Timbercorp Finance Pty Ltd (In Liq) v Collins

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2014 02972

TIMBERCORP FINANCE PTY LTD (In Liquidation) (ACN 054 581 190)	Plaintiff
v
DOUGLAS JAMES COLLINS and JANET ANN COLLINS	Defendants

S CI 2014 04921

TIMBERCORP FINANCE PTY LTD (In Liquidation) (ACN 054 581 190)	Plaintiff
v
JOHN CHARLES TOMES	Defendant

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JUDGE:	Robson J
WHERE HELD:	Melbourne
DATE OF HEARING:	29, 30 April 2015 and 4 May 2015
DATE OF JUDGMENT:	2 September 2015
CASE MAY BE CITED AS:	Timbercorp Finance Pty Ltd (In Liq) v Collins and Tomes
MEDIUM NEUTRAL CITATION:	[2015] VSC 461

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PRACTICE AND PROCEDURE – Preliminary question – Whether defendants in debt recovery proceedings are entitled to raise defences that were not raised in earlier group proceedings – Defendants had not opted out of the group proceedings – Consideration of principles espoused in Henderson v Henderson – Consideration of Anshun estoppel – Consideration of principles of abuse of process – Whether defendants could have raised the defences in the group proceedings – Whether not unreasonable for the defendants not to have had the defences raised for directions in the group proceedings – Consideration of Part 4A of the Supreme Court Act 1986 – Consideration of ‘preclusionary principles’ – Whether ‘opt out’ provisions in Part 4A made it unreasonable for the defendants to rely on individual defences – Whether ‘op out’ notices properly informed the defendants of their options in the group proceedings – Held defendants entitled to plead individual defences.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A C Archibald QC with Mr D J Batt QC and Mr C O Parkinson	Mills Oakley
For the Defendants in S CI 2014 02972	Mr M D Wyles QC with Mr D B Clough and Mr D J Fahey	Macpherson + Kelley Lawyers
For the Defendants in S CI 2014 04921	Mr A Herskope with Ms L H Kirwan	JB Lawyers

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
Circumstances leading to group proceedings................................................................ 6
The issues in the group proceeding............................................................................... 23
Circumstances of Collins.................................................................................................. 23
Collins proceedings.......................................................................................................... 32
Circumstances of Tomes................................................................................................... 36
Tomes proceedings........................................................................................................... 40
Case law on Anshun estoppel......................................................................................... 44
Case law on abuse of process.......................................................................................... 47
Case law on group proceedings...................................................................................... 50
Submissions of Mr & Mrs Collins................................................................................... 75
Submissions of Mr Tomes................................................................................................ 83
Submissions of Timbercorp Finance.............................................................................. 85
Further detail of Timbercorp’s contentions in relation to the defendant’s defences 91
Consideration of Timbercorp Finance contentions...................................................... 96
Structure of analysis and the issue for determination................................................. 99
Seeking directions under the Supreme Court Act...................................................... 101
Means of case management........................................................................................... 102
Section 33ZF..................................................................................................................... 103
Claims or questions arising out of claims made in the group proceedings.......... 104
Operation of section 33Q................................................................................................ 106
Notice to group members.............................................................................................. 108
Section 33R........................................................................................................................ 112
Could directions be sought under s 33S?.................................................................... 113
Section 33T........................................................................................................................ 113
The significance of s 33C for s 33Q............................................................................... 114
History of Chancery practice......................................................................................... 118
The ALRC Report............................................................................................................ 121
The Purpose of Part 4A................................................................................................... 124
The Civil Procedure Act 2010 (Vic)............................................................................... 127
May group members make an application under ss 33Q, 33R, 33S and 33ZF?..... 135
Discussion of Tomlinson................................................................................................ 136
Tomlinson and group proceeding estoppel............................................................... 138
Common law privies....................................................................................................... 138
Group members in a representative proceeding........................................................ 142
Observations on Clarke v Great Southern (No 3)....................................................... 148
Observations on Clarke v Great Southern (No 4)....................................................... 149
Conclusion........................................................................................................................ 152
The Anshun unreasonableness test.............................................................................. 153
Was it unreasonable if the group plaintiff was their privy?..................................... 156
Further consideration of Anshun and group proceedings....................................... 158
Does judgment have preclusionary effect on the defendants?................................. 160
Did the failure to opt-out preclude the defendants from raising their defences?. 162
Could the defendants have raised their individual defences in the group proceeding? 163
Further arguments on Anshun...................................................................................... 170
Were any of the defences resolved in the group proceedings?............................... 170
The claims against Timbercorp Finance in the group proceeding.......................... 170
‘No loan’ defence............................................................................................................. 172
‘Ring-fencing’ defence..................................................................................................... 174
‘Non-recourse’ defence................................................................................................... 174
M+K retainers and correspondence............................................................................. 175
Conclusion on Anshun................................................................................................... 177
Abuse of process.............................................................................................................. 177
The discovered documents............................................................................................ 178
Other matters.................................................................................................................... 179
General considerations................................................................................................... 179
Preliminary questions answered.................................................................................. 182

HIS HONOUR:

Introduction

The plaintiff, Timbercorp Finance Pty Ltd (in liquidation) (‘Timbercorp Finance’) was a member of the Timbercorp Group of companies. Timbercorp Limited (‘Timbercorp Limited’) was the parent company. The other main member of the group was Timbercorp Securities (in liquidation), (‘Timbercorp Securities’), the responsible entity for relevant Timbercorp investment schemes. Between 1992 and its collapse in 2009, the Timbercorp Group invested more than $2 billion in agribusiness projects on behalf of some 18,500 investors. Many investors borrowed moneys from Timbercorp Finance to finance their investments in the schemes, including the defendants (Mr & Mrs Collins[1] and Mr Tomes[2] respectively).
[1]The defendants in matter no 02972 (‘Collins Proceeding’).
[2]The defendant in matter no 04921 (‘Tomes Proceeding’).

On 23 April 2009, partners of KordaMentha were appointed administrators of the Timbercorp Group companies. At a meeting on 29 June 2009, the creditors resolved to wind up the companies, and the administrators became liquidators. At the time the Timbercorp Group collapsed, Timbercorp Finance’s loan book had over 14,500 outstanding loans to over 7,500 borrowers totalling $477.8 million, including loans to Mr & Mrs Collins and Mr Tomes.

On 13 June 2014, Timbercorp Finance commenced proceedings against Mr & Mrs Collins to recover an alleged loan of $90,501.68 plus interest. On 12 September 2014, Timbercorp commenced proceedings against Mr Tomes to recover alleged loans of $1,760,378.34 and $448,260.00 plus interest.

In early 2009, the liquidators of Timbercorp Finance commenced proceedings against other borrowers to recover loans. Shortly thereafter, Mr Woodcroft-Brown, on his own behalf and on behalf of other Timbercorp scheme investors brought a group proceeding under Part 4A of the Supreme Court Act 1986 (Vic) (‘Supreme Court Act’) against Timbercorp Limited, Timbercorp Securities, Timbercorp Finance and three of their directors, inter alia, challenging the validity and enforceability of the Timbercorp loan agreements with investors in proceeding S CI 9807 of 2009 (‘the group proceeding’). Mr Woodcroft-Brown and many group members had retained Macpherson + Kelley Lawyers (‘M+K').

