Thorn (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq)
[2022] FCA 143
•23 February 2022
FEDERAL COURT OF AUSTRALIA
Thorn (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2022] FCA 143
File number: NSD 1176 of 2021 Judgment of: STEWART J Date of judgment: 23 February 2022 Catchwords: CORPORATIONS – application under s 477(2B) of the Corporations Act 2001 (Cth) for approval nunc pro tunc of funding and related agreements entered into by liquidator – where agreements are for the purpose of funding extant litigation in this Court – considerations relevant to exercise of discretion
PRACTICE AND PROCEDURE – application for suppression orders – where orders sought in relation to funding agreements to enable pursuance of litigation in this Court by a liquidator
PRACTICE AND PROCEDURE – application by non-party for leave to be heard – considerations relevant to exercise of discretion – where non-party is a defendant in a separate proceeding brought by the plaintiff – application dismissed
Legislation: Corporations Act 2001 (Cth) s 477(2B)
Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG, 37AH
Federal Court (Corporations) Rules 2000 (Cth) r 2.13
Cases cited: Brown v DML Resources Pty Ltd (in liq) (No 7) [2002] NSWSC 162; 41 ACSR 299
Brown v DML Resources Pty Ltd (in liq) [2001] NSWSC 590; 52 NSWLR 685
Deloughery v Weston [2017] NSWCA 148; 79 ACSR 180
Hancock (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2019] FCA 71
Hancock liquidator of South Townsville Developments Pty Ltd (in liq) (No 2) [2019] FCA 622
In the matter of Octaviar Administration Pty Ltd (in liq) [2014] NSWSC 344
In the matter of One.Tel Ltd [2014] NSWSC 457
Jones, Saker, Weaver and Stewart (Liquidators), in the matter of Great Southern Ltd (in liq) (Receivers and Managers Appointed) [2012] FCA 1072
Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856
McGrath & Anor re HIH Insurance Ltd [2005] NSWSC 731
Motorola Solutions Inc v Hytera Communications Corporation Ltd (No 2) [2018] FCA 17
Needham, in the matter of Bruck Textile Technologies Pty Ltd (in liq) [2016] FCA 837
Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; 78 ACSR 163
Re Ambient Rail Pty Ltd (in liq); Ex parte Tonks [2019] FCA 1556
Re Bell Group Ltd (in liq) [2009] WASC 235
South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd (No. 2) [2021] FCA 941
South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd [2019] FCA 666
Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 60 Date of last submissions: 22 February 2022 Date of hearing: 7, 16 February 2022 Counsel for the Plaintiff: C M Harris SC Solicitor for the Plaintiff: Matthews Folbigg Lawyers ORDERS
NSD 1176 of 2021 IN THE MATTER OF SOUTH TOWNSVILLE DEVELOPMENTS PTY LTD (IN LIQUIDATION)
SIMON JOHN THORN AS LIQUIDATOR OF SOUTH TOWNSVILLE DEVELOPMENTS PTY LTD (IN LIQUIDATION)
Plaintiff
PETER BEGA
Interested Person
ORDER MADE BY:
STEWART J
DATE OF ORDER:
23 FEBRUARY 2022
THE COURT ORDERS THAT:
1.Subject to further order, pursuant to ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice, until the conclusion of the external administration of South Townsville Developments Pty Ltd (in liq) the following documents shall be and remain marked “Confidential” on the electronic court file and not be published or otherwise disclosed or made available to anyone other than the staff of the Court in the performance of their duties:
(a)the confidential affidavit of Simon John Thorn sworn 12 November 2021 and annexures “SJT7”, “SJT8” and “SJT9” to that confidential affidavit;
(b)the confidential affidavit of Simon John Thorn sworn 4 February 2022, and annexures “SJT10”, “SJT11”, “SJT12”, “SJT13”, “SJT14”, “SJT15” and “SJT16” to that confidential affidavit;
(c)the confidential affidavit of Simon John Thorn sworn 21 February 2022 and annexure “SJT17” to that confidential affidavit;
(d)the confidential affidavit of Geoffrey Trent Hancock sworn 4 February 2022; and
(e)the written submissions by CM Harris SC on behalf of the plaintiff dated 4 February 2022,
noting that redacted copies of the documents listed in paragraphs (a)-(e) have been filed on an open basis under cover of an affidavit by Simon John Thorn sworn on 21 February 2022.
