases decided since the Deloughery decision. In particular they seem consistent with the decisions in Re Hamilton [2014] FCA 785; Re 7 Steel Distribution (in liq) (Receivers & Mangers Appointed) [2013] NSWSC 669; and Re Mustang Marine Australian Services Pty Ltd [2012] NSWSC 620. Having said that it is difficult to envisage a circumstance which would give rise to the right, interest or expectation referred to in point five above. Being a member of a COI is not enough; being a substantial creditor is not enough; nor is it enough for the party to be a likely defendant in funded proceedings. While the variety of cases in this area is endless it remains to be seen whether any circumstance short perhaps of fraud or dishonesty could give rise to a right to be heard.
21 There is one further aspect of Deloughery which I think is important. After the Court of Appeal had heard argument in relation to Barrett J's decision they actually looked at the affidavits which had been sealed pursuant to his Honour's orders and upon which he had based his decision. The argument was put that the decision to refuse the appellants the right to be heard was discretionary and Barrett J had failed to properly exercise that discretion. The Court of Appeal specifically left open the question of whether or not the decision was discretionary and merely said if it was they would exercise the discretion in the same way. So perhaps tentatively I would add a sixth point to those set out by counsel. The decision whether to give a party a right to be heard is discretionary and the discretion must be exercised judicially.
22 Counsel also referred to a number of decisions which pre-date the Deloughery decision. All were first instance decisions and they must I think be treated with some caution. Three can be mentioned in passing - Re Addstone Pty Ltd (in liq); Ex parte Macks (1998) 30 ACSR 177 (Mansfield J); Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357; and Re Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1034. Of more significance is the decision of Boddice J in First Strategic Development Corporation Ltd (in liq) v John Paul McLeod as Liquidator of First Strategic Development Corporation Ltd (in liq) [2011] QSC 143. The facts in the McLeod case were as follows. McLeod was the liquidator of First Strategic Development Corporation Ltd (FSDC). McArthur was a creditor and proposed litigation funder with respect to a public examination which the liquidator proposed to conduct. Phillips was a director of McArthur and Kwok was a creditor of FSDC and the proposed examinee.
23 The court gave leave to Kwok to appear at the hearing of the application for funding of the litigation agreement on three grounds. First, approval had not been sought from the creditors of the company. Second, Kwok argued the litigation funding agreement was unreasonable. Third, Kwok argued there was a conflict of interest facing the solicitors for McLeod.
24 A reading of the decision makes it clear the issue of standing of Kwok to appear and make submissions was not considered. It was assumed he had the necessary 'right, interest or expectation' which gave him the right to be heard.
25 In my view the decision in McLeod must be doubted in the light of Deloughery. Boddice J regarded it was significant that prior to entry into the litigation funding agreement McLeod had not sought approval from creditors of the company. That was also the case in Deloughery - the COI had not been consulted. Moreover, there is ample authority for the proposition a liquidator need not consult the creditors of the company before entering into an agreement. The authority commences with Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 and runs through to Deloughery itself.
26 In the end I was satisfied the Perrines did not have the right to be heard on whether they had the right to be heard. This was not a decision I made in a vacuum. I read the affidavit in support of the application and considered all the annexures to that affidavit. As I have mentioned above as one of the annexures to the affidavit there appeared a letter written by the Perrines' solicitors to the plaintiff's solicitors. It set out in some detail the allegations of a conflict of interest. I was not satisfied the complaint as articulated merited granting the Perrines the right to be heard, and in reaching that conclusion I weighed the interest of the Perrines with the interests of the liquidator and the creditors. It is not appropriate to go into detail as to what factors I weighed in the balance. Suffice it to say I took into account all of the Perrines' concerns.
27 As to the litigation funding agreement itself it is in what might be called a usual form. It will allow the plaintiff to pursue claims which absent a funding agreement could not be pursued. In all the circumstances I viewed the entry into the agreement as appropriate and I made orders accordingly. After hearing submissions I ordered the Perrines should pay the liquidator's costs associated with the Perrines' application to be heard.
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