The statement of claim alleged that investors in several nominated claims were misled or were not informed of material matters that they should have been informed of and as a result invested in the schemes. The matter was heard by Judd J.[3] Judd J summarised the claims as follows:[4]

A further unusual feature of the case was the way in which the plaintiff’s case developed. In his attempt to cover every possible combination or permutation of fact and law, attributing principal liability to Timbercorp Securities and accessorial liability to Timbercorp Finance and the directors, the plaintiff constructed an elaborate and sometimes illusive web of allegations. The complexity was compounded by the failure of the statement of claim to record a coherent narrative and the extensive and often confusing use of cross referencing.
By reference to his statement of claim, the plaintiff advanced more than a dozen principal claims, before accessorial liability was brought to account. Having regard to the way in which the plaintiff advanced his case at trial, it had the potential to be made relatively straightforward, although with a material change to which the defendants took exception. Unfortunately, any potential for simplification was not realised, because the plaintiff expressly refused to abandon any element of his pleaded case. The change to his case, explained below, did not result in an application to amend the statement of claim. The plaintiff maintained that his case at trial fell within his existing pleading.
Put simply, the plaintiff’s case as pleaded was that the Responsible Entity, Timbercorp Securities, had failed to disclose information about risks it was required to disclose in compliance with its statutory obligations. The plaintiff argued that the Group business model involved risks associated with its financial structure that should have been disclosed to existing and potential scheme investors, because the risks were significant or might have had a material influence on a decision to invest in a scheme. This was described as a structural risk; a risk that the Group might fail because of insufficient cash, with a consequential risk to the viability of the schemes managed by Timbercorp Securities.
The plaintiff argued at trial that on and after 6 February 2007, events occurred that put the business of the Group at further or heightened risk of failure. Those events included an announcement by a Commonwealth government Minister on 6 February 2007, of a proposal by the Australian Taxation Office to change its position on the deductibility of up-front fees paid by investors. This event became known as the tax announcement. It was the first so-called adverse matter. The second such matter was the tightening of global credit markets, which the plaintiff said commenced in the second half of 2007. This was sometimes referred to as the Global Financial Crisis. There were other events, although the two mentioned are by far the most important.
The plaintiff argued that had he been informed of the structural risk or any of the adverse matters he would not have invested in the schemes and would not have borrowed from Timbercorp Finance to do so. The relief claimed by the plaintiff includes an order that he and Group members are not liable for repayment of their loans from Timbercorp Finance.

[3]Woodcroft-Brown v Timbercorp Securities Ltd [2011] VSC 427 (‘the group proceeding judgment’).

[4]Ibid [22]–[25].

The relief sought included an order that the investor loan agreements with Timbercorp Finance were void and otherwise unenforceable. Importantly, no aspect of the loans themselves were challenged. Rather, the plaintiffs claimed that entering into the loan agreements was merely a consequence of the investors investing in one or other of the schemes. The claims challenged the entry into the schemes. The loan agreements were challenged merely as a consequence of the investor entering into the schemes and, in particular, being induced to do so allegedly as a result of misleading information or of the investors not being properly informed

The case was confined to defects in the Product Disclosure Statements and whether they omitted information or contained misleading information.

Timbercorp Finance, by its defence and counterclaim, sought to set off and claim moneys owing by Mr Woodcroft-Brown on the loans he obtained in respect of the ‘Olive and Timber Loan Agreement’. The loans to group members other than Mr Woodcroft-Brown were not raised in the defence and counterclaim.

In summary, the group proceeding did not raise any issues concerning the validity or enforceability of the loans arising out of the lending process or the advancement of moneys under the loans, which are the issues raised by the defendants in this case, as will be explained below.

On 27 October 2011, this court dismissed the claim in the group proceeding, in both Mr Woodcroft-Brown’s individual and representative capacities. Timbercorp Finance’s counterclaim was adjourned sine die with the costs of the counterclaim reserved.

After Mr Woodcroft-Brown had exhausted the avenues of appeal in the group proceeding, Timbercorp Finance commenced further recovery proceedings against borrowers, including the defendants in the two proceedings currently before the court, each of whom was a group member in the earlier group proceeding. The two defendants, as well as other borrowers against whom Timbercorp Finance has commenced recovery action, have now, by their pleadings filed in their respective proceedings, sought to raise claims and defences challenging the validity and enforceability of the loan agreements not raised in the group proceeding.

In replies filed in each of the two proceedings, Timbercorp Finance has pleaded that each of the defendants is precluded from raising the matters contained in their defences, by reason of their participation as group members in the group proceeding. Each of the defendants has denied that claim by way of rejoinder.

On 1 April 2015, Judd J ordered in each of the two proceedings that the following question[5] be determined as a separate question under rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2005:

Are the defendants precluded from raising any and if so what defences pleaded by them in this proceeding by reason of their participation as group members within the meaning of [Part 4A] of the Supreme Court Act 1986 (Vic) in proceeding S CI 9807 of 2009 [the group proceeding]?

[5]Or, in the proceedings involving only one defendant, a like question framed in the singular.

The defendants referred to in the order were Mr & Mrs Collins, Mr Tomes and Mr Gryuters. Mr Gryuters subsequently withdrew from the proceeding. No submissions were made, and I was not asked to make any finding, as to the impact of this withdrawal.

Timbercorp Finance submits that in each of the two proceedings the answer to the question should be that the defendant or defendants is or are precluded from raising all of the defences pleaded by them. In fact, it goes further. It says not only are the defendants precluded from raising those defences, they are precluded from raising any defences.[6]
[6]As discussed below, Timbercorp Finance later appeared to refine this position, carving out a few defences which it said could still be raised, such as prior settlement of the matter or novation of the loan agreement.

In summary, Timbercorp Finance submits that, in the circumstances established by the evidence and having due regard to the content and purpose of the provisions of Part 4A of the Supreme Court Act, the defendants are precluded as a matter of law from raising their pleaded defences, by Anshun estoppel, and/or because raising the defences constitutes an abuse of process.

There is no issue that if Mr & Mrs Collins and Mr Tomes had opted out of the group proceeding, they would not be denied the right to plead the defences they do on any Anshun or abuse of process ground. Where convenient I will refer to Mr & Mrs Collins and Mr Tomes as the defendants.

Mr & Mrs Collins submit that Timbercorp Finance has misconceived both Part 4A and the principles of abuse of process in asserting that they have lost their right to defend the claims of indebtedness to Timbercorp Finance as they did not opt out of the group proceeding.

Timbercorp Finance contends that the defendants were entitled to have the claims they now make challenging the validity of the loan agreements they have with Timbercorp Finance ‘case managed’ by the judge hearing the group proceeding. Timbercorp Finance contends that if their claims were ‘case managed’ the claims of the defendants may have been heard or determined in the group proceeding or in other proceedings as directed by the judge.

Timbercorp Finance contends that applying the principles of Anshun and abuse of process, the failure of the defendants to apply to have their ‘claims’ in relation to the validity and enforceability of the loan agreements with Timbercorp Finance case managed by the judge hearing the group proceeding precludes the defendants from raising those claims in their defence. It is expressly not submitted that they are precluded by res judicata or issue estoppel.

Timbercorp Finance further contends that the defendants had a right to opt out of the group proceeding and that by their failure to do so they are estopped by the principles of Anshun or abuse of process from raising any defence to the claim by Timbercorp Finance under the loan agreements with the defendants.

The defendants submit that in the circumstances they were not entitled to seek to have their claims case managed by the judge hearing the group proceeding by seeking directions in respect of those claims. They submit that in any event if they were so entitled, their failure to do so does not preclude them from raising those defences in Timbercorp Finance’s proceedings against them. The defendants further contend that the failure to opt out does not lead to the consequences alleged by Timbercorp Finance.

Circumstances leading to group proceedings

In the six months following the date on which administrators were appointed to the Timbercorp Group companies:

(a) borrowers under approximately 8,470 Timbercorp loans (totalling approximately $243 million) first failed to meet their loan repayment obligations;

(b) Timbercorp Finance notified the borrowers in each of those loans that they had failed to meet repayment obligations and that they were in default of their loan obligations; and

(c) Timbercorp Finance issued final demand notices to borrowers in respect of approximately 1,480 of those loans.

On 13 May 2009, M+K published a circular to investors in Timbercorp management schemes which appears to have been directed to the clients of Garnaut Private Clients Advisers.