2.Any party with sufficient interest have liberty to apply for the variation of Order 1.
3.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), Geoffrey Trent Hancock as liquidator of South Townsville Developments Pty Ltd (in liq) have approval, nunc pro tunc, to enter into the agreements which are annexures “SJT11”, “SJT12” and “SJT13” to the confidential affidavit of Simon John Thorn sworn on 4 February 2022.
4.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the plaintiff have approval, nunc pro tunc, to enter into the agreements which are annexures “SJT14” and “SJT15” to the confidential affidavit of Simon John Thorn sworn on 4 February 2022.
5.Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), the plaintiff have approval to enter into the agreement which is annexure “SJT17” to the confidential affidavit of Simon John Thorn sworn on 21 February 2022.
6.Peter Bega’s application for leave to be heard under r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) be dismissed.
7.The costs of the application be costs in the liquidation.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
STEWART J:
Introduction
In this ex parte application, Simon John Thorn, the liquidator of South Townsville Developments Pty Ltd (ST), seeks approval under s 477(2B) of the Corporations Act 2001 (Cth) for entering into six agreements all related to the funding of litigation in this Court, and suppression and non-publication orders under ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in respect of certain details of the agreements.
Background to the litigation
ST was the developer of an eight-story block of apartments called “Allure” that was constructed in Townsville. The construction costs were financed by Lauvan Pty Ltd and Mittabel Pty Ltd. The construction work was completed by about September 2014 and the apartments were sold over the following 12 months.
The sale of the apartments has given rise to proceedings in this Court in which ST asserts, inter alia, that amounts paid to Lauvan and Mittabel by purchasers of apartments from ST were not credited to the loan as they should have been. ST and Geoffrey Trent Hancock, its then liquidator, commenced proceeding NSD1948/2018 against Lauvan and Mittabel claiming that it was entitled to credit on the loan account in the total of the shortfall of $2.5 million and interest.
On 16 May 2019, I dismissed an application by Lauvan and Mittabel for summary dismissal of the proceeding against them, but granted their application for security for costs in the initial sum of $157,244: South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd [2019] FCA 666.
In September 2020, Lauvan and Mittabel served evidence in the 2018 proceeding. The evidence is to the effect that there had been no failure to credit the loan account with all monies received from the purchasers of apartments because Lauvan had itself supplied each of those purchasers with part of the monies required from them under their purchase contracts. Lauvan said that immediately before the settlements it had given cheques totalling $2.5m to the purchasers which they handed back to Lauvan at the settlements – so that the net amount actually received by Lauvan from the purchasers on the settlement of the sales was $2.5m less than the amount apparently paid to it.
In reliance on that evidence, ST commenced proceeding NSD286/2021. Lauvan and Mittabel are defendants, along with a further ten parties. ST asserts that if the evidence filed in the 2018 proceeding is true then the purchasers failed to pay ST the total amount due under the contracts for sale and therefore still owe ST $2.5 million. Also, it asserts that the director of ST, by being involved in and facilitating that conduct, breached the statutory and fiduciary duties he owed to ST as director, and that Lauvan and its officers who were involved in that conduct, are also liable to ST for knowing involvement in the director’s breach of duties.
ST thus asserts that it has a good claim against Lauvan and Mittabel in the 2018 proceeding or, if the defence in that proceeding is upheld, it has a good claim of equal value against the various defendants, including Lauvan, in the 2021 proceeding.
Further details of the respective proceedings, what is being claimed and the evidence served in the 2018 proceeding is identified in South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd (No. 2) [2021] FCA 941 in which I ordered that the two proceedings be managed and heard together and that the evidence in the one proceeding be evidence in the other.
Background to the funding
Mr Hancock was appointed voluntary administrator of the company on 16 October 2015, and then liquidator when the company was wound up by a resolution of creditors under s 439C of the Corporations Act on 20 November 2015. Mr Hancock commenced the 2018 proceeding on 15 October 2018 on the eve of the expiry of the relevant three-year period under s 588FF(3)(a)(i) of the Corporations Act. He thereafter sought, and on 25 January 2019 was granted, approval nunc pro tunc under s 477(2B) to enter into a litigation funding agreement with TD Norton Group Pty Ltd for the payment of the plaintiffs’ costs of the litigation: Hancock (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2019] FCA 71 (Perry J). I shall refer to that agreement as the TD Norton LFA.