The circular stated, among other things:

McPherson + Kelly has a strategy which will provide welcome relief, especially for growers, who took out loans from Timbercorp Finance Pty Ltd in 2008 (and possibly even 2007). The strategy will allow you to hold on to your cash that you would otherwise be using to meet repayments on those loans.
The strategy is based on the failure of Timbercorp Securities Limited to disclose to growers the extremely poor financial position of the Timbercorp group. By law, the responsible entity should have told growers of the parent companies having been in default under bank covenants at the time that Timbercorp Invoices were sent to growers.
If you want to take advantage of this offer, McPherson + Kelly would write letters on your behalf to the Timbercorp administrators, KordaMentha. The letters would press your claims against Timbercorp Securities Limited and Timbercorp Finance Pty Ltd, relying on specialist areas of law dealing with joint venture agreements, trade practices legislation, the Corporations Act and the Australian Securities and Investments Commission Act.
Expected benefits of pursuing your legal rights
•You could lawfully withhold making any loan repayments to Timbercorp Finance Pty Ltd while claims are processed.
•You would assert a right to be paid all money you have already paid under the loans you obtained in 2008.
•To the extent you paid the 2008 invoices from your own money you would assert a right to be refunded that money.
•The Timbercorp Administrators would be asked to pass on your claims to the company’s insurers.
•You will have an immediate, ready answer and line of defence to resist any attempt by debt collectors to recovery payment arrears and penalties from you. The Administrators have already sent out letters of demand.
•You can put to better use the money you would save by not having to keep up payments to Timbercorp Finance Pty Ltd.

To take advantage of this offer
…
3.A cheque to cover the reading of your documents and the preparation of two separate comprehensive letters of demand to be sent on your behalf to the administrators of the two relevant Timbercorp companies.

Your cheque should be made payable to McPherson + Kelly Trust Account in the amount of $275 (including GST).
Your instructions and payment can be submitted either to Ron Willemsen of our office or via Garnaut Private Clients Advisers.

In or about June 2009, the liquidators of Timbercorp received correspondence from M+K on behalf of numerous persons and entities who had invested in Timbercorp schemes and who had entered into loans with Timbercorp Finance.

On 17 June 2009, M+K wrote to Messrs Korda and Shepard advising them that they acted on behalf of Douglas Collins as trustee for the D & J Consulting Superannuation Fund.

The letter asserted that at the very time Timbercorp Securities (the responsible entity) invoiced their client on 1 October 2008 (and possibly from a time even considerably earlier), by reason of the financial strain felt by the company’s parent Timbercorp Limited, there were very real risks, including that:

1)Timbercorp Limited was insolvent or would soon become so;
2)Timbercorp Securities likewise was insolvent or would soon become so; and
3)some or all of their client’s next horticultural crop may be in jeopardy of not being able to be harvested on a timely basis, if at all.

In substance, the letter complained of Timbercorp Securities’ failure to disclose material financial information and facts to their client, and also breaches of fiduciary duties owed to their client as a participant in the schemes.

M+K alleged that had their client known of Timbercorp’s true financial position the decision may well have been taken to walk away from the projects so as to cut their client’s losses.

The letter also alleged misleading and deceptive conduct. This related to representations to all investors that Timbercorp was financially sound. The letter did not allege any specific representations made solely to the defendants individually. The letter also made claims based on s 601FC of the Corporations Act 2001 (Cth) (‘Corporations Act’). The letter indicated that a copy was being sent to Timbercorp Finance, with a request that it refrain from taking any steps against their client to recover any money outstanding under the loans made to their client.

A further letter of 17 June 2009 was sent to the liquidators on behalf of Mr Collins by M+K which stated, among other things:

By reason of offsetting claims which our client has, as outlined in this letter, he is not required to make any further payments in respect of loans taken out by our client from Timbercorp Finance Pty Ltd to fund the invoices rendered in 2008 (and possibly 2007 as well) in respect of any of the projects in which our client invested. …
In light of all these matters, our client requests that Timbercorp Finance refrain from taking any steps against our client to recover any money outstanding under loans made to our client in respect of any relevant projects.
Our client’s position is that the subject loans ought to be written off as unrecoverable.
…
If Timbercorp Finance seeks to recover arrears and default charges, our client’s instructions are to vigorously defend. Further, our client would join Timbercorp Securities as a third party to any court proceeding brought by Timbercorp Finance so that the court could rule that ultimate responsibility for losses occasioned in this situation should fully or partly rest with Timbercorp Securities.
If Timbercorp Finance takes court action to recover arrears and default charges from our client, we expect our client (and all other clients for whom we act) will instruct us to make application to the Federal Court of Australia for an injunction to stop the debt recovery action from proceeding until such time as the Federal Court itself heard and determined our client’s claims outlined in this letter.

On or about 9 June 2009, M+K issued a circular to managed investment scheme investors. That circular stated, among other things:

1.McPherson + Kelly is sending batches of letters of demand every Wednesday and Friday by courier to KordaMentha on behalf of Investors. Each Investor will receive a copy of those letters.
2.Those letters will continue being sent in batches until KordaMentha receives individual letters on behalf of each and every one of our clients (expected soon to pass the 1,000 mark). …
4.The letters will allow Investors to ignore any formal demand notices received from KordaMentha.
5.If people receive telephone calls from Timbercorp staff demanding payment, threatening to sue or threatening to report a default to credit reference agencies, we suggest you simply tell the caller you are being represented by a lawyer who is writing to KordaMentha on your behalf about the matter. …
6.We maintain that legal grounds exist which justify Investors:
(a)not making further loan repayments to Timbercorp Finance … especially for loans obtained in 2008 (and perhaps earlier).

On or about 22 June 2009, M+K issued a circular to investors in Timbercorp schemes and Great Southern Managed Investment Scheme (MIS) projects. Again the circular advised clients to withhold loan payments and informed clients that if the matter goes to court then it would be argued that the subject loans are invalid, the subject loans being those taken out in 2008 and possibly also those in 2007.

In early July 2009, Timbercorp Finance commenced proceedings in the Supreme Court against twenty borrowers in default of their loan obligations (the initial proceedings.) Each of the initial proceedings was managed by Judd J. In each of the initial proceedings, Timbercorp Finance alleged, among other things, that there were loan agreements between it and the named defendants, that the defendants had defaulted under their obligations in those loan agreements and that moneys owing under the loan agreements were due and payable. Following service of the initial proceedings, M+K filed appearances in nine of the initial proceedings.

On or about 6 July 2009, M+K issued a circular to investors in Timbercorp schemes and Great Southern MIS projects. The circular noted that KordaMentha had elected not to respond to the hundreds of letters M+K wrote on behalf of their clients concerning invalidity of particular loans. The circular reported that instead a handful of clients had been sued in the Supreme Court. M+K said that they would be writing to KordaMentha’s lawyers asking that those cases in the Supreme Court be stayed or suspended until a representative proceeding or test case was decided by the Federal Court. The circular stated:

In that way we can have a single court make a definitive ruling applicable to borrowers across the whole country which covers the issue of validity or invalidity of the loans.

The circular went on to say that the Federal Court of Australia would be the most appropriate court and then stated:

If KordaMentha does not agree to our suggested course it will be desirable for a representative action to be commenced as soon as possible on behalf of all affected investors being people who borrowed money through Timbercorp Finance (especially since 2007).

On or about 20 July 2009, M+K issued a circular to investors in Timbercorp schemes. The circular referred to final demands being issued by Mills Oakley Lawyers on behalf of KordaMentha under the loan agreements. The circular stated that formal steps now needed to be taken on behalf of all M+K clients to stop the liquidators’ premature court proceedings and eliminate the threat of further individual court actions against investors/borrowers. The circular stated that the time had come to commence a representative class action in the Federal Court of Australia so that all investors’ interests could be protected. The circular stated that such proceedings would encompass claims against the Timbercorp directors as well. The circular stated that the proceedings would deal with loan enforceability issues as well as compensation issues.

On or about 21 July 2009, Mills Oakley Lawyers received numerous letters from M+K in relation to final demands issued by Timbercorp Finance to their clients. Those letters were in identical form and asserted that in each case the demand was ‘invalid’ and ‘cannot be of any effect or cannot be enforced if, as our client maintains, the loan agreement on which it is based is itself void or unenforceable.’ The letters went on to state:

To avoid the matter proceeding to court we request your client to either immediately withdraw the demand or agree not to take any further steps in reliance on the demand until such time as a definitive court ruling is obtained. Our client’s case will be part of a representative proceeding shortly to be commenced in the Federal Court.