As well as the approval orders, orders were made preventing disclosure of the TD Norton LFA and certain of the evidence which was before the Court on the approval application. Lauvan and Mittabel subsequently challenged those orders which were modified by further orders made on 3 May 2019: Hancock liquidator of South Townsville Developments Pty Ltd (in liq) (No 2) [2019] FCA 622 (Griffiths J).
After TD Norton had paid the sum of $157,244 into court as security for the costs of the defendants in the 2018 proceeding, Mr Hancock was informed that TD Norton was no longer in a position to continue to provide the necessary level of funding to the plaintiffs. Mr Hancock then had discussions with other funders as a result of which SCLF Fund 1.2 Pty Ltd agreed to fund the costs of the 2018 proceeding. On 20 August 2019, Mr Hancock entered into a new litigation funding agreement with SCLF for the legal costs incurred by the plaintiffs in the 2018 proceeding and the payment of the premium for an after the event (ATE) insurance policy to cover the plaintiffs’ liability for the defendants’ costs in the proceeding. I shall refer to that litigation funding agreement as the SCLF LFA.
At about that time, Mr Hancock and TD Norton executed a priority undertaking to SCLF. It provides that SCLF will be entitled to payment under the SCLF LFA from any recoveries in the 2018 proceeding in priority to any payments to which TD Norton was entitled.
On 8 August 2019, Mr Hancock and ST entered into a commercial litigation ATE insurance policy with AmTrust Europe Ltd in respect of any adverse costs order in the 2018 proceeding up to a specified limit. I shall refer to this as the first AmTrust policy. As mentioned, the ATE insurance was funded by the SCLF LFA.
Despite having sought and obtained approval from the Court, albeit retrospectively, for the TD Norton LFA, Mr Hancock did not seek approval of the Court for the SCLF LFA, the priority undertaking or the first AmTrust policy. Mr Hancock has given an explanation on affidavit of the reasons for this failure. In essence, Mr Hancock regarded these agreements as less burdensome on ST and its creditors than the TD Norton LFA, for which he already had approval and which was being replaced. He subsequently appreciated that notwithstanding his assessment, approval is required.
Mr Hancock caused the 2021 proceeding to be commenced on 1 April 2021 shortly before the expiry of an applicable limitation period. He had discussions with SCLF concerning the possibility of that company extending funding for the 2021 proceeding under the SCLF LTA. Those discussions were well-advanced, but had not been concluded, when Mr Hancock retired as liquidator of ST. On 26 July 2021, Mr Thorn was appointed by the Supreme Court of NSW (Black J) to replace Mr Hancock as liquidator of ST.
On 12 August 2021, Mr Thorn entered into a deed of variation of the SCLF LFA. This agreement replaced Mr Hancock with Mr Thorn as a party and extended the funding available from SCLF for the 2018 proceeding to also cover the 2021 proceeding. I shall refer to it as the first variation agreement.
Mr Thorn also concluded a second commercial litigation ATE insurance policy with AmTrust, dated 10 August 2021, to cover adverse costs that might be payable in the 2021 proceeding up to a specified limit. I shall refer to this as the second AmTrust policy.
On 10 August 2021, orders were made in the 2021 proceeding requiring a total of $450,000 to be paid into court as security for the costs of all the defendants except the eighth defendant. On 15 September 2021, a Registrar of the Court rejected a deed of indemnity from AmTrust as an acceptable form of security and required that the security be by way of payment into court. On 28 October 2021, the amount of security that was required was increased to $600,000 in order to also cover the eighth defendant’s costs.
As a result of the requirement to pay security for costs into court, Mr Thorn and SCLF have agreed the terms of a further variation to the SCLF LFA, although the agreement has not yet been executed. It makes provision for the security for costs in the 2021 proceeding. Mr Thorn seeks approval to enter into that variation, which I will refer to as the second variation agreement.
Section 477(2B) approval
Applicable principles
Section 477(2B)(a) of the Corporations Act relevantly provides that except with the approval of the court, a liquidator of a company must not enter into an agreement on the company’s behalf if the term of the agreement may end or the obligations of a party to the agreement may be discharged by performance more than three months after the agreement is entered into. Each of the agreements in respect of which Mr Thorn seeks approval requires approval under this provision.