A directions hearing for the initial proceedings by Timbercorp Finance against twenty borrowers occurred on 24 July 2009 before Judd J. During this directions hearing, counsel for the M+K defendants informed the Court that M+K had some 1,600 clients with respect to the Timbercorp Group, and foreshadowed the commencement by an M+K client of a group proceeding against Timbercorp Securities and Timbercorp Finance. Judd J ordered, among other things, that the defendants to the initial proceedings file and serve defences and any counterclaims. His Honour also ordered that in the initial proceedings commenced against one of M+K’s clients, Mr Pham, Mr Pham specify details about the foreshadowed group proceeding.

On or about 24 July 2009, M+K issued a circular to investors in Timbercorp schemes and Great Southern MIS projects. Among other things, the circular raised similar points to those made in the 6 July 2009 circular. Information was also provided about the directions hearing that occurred that day in the initial proceedings.

On or about 5 August 2009, M+K issued a circular to investors in Timbercorp schemes and the Great Southern MIS projects. The circular provided information about the directions hearing that occurred on 24 July 2009, and stated, among other things:

McPherson + Kelly expects to be able to formally commence a representative court proceeding (or class action) next month.

On or about 13 August 2009, M+K issued a circular to investors in Timbercorp schemes and Great Southern MIS projects. The circular outlined various matters being investigated by M+K in relation to various Timbercorp MIS projects and in respect of the foreshadowed group proceeding. The circular stated:

We continue working hard to ensure we can advance our clients’ interests efficiently and at fair and reasonable fees. We are preparing material that will aid in the orderly case management of the proposed class action. Common issues across all 1,600 of our clients’ cases will be handled through a single case so our clients don’t have to suffer individual court cases. Individual aspects of each client’s case will then be handled within the framework of that same single class action so that each individual’s separate and unique claim is assessed and resolved.

On or about 25 August 2009, M+K provided a draft statement of claim in the foreshadowed group proceeding, and the M+K defendants filed and served defences and counterclaims in the initial proceedings. These defences and counterclaims referred to and adopted the allegations to be put in the foreshadowed group proceeding. By way of example only, Mr Pham’s defence and counterclaim stated: …

81.Further and in the alternative, if it is found that the defendant owes the plaintiff any of the sums claimed against him, he will seek to set off any and all such claims:
(a)against any and all sums found to be owing to him pursuant to the counterclaim filed herein; and/or
(b)pursuant to section 553C of the Corporations Act 2001.

Counterclaim
…
83.The defendant is a group member as that term is relevantly defined in the statement of claim filed in proceeding no.[ ] of 2009 in the Commercial List [ ] (‘the group proceeding’).
84.The defendant refers to and repeats the allegations contained in the statement of claim in the group proceeding.
85.To the extent that any of the causes of the action in the group proceeding are successful he will seek to set off any sums found to be owing to him and/or any other relief granted to him against any such found to be owing by him.

The draft statement of claim in the group proceeding contained proposed claims against Timbercorp Securities, Timbercorp Finance and Garry William Liddell, Robert James Hance and Saul Charles Rabinowicz (directors). The relief sought against Timbercorp Finance included orders declaring that the plaintiff’s and group members’ respective loans entered into with Timbercorp Finance be declared void or otherwise unenforceable. As against Timbercorp Securities, the relief sought included orders declaring that the plaintiff and group members were not liable for any fees or costs in connection with any schemes from late 2007. Relief was also sought against the directors.

A directions hearing in the initial proceedings occurred on 27 August 2009 before Judd J. During this directions hearing, counsel for the M+K defendants informed the court that the foreshadowed group proceeding had not yet been issued. The transcript of that directions hearing records that senior counsel for the M+K defendants stated:

… we don’t have the identity of the lead plaintiff — identified we’ve got to go through the usual hoops that any class action faces and fine [sic] the appropriate lead plaintiffs, someone who’s willing to put their name on the proceeding.

Judd J directed in the initial proceeding against Mr Pham that, among other things, the foreshadowed group proceeding and any application pursuant to the Corporations Act, where leave to proceed with that proceeding would be sought, be filed by 25 September 2009 and entered into List B of the Commercial Court.

In about September 2009, an article was posted on the Timbercorp Growers’ Group Website (‘TGG website’) titled, ‘Class action against Timbercorp by MacPherson and Kelly’. The article stated, amongst other things:

Mark Korda, as Timbercorp’s liquidator, recently stated at one of the grower meetings that he would press for recovery of outstanding amounts under loans made to growers. He said ‘Timbercorp Finance is advised to collect the money.
…
The most economical way for M+K’s clients to advance their own individual claim is within the framework of a class action. Every client’s case can ultimately be resolved, and we are confident of a favourable resolution, through a class action. The class action is as much about the group’s claim as it is about resolving each individual’s own claim within a single case.
It needs to formally commence by 25 September 2009, so as to tie‑in with a number of cases in the Victorian Supreme Court already under way, where KordaMentha sued ‘defaulting borrowers.’ We have only 16 days to arrange for the required number of clients to fund their own cases within the framework of a single case — a class action. … As a matter of urgency you are asked to consider our invitation to choose whether or not you would now like to retain M+K as your lawyers to pursue your individual claims under the banner of the class action.

In early October 2009, M+K filed notices of ceasing to act for all bar one of the M+K defendants (Mr Pham). On 2 October 2009, Mr Pham filed and served a defence and counterclaim in the initial proceeding against him which materially adopted the allegations advanced in the draft group proceeding statement of claim circulated by M+K on 25 August 2009. An application for leave to proceed with a counterclaim against Timbercorp Securities and Timbercorp Finance was also filed.

At a directions hearing of the initial proceedings on 12 October 2009 before Judd J, the court was informed by counsel for Mr Pham that his instructors were having difficulty in organising the plaintiff for the group proceeding.

Justice Judd directed in the proceeding against Mr Pham that, among other things, the foreshadowed group proceeding and any application pursuant to the Corporations Act for leave to proceed with that proceeding be filed by 28 October 2009 and entered into List B of the Commercial Court.

An affidavit was sworn by Ms Louise Hardwick, of Mills Oakley Lawyers, in the Collins Proceeding on behalf of Timbercorp Finance. Ms Hardwick gave the following evidence about the group proceeding. The group proceeding was commenced on or about 27 October 2009, by writ and statement of claim. It was commenced under Part 4A of the Supreme Court Act by Alan Rodney Woodcroft‑Brown on his own behalf and on behalf of all persons who,

(a)at any time during the period between 6 February 2007 and 23 April 2009 (the relevant period) acquired and/or held an interest in a managed investment scheme in which Timbercorp Securities was the responsible entity (scheme member);
(b)incurred a liability for management fees as a scheme member;
(c)suffered loss or damage by the conduct of the defendants (as alleged) therein;
(d)are not:
(i)defendants to the proceeding;
(ii)parents, siblings, spouses or children of the defendants;
(iii)bodies corporate of which a defendant is an officer or a majority shareholder (defendant’s company) at any time during the relevant period;
(iv)beneficiaries of any trust, the trustee of which is or at time during the relevant period was a defendant or a defendant company; and
(v)a financial planner and/or accountant who has had or has a client who is a scheme member.
(group members)

The defendants to the group proceeding were Timbercorp Limited, Timbercorp Finance, Timbercorp Securities and the directors. The relief sought against Timbercorp Finance included orders declaring that the plaintiff’s and group members’ respective loans entered into with Timbercorp Finance be declared void or otherwise unenforceable. As against Timbercorp Securities, the relief sought included orders declaring that the plaintiff and group members not be liable for any fees or costs in connection with any schemes from February 2007. Similar relief was also sought against the directors.

The solicitors for Mr Woodcroft‑Brown in the group proceeding at all times were M+K, who continued to act for him, including in the High Court special leave application. M+K remain the solicitors on the record in the group proceeding for Mr Woodcroft‑Brown. Mr Woodcroft‑Brown was not a defendant to any of the initial proceedings.

On or about 27 October 2009, Mr Woodcroft‑Brown sought leave by summons to proceed with the group proceedings against Timbercorp Securities and Timbercorp Finance. Leave was granted on condition that any judgment against those parties not be enforced without the leave of the court.

On or about 21 December 2009, M+K issued a circular to investors in the Timbercorp schemes and Great Southern MIS projects. The circular referred to a directions hearing before Judd J and said that the court wanted to hear submissions as to whether the existing claim would be expanded to include any new claims based on misleading or deceptive conduct in connection with the promotion and sale of interests in particular projects that were fundamentally flawed from the beginning.

The circular said:

We had already flagged the table grape products of 2004 and 2005 as a distinct possibility in that category. We continue examining other projects and will draw those to the attention of the court on 18 February 2010 in connection with possibly linking new claims in with the existing court proceeding.

On or about 3 June 2010, M+K issued a circular to M+K Timbercorp investors. The circular said, amongst other things, that joint submissions were being prepared ahead of the next case management hearing that addressed such things as whether there ought to be any sub-groups formed to tackle specific aspects of the case, and what is to happen with counter-claims made by any of the defendants. The circular also said that consideration would be given to the manner of dealing with any claims the defendants might want to bring against third parties.

On or about 18 June 2010, Timbercorp Finance filed and served, among other things:

(a) a defence to the group proceeding and a counterclaim against Mr Woodcroft‑Brown personally;[7]
[7]As discussed below, Mr Tomes contends that the counterclaim may have been against Mr Woodcroft-Brown representing all group members.

(b) a notice of counterclaim against Mrs Woodcroft‑Brown;

(c) a notice of counterclaim seeking indemnity and/or contribution against Timbercorp Securities and the directors; and

(d) a third party notice and statement of claim against Timbercorp Limited and entities involved in the provision of financial advice to Mr & Mrs Woodcroft‑Brown.

In the counterclaim against Mr & Mrs Woodcroft‑Brown, Timbercorp Finance claimed alleged breaches under their loan agreements and sought payment for the outstanding loans plus interest and costs.

On about 9 July 2010, Mr & Mrs Woodcroft‑Brown filed a reply in defence to Timbercorp Finance’s defence and counterclaim.

On or about 3 August 2010, M+K issued a circular to investors in Timbercorp’s schemes and Great Southern MIS projects which, among other things, referred to thought being given to the need for an early sub‑group investor representative party.

On 11 October 2010, a directions hearing was held in the group proceedings. At the directions hearing, Judd J fixed a date by which a group member could opt out of the proceeding and approved the content of the opt‑out notice. A draft order had been circulated which stated ‘you will not be able to sue on the same claim in any other proceeding.’ Judd J was informed that the parties had had discussions and the transcript records:

Mr O’Bryan: It will be bound by the outcome of the class action. Then in the last line, your Honour, where it says you will not be able to sue on, that will become make, to deal with cross claims or defences or –
His Honour: To make the same claim?
Mr O’Bryan: To make the same claim, yes. So it’s not only where you are a plaintiff of course, you’re bound in any capacity in any subsequent pleading.

The opt-out notice contained in the order provided:

If you are a group member and you do not give notice to opt out by 4.00pm on 10 December 2010, you will be taken to have not opted out and will, under Australian law, be bound by the outcome of the class action and any judgment or determination made in it. If the class action is unsuccessful or is not as successful as you might have wished, you will not be able to make the same claim in any other proceeding.[8]

[8]Mr Tomes submitted that the intended form of the order was as follows:

If you are a group member and you do not give notice to opt out by 4.00pm on 10 December 2010, you will be taken to have not opted out and will, under Australian law, be bound by the outcome of the class action and any judgment or determination made in it. If the class action is unsuccessful or is not as successful as you might have wished, you will not be able to deal with cross-claims or defences, or make the same claim in any other proceeding.

There was no discussion when the order was being considered by the court and the parties about what would happen if the group proceeding was unsuccessful and Timbercorp Finance sued group members on their loan agreements and in particular whether or not a group member would be able to raise a defence to such a claim by Timbercorp Finance that was not the subject of the group proceeding. Timbercorp Finance was separately represented by senior counsel at the hearing when the opt-out notice was settled, and it supplied the draft order that was subsequently adopted save for the amendment referred to above.

On 29 October 2010, M+K issued a circular to investors in Timbercorp’s schemes and Great Southern MIS projects. The circular dealt with the opt‑out notice, and said, in part, as follows:

•It sometimes happens that people will prefer to handle their own cases rather than be part of a group whose members will be bound by whatever decisions are made about ‘common issues’ in any trial in a class action. Other people are simply not interested in pursuing their legal rights and remedies at all.
•Presently there is a draft of 37 formulated questions, many with several parts, which will be the focus of the court’s attention in deciding on the common issues which will affect everyone participating in the case. …
•It is primarily for the benefit of the ‘go it alone’ people that the rules of court require that they be given the opportunity to exclude themselves from the coverage of the class action if they so wish. If anyone wants to exclude themselves from the coverage of the class action they will need to send a formal notice to the Supreme Court of Victoria by the advertised date. This will signal to the court that they do not wish to be counted among the people who will be bound by any decision handed down in the trial of the class action.

…
•Individual issues on an investor‑by‑investor basis would, under the class action framework, be worked through on the basis of the court’s findings upon the issues that were common to everyone.
•We do not expect many, if any, of our clients would want to opt‑out of the case. … From the very beginning of the case the situation has been that McPherson + Kelly has been retained by its clients to represent them both on an individual basis and a member of the class on whose behalf the client action has been conducted. For everyone who remains a client of McPherson + Kelly who does not send an opt‑out notice to the court we will continue handling their individual file and the ancillary class action file.

…
•You can simply ignore the formal opt‑out notice if you are happy for McPherson + Kelly to continue representing you in the class action and in the individual investor issues that are to be resolved under the claim.

On 5 November 2010, the group proceeding was fixed for trial on 3 May 2011, on an estimate of eight to ten weeks. The opt‑out notice was published in the 13–14 November 2010 edition of the Weekend Australian.

In or about December 2010, the Supreme Court registry prepared a list of those who had opted out. It recorded that over 850 persons or entities had filed opt‑out notices with the court.

In January 2011, the plaintiff in the group proceeding filed an application for leave to file and serve a fifth further amended statement of claim. The application sought, among other things, to add new causes of action concerning material non‑disclosure across a nine‑year period in relation to the financial structures of the Timbercorp Group of companies.

On 9 February 2011, at a directions hearing, Judd J ordered, among other matters, that the cross‑claims in the third party proceedings be tried separately from the main proceeding after determination of the common questions to be determined in the group proceeding set out in Annexure A to those orders.

On 11 March 2011, Judd J approved the publication of a revised opt‑out notice. The revised opt‑out notice was occasioned by amendments made to the statement of claim. The relevant warning about the consequences of not opting out was as follows:

If you are a group member then the class action will determine your rights, if any, to compensation or other relief unless you choose to opt out of the class action.

As with the first opt-out notice, the revised notice did not directly address the position of the group members in any subsequent litigation brought by Timbercorp Finance under the loan agreements against group members. This is significant as Timbercorp Finance was the author of the document in its original form.

The revised opt‑out notice was published in the 26^th to 27^th edition of the West Australian. As a result of the revised opt‑out notice, a further 250 persons or entities filed opt‑out notices, and 200 persons filed withdrawal of opt‑out notices.

On or about 21 April 2011, Mr Woodcroft‑Brown filed the sixth further amended statement of claim.

The hearing of the group proceeding commenced on 23 May 2011 and concluded in early July 2011, having approximately 23 sitting days. On 1 September 2011, Judd J delivered his reasons for judgment.

On 6 October 2011, Judd J heard submissions from the parties as to, among other things, the declarations and orders to be made by the court, including as to the common questions and the provision of notice of his Honour’s decision to group members pursuant to s 33ZH(1) of the Supreme Court Act.

According to the transcript of this hearing, no person or entity other than the plaintiff and the defendants came forward at the hearing on 6 October 2011 to be heard on the matters referred to. No group member appeared to seek directions under ss 33Q(1), 33R or 33S of the Supreme Court Act.