The relevant principles were summarised by Gordon J in Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 at [26]. That summary has been approved and adopted in many subsequent decisions. The relevant principles include the following:
(1)The court does not simply “rubber stamp” whatever is put forward by a liquidator.
(2)The court will not approve an agreement if its terms are unclear.
(3)The role of the court is to grant or deny approval to the liquidator’s proposal. Its role is not to develop some alternative proposal which might seem preferable.
(4)In reviewing the liquidator’s proposal the task of the court is not to reconsider all of the issues weighed by the liquidator in developing the proposal, and substitute its determination in a hearing de novo, but to pay due regard to the liquidator’s commercial judgment and knowledge of all of the circumstances of the liquidation, satisfying itself there is no error of law or grounds for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the expeditious and beneficial administration of the winding up.
(5)In judging whether or not a liquidator should be given permission to enter into a funding agreement, whether retrospective or not, it is important to ensure, amongst other things, that the entity or person providing the funding is not given a benefit disproportionate to the risk undertaken in light of the funding that is promised or a “grossly excessive profit”.
(6)Generally the court grants approval under s 477(2B) of the Act only where the transaction relates to the proper realisation of the assets of the company or otherwise assists in the winding up of the company.
In addition, the court will have regard to the impact that entering into the agreement will have on the duration of the liquidation and whether that impact is, in all the circumstances, reasonable in the interests of the administration: In the matter of One.Tel Ltd [2014] NSWSC 457 at [30] per Brereton J.
Although s 477(2B) contemplates that approval will be obtained before an agreement is entered into, retroactive approval may be granted in certain circumstances: Newtronics at [25]; Re Ambient Rail Pty Ltd (in liq); Ex parte Tonks [2019] FCA 1556 at [9] per Yates J.
Consideration
Mr Thorn seeks approval under s 477(2B) in respect of six agreements, namely:
(1)the SCLF LFA dated 20 August 2019;
(2)the priority undertaking made in about August 2019;
(3)the first AmTrust policy dated 8 August 2019;
(4)the first variation agreement dated 12 August 2021;
(5)the second AmTrust policy dated 10 August 2021; and
(6)the second variation agreement, the terms of which have been agreed but which has not yet been executed.
Agreements (1)-(3) were concluded by Mr Hancock, agreements (4) and (5) were concluded by Mr Thorn, and Mr Thorn intends to conclude agreement (6).
As explained, the agreements are for the provision of funding for the legal costs incurred in both proceedings by the liquidator and the company, for the provision of security for costs that has been ordered in the proceedings, and for the provision of funding to enable the liquidator and the company to pay any adverse costs which might be ordered against them.
I am satisfied that the delay in seeking approval has not delayed the administration of the winding up of the company. In that regard, the 2018 proceeding had already been commenced before funding was sought and agreed, and the TD Norton LFA was approved by the Court. Progress continued to be made in the proceeding without apparently being affected or delayed by the failure by Mr Hancock to seek approval for the SCLF LFA, the priority undertaking and the first AmTrust policy. The 2021 proceeding was then commenced and the first variation agreement and the second AmTrust policy were concluded. The fact that approval is only now being sought for those agreements has not caused any apparent delay in the progress of the proceeding.
I am also satisfied that the delay in seeking approval has not caused any apparent prejudice to any party, whether a party to either of the proceedings, the company, the creditors or a counterparty to any of the agreements. The delay is also explained. There should accordingly be an extension of time for the seeking of the approval, to the extent required.
Although now is obviously not the time to make any findings on the merits of the claims that are asserted in the two proceedings, I am satisfied that they are made bona fide and that there is a reasonable prospect that one or other of the proceedings will succeed. If there is success by the liquidator in one or other of the proceedings, that will be to the benefit of the company and its creditors. The agreements in respect of which approval is sought are necessary to achieve that benefit; without third-party funding of the costs, the liquidator would not be able to pursue the benefit.
On the authorities, it is not the role of the court to impose its own commercial judgment on the liquidator. There is no reason to suppose on the evidence before me that the liquidator could or should have reached commercial terms more favourable to creditors. Of course, the agreements provide for some reward to SCLF for the provision of funding for the litigation, and there is nothing to suggest that that reward is un-commercial or uncompetitive. On the face of it, the terms of the agreements in respect of which approval is sought are reasonably clear.
In all the circumstances, I am satisfied that approval should be granted to Mr Thorn for the conclusion of each of the agreements in respect of which approval is sought, the first five retrospectively and the last one prospectively.
Suppression and non-publication orders
Introduction
Mr Thorn submits that suppression and non-publication orders ought to be made so as to further the interests of the creditors of the company and to prevent the defendants from obtaining an unfair advantage, not available to ordinary litigants, by learning the terms and conditions under which the plaintiffs are able to pay the legal costs and expenses of the proceedings. The orders that were sought by way of amended originating process at the commencement of the hearing included suppression of:
(1)strategically redacted parts of the SCLF LFA and the first variation agreement (which are annexures to the open affidavit of Mr Thorn dated 12 November 2021);
(2)the whole contents of all the other agreements;
(3)an affidavit of Mr Thorn and an affidavit of Mr Hancock, both dated 4 February 2022; and
(4)the written submissions on behalf of Mr Thorn by CM Harris SC dated 4 February 2022.
The suppression was sought for a period of three years subject to it being varied by the consent of Mr Thorn or by order of the Court made on application of which Mr Thorn is given at least three business days’ notice in writing.
During the hearing, which I closed to the public under s 17(4) of the FCA Act to enable submissions and discussion to take place in an open and unfettered manner, I questioned the justification for complete suppression in the manner contemplated. I indicated that it seemed to me that there should be redactions from the documents of identified selective details in respect of which it was said that suppression was justified. Arising from that, and also because contrary to expectations the terms of the second variation agreement had not yet been finalised, the hearing was adjourned until the following week. That was to enable specific redactions to be proposed and for the terms of the second variation agreement to be agreed.
The redactions that were presented to the Court on the resumption of the hearing included the following details:
(1)the sum of the plaintiffs’ legal costs in the 2018 proceeding by May 2019, and how much of those costs remained unpaid;
(2)the limit of the funding to be provided for the plaintiffs’ costs in each proceeding;
(3)the terms of the provision of security for costs in each proceeding;
(4)the terms of repayment to the funder and the funder’s reward in the event of success;
(5)the extent of ATE insurance cover;
(6)the insured’s obligations to the ATE insurer in the event of an adverse costs order;
(7)the excess applicable under the ATE policies; and
(8)the premiums paid for the ATE policies.
It therefore falls to be considered whether there should be suppression and non-publication orders as sought by Mr Thorn, subject to the redacted documents being filed in an open way and therefore available to interested parties.
Principles
In Motorola Solutions Inc v Hytera Communications Corporation Ltd (No 2) [2018] FCA 17, Perram J summarised (at [6]) the relevant principles with regard to suppression and non-publication orders as follows:
(1)the FCA Act contains Pt 5AA which relates to suppression and non-publication orders;
(2)the power of the court to make such orders is contained in s 37AF and the grounds for making them are to be found in s 37AG which includes as one of four separate bases for such orders that “the order is necessary to prevent prejudice to the proper administration of justice”: s 37AG(1)(a);
(3)such an order is not lightly to be made; it must be necessary to prevent prejudice to the proper administration of justice and not be merely desirable: Hogan v Australian Crime Commission [2010] HCA 21; 240 CLR 651 at [39]; Australian Competition and Consumer Commission v Valve Corporation (No 5) [2016] FCA 741 at [8] per Edelman J;
(4)the court may make any other order necessary to give effect to the primary order: s 37AF(2) of the FCA Act;
(5)the order, once made, must remain in place no longer than is reasonably necessary to achieve its purpose, and that period must be specified in the order: s 37AJ(1)-(2); and
(6)the court must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice (s 37AE), but no balancing exercise need be carried out between the utility of the order and the interest which open justice assumes under the FCA Act: Australian Competition and Consumer Commission v Air New Zealand (No 12) [2013] FCA 533 at [21].
It is also to be noted that by s 37AH(2) of the FCA Act, any person with a sufficient interest in the question of whether a suppression order or non-publication order should be made is entitled to appear and to be heard by the Court on an application for such an order. Also, by s 37AH(5), a suppression order or non-publication order must specify the information to which the order applies with sufficient particularity to ensure that the court order is limited to achieving the purpose for which the order is made.
There is a strong and clear public interest in open justice. However, the court may make confidentiality and non-publication orders if public knowledge of the proceeding, or information which would otherwise be disclosed in the proceeding, is likely to defeat the paramount object of doing justice according to law.