On 27 October 2011, Judd J delivered reasons for his decision in relation to the common questions, costs and the orders to be made in light of the decision (final decision). His Honour:

(a) made a declaration pursuant to s 33ZB(a) of the Supreme Court Act as to the persons affected and bound by the orders;

(b) approved the form and content of a notice to be given to group members of the final decision and of the orders made (judgment notice);

(c) ordered that:

(i) Mr Woodcroft‑Brown’s claim, in both his individual and representative capacity, against the defendants be dismissed;

(ii) the claim of Francis Jeremy van Hough against the defendants be dismissed;

(iii) the common questions be answered in the form attached to his order (common questions and answers);

(iv) the making of consequential orders in respect of the defendant’s third party proceedings and proceedings seeking contribution stand reserved;

(v) the making of directions with respect to the further conduct of Timbercorp Finance’s counterclaim against Mr & Mrs Woodcroft-Brown stand reserved and be adjourned sine die;

(vi) Mr Woodcroft‑Brown pay the defendants’ costs of and incidental to the claim against the defendants, including reserved costs on a party party basis

(vii) the judgment notice in the form annexed to the order was approved for the purpose of giving notice to group members of the court’s decision.

The plaintiff and Timbercorp Finance (who had filed a counterclaim against the plaintiff), agreed to stay the further hearing of the counterclaim.

On 27 October 2011, no group member appeared to seek directions under ss 33Q(1), 33R or 33S.

The plaintiff appealed from the final decision to the Court of Appeal. That appeal was dismissed in Woodcroft‑Brown v Timbercorp Securities Limited.[9] An application for special leave to appeal was made to the High Court, but was refused in Woodcroft‑Brown v Timbercorp Securities.[10]
[9][2013] VSCA 284.
[10][2014] HCA Trans 85.

Since the disposition of the High Court application, Timbercorp Finance has commenced 1,288 proceedings for the recovery of moneys owing under loans consisting of:

(a) 739 in the Supreme Court of Victoria;

(b) 297 in the County Court of Victoria; and

(c) 252 in the Magistrates’ Court of Victoria.

Of those 1,288 proceedings:

(a) 1109 remain extant as at the date of Ms Hardwick’s affidavit of 24 April 2015;

(b) M+K are the solicitors on the record in 296 proceedings, 195 of which raised defences, set‑offs and other allegations equivalent to those raised by Mr & Mrs Collins in their defence;

(c) Slater + Gordon are solicitors on the record in 16 proceedings; some of those parties raise defences, set‑offs and other allegations.

The liquidators of Timbercorp have advised that there are approximately 360 additional borrowers whose loans are in default in respect of whom proceedings are yet to be issued.

The issues in the group proceeding

In the group proceeding, Timbercorp Finance was the fifth defendant. As against it, the plaintiff and group members sought, inter alia, damages and an order declaring that the plaintiff and group members not be liable for any loans, fees or costs in connection with any of the schemes from February 2007 and that any loans entered into with Timbercorp Finance in this period as a result of the breach of statutory duty be declared void or otherwise unenforceable.

Circumstances of Collins

Mr Collins swore two affidavits on his own and his wife Janet’s behalf.

The following is the substance of Mr Collins’ evidence on which he was not challenged.

Through a completed and signed loan application form dated 12 June 2008, Mr & Mrs Collins applied to Timbercorp Finance for a loan of $51,300 for the acquisition of 10 grove lots in the 2008 early Timbercorp olive project (‘2008 Timbercorp olive project’). That amount was 90 per cent of the total cost of the lots, with Mr & Mrs Collins having themselves paid a 10 per cent deposit of $5,700 to Timbercorp Securities.

By letter dated 15 June 2008, Mr & Mrs Collins were notified that their application for finance had been accepted. Basic details of the finance were provided in a one‑page attachment to that acceptance letter.

By Confirmation Notice/Tax Invoice dated 15 June 2008, Mr Collins was advised by Timbercorp Securities that the application by him and his wife for 10 grove lots in the 2008 early Timbercorp olive project was accepted. The document confirmed the date of acquisition as 15 June 2008.

Also dated 15 June 2008, was a Timbercorp grove lot statement issued by Timbercorp Securities, which named Mr & Mrs Collins as growers in the project as to 10 grove lots. The Timbercorp grove lot statement identified the subscription amount of $57,000 as having been paid on 15 June 2008.

It also states in respect of the 10 grove lots bearing numerical suffixes 5317 through to 5326 that:

Each homogenous lot comprises part of the groves known as Boundary Bend Grove, Andersons (planted September 2006) and any one or more of the 2007 plantings situated on Ryan, Westmore and Sutton (planted September 2007). Your lots on each grove had the same suffix.

Monthly repayments of $690.22 were made to Timbercorp Finance from July 2008 to May 2009.

In respect of the financial year 2007–2008, Mr Collins received a Tax Summary Information document, dated 22 July 2008, issued by Timbercorp Securities, Timbercorp Finance and Timbercorp Limited. The document outlined that income earned by Mr & Mrs Collins in relation to the project was nil, and deductible expenditure incurred by them was $57,000 (including GST of $5,181.80).

Among the notes to that document was note 2, which stated:

In preparing this summary, Timbercorp Finance has assumed that the expenses shown above (other than depreciation on trees which are non‑cash items) have been paid in full by 30 June 2008. We recommend that you do not claim a deduction for any unpaid expenses.

Mr & Mrs Collins duly claimed a tax deduction for the amount that they believed they were entitled to claim in respect of the costs of acquiring the 10 olive grove lots.

Mr Collins accepted the documents he had received to be accurate.

Between the time that Mr Collins received the first of those documents and July 2014, Mr Collins had no reason to doubt that:

(a) he and Mrs Collins had acquired 10 grove lots as described in the Timbercorp grove lot statement as at 15 June 2008;

(b) the necessary documentation had been prepared correctly by Timbercorp Securities;

(c) he and Mrs Collins had received a loan from Timbercorp Finance in the amount of $51,300; and

(d) any money loaned to them by the plaintiff had been paid where it should have been paid in accordance with the constitution of the 2008 Timbercorp olive project.

Mr Collins did not have any knowledge of whether and if so what parcels of land were the subject of a licence agreement to which he and his wife were named parties. No licence agreement was ever provided to him or his wife for signature.

On 12 June 2009, Mr & Mrs Collins gave an authority to M+K to act on their behalf to pursue rights and remedies against the Timbercorp Group. M+K provided a retainer letter to Mr & Mrs Collins on 9 September 2009, signed by Mr Collins on 18 September 2009. Relevantly the letter provided:

(a)M+K would ‘represent [Mr & Mrs Collins’s] interests when dealing in first instance with the issues common to all participants in the class action and then with [their] unique issues within the framework of the class action‘ [1(b)];
(b)’the instructions given to Macpherson + Kelley in respect of common issues affecting all represented claimants will primarily be given by the Plaintiff named in the proceeding who instructs M+K on behalf of himself/herself and on behalf of all represented claimants.’ [2]
(c)‘[Mr & Mrs Collins] specifically instruct and retain M+K to make necessary decisions as to the procedural, investigative, preparatory, tactical and strategic decisions in relation to the conduct of the proceeding and, if specific instructions are required from anyone, then to seek those specific instructions as appropriate.’ [2]
(d)in addition to the ’class action file‘ that would be used ’for the handling of issues common to all represented claimants in the class action‘ an ’individual file‘ that would be conducted for Mr & Mrs Collins ’in relation to issues, evidence and negotiations that are unique to [Mr & Mrs Collins]’. [6]

M+K sent a letter to KordaMentha (then the administrators of Timbercorp Finance) dated 17 June 2009 on behalf of Mr Collins as trustee for D & J Consulting Superannuation Fund asserting that Timbercorp Securities had engaged in misleading or deceptive conduct and that Timbercorp Finance was involved in that misleading or deceptive conduct under s 79 of the Trace Practices Act 1974 (Cth). M+K alleged that their client suffered or was likely to suffer loss and damage by reason of having entered into loan contracts with Timbercorp Finance in reliance on the representations made by Timbercorp Securities to investors.

In that letter M&K informed KordaMentha that ‘other orders under section 87 of the Trade Practices Act’ may be sought against Timbercorp Finance including orders that ‘the loan contract between our client and Timbercorp Finance … be declared void, alternatively an order which would preclude Timbercorp from enforcing provisions of the loan contract’.