As explained by Barrett J in McGrath & Anor re HIH Insurance Ltd [2005] NSWSC 731 at [13], it is often the case that liquidators are in the unenviable position of needing approval from the court to fund claims against third parties where disclosing the details of that funding and the terms on which it is to be provided is an incidental part of obtaining approval. Liquidators in those circumstances, unlike ordinary litigants, have to seek leave. This sets their case apart in such a way that justice will best be served by an examination of the matters the liquidators are bound to raise with the court in an atmosphere where they can lay them before the court fully and frankly and without any apprehension that the interests they are bound to serve will thereby be prejudiced. That was said in relation to an application that the liquidators’ applications for funding approval be heard in the absence of the public, but the considerations with regard to the unique positon of liquidators vis-à-vis their litigation counterparties apply equally to the present matter.
Some years later, in Onefone Australia Pty Ltd v OneTel Ltd [2010] NSWSC 498; 78 ACSR 163 at [2], Barrett J noted that the subject matter of an application such as the present to approve a liquidator entering into an LFA is
of a commercially confidential and sensitive kind, related to aspects of the litigation that any plaintiff, protecting its own interests and the integrity of the litigation process in which it is engaged, would take particular care to keep from the other party or parties to the litigation.
That consideration was the basis for the suppression orders by Gleeson J in Needham, in the matter of Bruck Textile Technologies Pty Ltd (in liq) [2016] FCA 837 (at [37] and [41]).
It must also be borne in mind, as reasoned by Ball J in In the matter of Octaviar Administration Pty Ltd (in liq) [2014] NSWSC 344 at [16], that the need for public confidence in the integrity of the judicial system applies equally to a proceeding, such as the present, that is not adversarial in nature. It was said that that is particularly so where the proceeding involves the supervision of a public officer who performs the important social function of ensuring that the affairs of an insolvent company are wound up in an orderly manner in accordance with the law. It was also held (at [17]) that, as a practical matter, it may be sensible to make broad suppression orders that are subject to further order, together with a grant of liberty to apply, rather than to require a liquidator to expend time and money identifying material that should be redacted because it is confidential on the off chance that someone who is entitled to obtain access to the non-confidential material seeks to exercise that entitlement. However, once such an application is made by a person with sufficient interest, the onus is on the liquidator to satisfy the court that the suppression orders were properly made.
That is in effect what occurred in relation to the TD Norton LFA in Hancock (liquidator), in the matter of South Townsville Developments Pty Ltd (in liq) [2019] FCA 71 and Hancock liquidator of South Townsville Developments Pty Ltd (in liq) (No 2) [2019] FCA 622 referred to at [9]-[10] above. In the latter case, Griffiths J considered (at [11]) that the defendants to the liquidator’s litigation should have access to portions of the funding agreement which were relevant to their assessment of how they should conduct their security for costs application. It was reasoned that their forensic decisions concerning security for costs should be made on an informed basis, and it may well be, for example, that having regard to the relevant terms of the funding agreement they would not press for a separate order providing security for costs. Those considerations apply equally in the present case.
Consideration
In my assessment, the redactions sought by Mr Thorn go further than is justified in certain limited respects. I am, however, satisfied that the redaction of the classes of information identified at [35] above are, at least prima facie, necessary in order to prevent prejudice to the proper administration of justice. That is because a failure to suppress that information will potentially prejudice the liquidator’s fair and proper pursuit of the litigation in the interests of creditors in the winding up of the company. Aside from the effect that may have in the proceedings in question by unduly favouring the defendants, it could make it more difficult for liquidators to enter into and seek approval for litigation funding arrangements while also fulfilling their obligations of full and frank disclosure on the ex parte application.
I indicated during the course of the hearing which parts of the redactions sought by Mr Thorn I was not persuaded were justified in being maintained. I then directed that fresh redacted copies of the various documents be filed. Those documents were filed as annexures to an affidavit of Mr Thorn dated 21 February 2022. I will therefore order that the unredacted versions be suppressed.
As indicated, it may be that someone with sufficient interest wishes to persuade the Court that the redactions go further than is necessary. On that basis, the orders should be subject to further order and provide for leave to apply.
Insofar as the period of operation of the orders is concerned, as in Needham, I consider that the finalisation of the winding up of ST marks the end of the period of any necessary suppression.
Mr Peter Bega’s opposition
One of the defendants in the 2021 proceeding is Mr Peter Bega.