M+K wrote that:

If Timbercorp Finance takes Court action to recover arrears and default charges from our client we expect our client (and all other clients for whom we act) will instruct us to make application to the Federal Court of Australia for an injunction to stop the debt recovery actions from proceeding until such time as the Federal Court itself heard and determined our client’s claims outlined in this letter. This will allow for a single, definitive ruling to be made about the situation affecting thousands of investors who took out borrowing from Timbercorp Finance. It avoids multiplicity of investors proceedings throughout Australia and eliminates the risk of having inconsistent rulings made by different Courts in different jurisdictions about essentially the same factual circumstances.

A copy of the 17 June 2009 letter was provided to Mr Collins.

On 27 October 2009, Mr Woodcroft-Brown commenced the group proceeding. Throughout the duration of the group proceeding, M+K provided a series of reports to all possible class members, including Mr & Mrs Collins, which reports were addressed to ‘all MIS investors represented by Macpherson + Kelley’ or ‘Investors in Timbercorp and Great Southern MIS Projects’.

In some of the reports observations were made that the Timbercorp loans were invalid because Timbercorp Finance had been involved in Timbercorp Securities’ misleading and deceptive conduct. For example:

We would seek orders from the Court declaring project loans unenforceable if they were loans freshly made in 2007 or 2008. The case is that investors would not have entered into those fresh financial commitments if they had been informed by Timbercorp that it was on the verge of collapse. Our case is that Timbercorp was legally obliged to provide such critical financial information to investors. Timbercorp failed to discharge its duties in that regard.

Mr & Mrs Collins did not receive copies of the pleadings in the group proceeding nor any separate advices, and were denied any reports of or updates about the mediation discussions: ‘Confidentiality obligations imposed on all parties who attended the mediation preclude us from being able to report on the discussions held’.[11]
[11]28 April 2011 report issued by M+K Lawyers.

Mr & Mrs Collins did not assume any liability for the legal costs of the defendants to the group proceeding. As class members, Mr & Mrs Collins’ contribution to the legal costs of the group proceeding was $3,170.[12]
[12]This contribution covered the costs of the trial, the costs of the appeal to the Victorian Court of Appeal and the special leave application to the High Court.

Mr Collins did not provide instructions to M+K, nor did M+K seek instructions from him.

Among the reports Mr Collins received from M+K was a report dated 29 October 2010, which informed group members of the ‘opt-out’ procedure and further that the ‘group will be bound by whatever decisions are made about ‘common issues’ in any trial in a class action’ and that ‘the common issues will affect everyone participating in the case’. Mr Collins was content for M+K to continue representing him in the group proceeding and in respect of individual investor issues that were to be resolved under the claim. At the time, Mr Collins was not aware of any individual investor issues concerning Mr & Mrs Collins that were not covered by the common questions. Mr Collins therefore did not take any steps to opt out.

Mr & Mrs Collins’ loan agreement with Timbercorp Finance was entered into after February 2007 and was a subject of the group proceeding and included in the claim by the plaintiff on behalf of the group members (including Mr & Mrs Collins) that the loan agreement was ‘void or otherwise unenforceable’.

In November 2010, Mr Collins received a copy of the opt‑out notice, issued pursuant to the court’s order made on 11 October 2010. Nothing in that notice caused him to reconsider his decision to remain a client of M+K for the purposes of the group proceeding and individual investor issues that were to be resolved under the claim. Mr Collins remained of the belief that there were no individual investor issues concerning Mr & Mrs Collins that were not covered by the common questions.

The first opt-out notice described the claims in the group proceeding as a non‑disclosure case in the following terms:

The Plaintiff alleges that he and group members suffered financial loss because, during the period commencing 6 February 2007 and ending 23 April 2009 (“the Relevant Period”), the Defendants failed to disclose various matters that affected, or were likely to materially affect, investments made in the following Timbercorp managed investments schemes…
…
The Plaintiff also alleges that during the Relevant Period, he and group members suffered financial loss because the Defendants made false, misleading, or deceptive representations to him and to group members, in relation to the Schemes.

Following amendment to the pleading, the second opt-out notice altered the last paragraph quoted above to read as follows:

The Plaintiff also alleges that he and group members suffered financial loss because, between 4 April 2000 and 23 April 2009, the Defendants made false, misleading, or deceptive representations to him and to group members, in relation to the Schemes.”

In July 2014, M+K received from Timbercorp Securities a set of executed licence agreements in respect of the 2008 Timbercorp olive project. This was the project invested in by Mr & Mrs Collins. None of those licence agreements named Mr or Mrs Collins in the schedule.

In July 2014, M+K also received from Timbercorp Securities a series of letters variously dated May and June 2008 concerning instructions given to Trust Company of Australia Ltd (‘Trust Company’) in respect of the flow of application moneys relating to olive grove lots that had been allocated in the 2008 Timbercorp olive project. The schedules for that series of letters were redacted documents with neither Mr nor Mrs Collins’ name appearing on any of them. Mr Collins was unable to say whether his wife or he, but for the redactions, were among the identified growers in any of the schedules (to the letters) which listed persons said to have been allocated lots in the project.

On 6 March 2015, M+K received from Timbercorp Securities an executed copy of the grove lot management agreement for the 2008 Timbercorp olive project.

Throughout the conduct of the group proceeding, neither Mr nor Mrs Collins had any meetings with anyone from M+K, nor did they receive any advice from them regarding their specific circumstances. Mr & Mrs Collins had no control of the issues raised in the group proceeding. Mr & Mrs Collins had no involvement in the formulation of any of the common issues of fact or law that were determined in that proceeding. Mr & Mrs Collins had no say in how or when the counterclaim filed in that proceeding by Timbercorp would be heard or determined, or in whether and how the determination of that counterclaim would affect Mr & Mrs Collins so far as concerned the loan they had sought from Timbercorp Finance.

Mr Collins has made a search of his records for a copy of a signing page of the loan agreement with Timbercorp Finance and a standard form set of provisions described in the footer of each page as ‘Loan Explanation and Loan Terms’ issued by Timbercorp Finance. Mr Collins has been unable to find such a document and cannot recall ever seeing such a document. On 1 October 2014, M+K received from another of their clients such a document pertaining to that other client’s application for finance for acquisition of grove lots in the 2008 Timbercorp olive project.

On 15 April 2015, M+K received from Timbercorp a copy of a signing page to a loan agreement naming Mr & Mrs Collins as ‘Borrower’ and a standard form set of provisions described in the footer of each page as ‘Loan Explanation and Loan Terms’ issued by Timbercorp Finance. Mr Collins cannot recall every seeing such a signing page for he and his wife, or such a provisions document.

In the light of information provided to Mr Collins during the current financial year by M+K, as he has referred to, and in light of the amended defence his wife and he filed in the Collins Proceeding on 12 February 2015, Mr Collins anticipates it is likely the Deputy Commissioner for Taxation would reassess them for tax, without the benefit of their previously claimed deduction that was based on the Timbercorp Securities Confirmation Notice/Tax Invoice of 15 June 2008.

Mr Collins’ inclination is to write to the Australian Tax Office to disclose the things he now knows about the grove lots allocated to them and about the flow of project subscription funds (as explained further below), which he did not and could not have known at the time he lodged his tax return for the 2008 tax year. The timing for Mr Collins sending such a letter is problematic, because Timbercorp Finance’s position as he understands it is that his wife and he are not entitled to defend this proceeding at all, and in any event, their amended defence has been strongly challenged by Timbercorp Finance.

Evidence was given by Ron Willemsen, by affidavit sworn 27 April 2015, on behalf of Mr & Mrs Collins. Mr Willemsen is a principal at M+K. He has the care and conduct of this proceeding. Mr Willemsen had and continues to have the care and conduct of the group proceeding. Mr Willemsen deposed as follows.

During the conduct of the group proceeding, a directions hearing was held before Judd J on 11 October 2010. During this hearing, Judd J approved and ordered, among other things, that an opt‑out notice (as contained within annexure A to his Honour’s orders of that day) be published and sent to specified investors.