By interlocutory application filed in that proceeding on 11 February 2021 (i.e., subsequent to the date on which the hearing of the ex parte application was first heard), Mr Bega sought orders that the plaintiff in the 2021 proceeding, i.e., ST (in liq), be denied its claims for approval under s 477(2B) of the Corporations Act. That is apparently intended to be a reference to Mr Thorn’s application in the present proceeding.
In his affidavit filed in support of the interlocutory proceeding, the only interest that Mr Bega identifies that he has in the orders in the present proceeding is that he is a defendant in one of the proceedings in respect of which approval is sought for the entry into litigation funding and associated agreements. At a case management hearing in that proceeding conducted on 17 February 2022, Mr Bega confirmed that that is the only interest that he relies on in seeking to be heard on the liquidator’s approval application. I dismissed Mr Bega’s interlocutory application in the 2021 proceeding and made orders giving him the opportunity to make submissions in writing as to why he should be granted leave under r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) to be heard in the present proceeding.
In those submissions, Mr Bega says that he is a director of Cameria Nominees Pty Ltd which is an unsecured creditor of ST. He relies on that interest to justify being heard on Mr Thorn’s application. However, he offers no authority in support of his submission that he should be heard.
In Re Bell Group Ltd (in liq) [2009] WASC 235 at [58], Hasluck J held that on an application under s 477(2B), it is not necessary for notice of the application to be given to the “defendant banks” (i.e., the defendants to the liquidators’ proceeding) or actual or prospective creditors with a view to affording them an opportunity to be heard. That is because the application under s 477(2B) would not determine any matters in issue.
I observe that Hasluck J cited Brown v DML Resources Pty Ltd (in liq) (No 7) [2002] NSWSC 162; 41 ACSR 299 in support of that conclusion, but that seems to be an erroneous reference. It would appear that it was a different judgment in the same liquidation that was intended to be referred to, namely Brown v DML Resources Pty Ltd (in liq) [2001] NSWSC 590; 52 NSWLR 685. In that case, Austin J (at [54]-[55]) observed, with regard to the right of interested parties to a hearing in corporations law cases, that at one extreme there are cases where it is plain that the application seeks relief against a person and the person should therefore be a respondent to the application; but at the other extreme there are cases (such as the present) where the court is asked to exercise a discretion to permit an administrative step to be taken where there is no need to join any respondent or give notice to any affected person.
In Onefone (particularly at [11]-[12] and [15]), Barrett J held that although the committee of inspection and the general body of creditors are alternative approving authorities under s 477(2B), there is no requirement or expectation that they be consulted either in advance of an application under that section or after the approval has been granted. That was upheld on appeal in Deloughery v Weston [2017] NSWCA 148; 79 ACSR 180 (particularly at [36] and [42]) where it was said by Giles JA and Handley AJA (Spigelman CJ agreeing) that 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. A defendant to a proceeding in respect of which a liquidator seeks approval to enter into a funding agreement has no such right, interest or expectation.
In Jones, Saker, Weaver and Stewart (Liquidators), in the matter of Great Southern Ltd (in liq) (Receivers and Managers Appointed) [2012] FCA 1072 at [50], Gilmour J held that it was not necessary for the liquidators to give notice of an application for approval of entry into an agreement under s 477(2B) to any party.
In Kogan, in the matter of Rogulj Enterprises Pty Ltd (in liq) [2021] FCA 856 at [35], citing most of the authorities I have referred to in the preceding paragraphs, Cheeseman J held that a defendant in a proceeding which is to be funded pursuant to a litigation funding agreement does not have standing to be heard by reason of the fact only that they are a proposed defendant.
The possible interest of a director of an unsecured creditor is even further removed from that of a defendant to the action for which the liquidator seeks funding approval.
In the circumstances, I conclude that Mr Bega, as a defendant to the proceeding in respect of which funding approval is sought and as a director of an unsecured creditor, has no right to be heard on the liquidator’s application under s 477(2B) of the Corporations Act.
I also decline to exercise any residual discretion that I may have to allow Mr Bega to be heard further. That is on the basis that he has demonstrated no sufficient interest, as explained, and the submissions that he wishes to make – which I have considered – are unhelpful to me in the determination of the liquidator’s application.
His application for leave to be heard in this proceeding should accordingly be dismissed.
I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate:
Dated: 23 February 2022
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