Later on 11 October 2010, Robert Downey, a principal at M+K, received from Mr Darren James of Freehills (as it was then known) an email enclosing a copy of the proposed amended opt-out notice and asking if M+K had any concerns about the proposed opt-out notice. Freehills were the solicitors for Timbercorp Finance during the Woodcroft‑Brown proceeding.

On 11 March 2011, a directions hearing was held before Judd J. During this directions hearing, Judd J approved, among other things, that a revised opt‑out notice (as contained within annexure A to his Honour’s order of that date) be published and sent to specified investors.

Mr Willemsen, by further affidavit of 29 April 2015, gave further evidence on behalf of Mr & Mrs Collins. He deposed as follows.

On 16 May 2014, Mr Willemsen wrote a letter to Arnold Bloch Leibler, as lawyers for Timbercorp Securities in respect of the 2008 Timbercorp olive project. He tendered the letter of 16 May 2014.

On 15 July 2014, Mr Willemsen received emails from Arnold Bloch Leibler in response to his letter that included certain documents. Mr Willemsen refers to the affidavit of Maureen Adele Duffy, sworn 24 April 2014. The copy of Timbercorp Securities’ clearing accounts issued by the ANZ Bank were provided to M+K on 15 July 2014 by Arnold Bloch Leibler. As for the question whether they were or were not made available for use by Mr Woodcroft‑Brown during the running of the Woodcroft‑Brown proceeding, Mr Willemsen said he could say nothing more than objection was taken by Timbercorp Finance on the ground of non‑relevance to a matter in issue in the Woodcroft‑Brown proceeding.

Mr Willemsen says that the corporate cash flow difficulties highlighted in note 1 to the Group’s financial statements for the financial year ended 30 September 2008 and at page 51 of the 2008 annual report of Timbercorp Limited, and the timing of them leading up to the collapse of the Group on 23 April 2009, occupied a large portion of the trial of the Woodcroft‑Brown proceeding. The evidence in that proceeding was focused on the ability of the corporate group to meet its cash flow needs from such sources as bank borrowings, equity fundraising and proceeds from the sale of assets. The evidence did not focus on the flow of money arising in the relationship between, on the one hand, a person who sought an investment in a Timbercorp project and Timbercorp Finance and Timbercorp Limited, on the other hand.

Collins proceedings

Under a writ dated 13 June 2014, Timbercorp Finance claims against Mr & Mrs Collins moneys outstanding under loan agreement L0026087 in respect of the 2008 Timbercorp olive project for the sum of $51,300. In the ‘Loan Explanation and Loan Terms’ which Mr Collins cannot recall seeing, clause 1 provided, inter alia, that [w]e agree to lend you the loan amount by paying it to [Timbercorp Securities] (or as it directs) as payment of the balance of your application money …’. Timbercorp Finance alleges, inter alia, that on or about 30 June 2008, the loan amount was paid to Trust Company as custodian and agent for Timbercorp Securities and thereby loaned to Mr & Mrs Collins in accordance with the terms of the loan agreement.

Timbercorp Finance alleges that between 31 July 2008 and 28 May 2009, Mr & Mrs Collins paid the first loan instalments under the loan agreement.

Timbercorp Finance alleges that on or about 1 July 2009 Mr & Mrs Collins defaulted under the loan agreement by failing to pay the instalment when due and payable.

Timbercorp Finance alleges that on 19 March 2010 it made a demand for the total amount owing under the loan agreement and that Mr & Mrs Collins have failed to meet the demand.

Timbercorp Finance says that by letter dated 2 May 2014, Timbercorp Finance wrote to Mr & Mrs Collins confirming that they remained in default of their payment obligations under the loan agreement and advising that Timbercorp intended to issue proceedings.

The plaintiff claims $90,501.68 plus costs and interest.

By a defence and counterclaim of 12 August 2014, Mr & Mrs Collins delivered a defence limited to admissions and denials. Under the counterclaim, Mr & Mrs Collins made a long and detailed claim alleging duties and breaches by Timbercorp Securities; Timbercorp Finance’s involvement in Timbercorp Securities’ alleged breaches under the Corporations Act; Timbercorp Finance’s knowing involvement in the alleged breaches by Timbercorp Securities of fiduciary duties, illegality, restitution; and unjust enrichment by Timbercorp Finance and unconscionable conduct by Timbercorp Finance. Mr & Mrs Collins claimed, inter alia, an order declaring that Mr & Mrs Collins’ loan agreement is unenforceable and void.

On 4 March 2015, Mr & Mrs Collins gave notice of their intention to discontinue the counterclaim.

By their amended defence dated 12 February 2015, Mr & Mrs Collins admit applying for the loan, but allege that, inter alia, due to the flow of the application moneys between Timbercorp entities and the lack of a valid licence agreement (as explained further below), there was no loan advanced to Mr & Mrs Collins and they did not acquire an interest in the 2008 Timbercorp olive project. It was alleged in the amended defence that, upon receiving Mr & Mrs Collins’ loan application form, Timbercorp Finance drew down upon a facility it had with the ANZ Bank in an amount equal to the alleged loan to Mr & Mrs Collins (‘Timbercorp Finance drawdown’). Timbercorp Finance then directed the ANZ Bank to pay the sum to the Trust Company, which under the direction of officers of Timbercorp Limited, instructed the moneys to be paid to Timbercorp Limited. Mr & Mrs Collins allege that upon receipt of the money, Timbercorp Limited used the moneys in the course of the conduct of its business. Mr & Mrs Collins therefore allege that the loan was not advanced by way of a payment of the Timbercorp Finance drawdown to Timbercorp Securities (‘no loan defence’).

Under the heading of ‘Mr & Mrs Collins’s defence – the project’s constitution’, Mr & Mrs Collins allege that upon accepting Mr & Mrs Collins’s application for grove lots, Timbercorp Securities was required under the 2008 olive project constitution to prepare licence agreements and a grower management agreement in accordance with the details specified in the application (under clauses 1.1 and 9.1 of the 2008 olive project constitution).

Mr & Mrs Collins allege that pursuant to clause 9.2(a) of the 2008 olive project constitution, before Timbercorp Securities could release the application moneys, Timbercorp Securities was required to reasonably satisfy itself that there were in place for Mr & Mrs Collins licence agreements and a grove lot management agreement in the form required by the 2008 olive project constitution duly entered into by all the parties (‘the clause 9.2(a) requirement’).

Under the heading ‘Mr & Mrs Collins defence – No olive grovelot licence agreements’, Mr and Collins allege that on 15 July 2014, Timbercorp Securities provided to them documents including those titled: (a) “executed Custody Agreement in respect of the Project”, (b) “executed Licence Agreement in respect of the Project”, and (c) “Grower Schedule”.

Mr & Mrs Collins allege that they could only be a party to a licence agreement in respect of the 2008 olive project if named or otherwise described in the schedule at the time the licence was executed by Timbercorp Securities as agent and attorney for and on behalf of the parties named in the schedule.

Mr & Mrs Collins allege that the schedule of the alleged licence agreement provided to Mr & Mrs Collins on 15 July 2014 does not name Mr & Mrs Collins.

Mr & Mrs Collins allege that by reason of that matter, the alleged licence failed to comply with cl 9.1(a) the 2008 olive project constitution.

Mr & Mrs Collins allege that in the circumstances, Timbercorp Securities could not at any time prior to 30 July 2008, reasonably satisfy itself of the clause 9.2(a) requirement.

Mr & Mrs Collins allege that accordingly at no time prior to 30 July 2008 were there fees payable under management or licence agreements.

In my view, neither abuse of process nor Anshun estoppel is enlivened by the defendants not opting out of the group proceeding.

I mention these points although the opt-out argument was not relied on by Timbercorp Finance. In fact the opt-out argument does not sit easily with the submissions made by Timbercorp Finance. Timbercorp Finance’s submissions rest on the assumption that a group member who has not opted out is not precluded from raising a defence not raised in the group proceeding (contrary to the view that the failure to opt out does have that effect) if the group member seeks directions or orders under ss 33Q, 33R, 33S, 33T or 33ZF in the group proceeding seeking to have the defence issues determined in the group proceedings or other proceedings as the court directs.

As discussed above, the reasoning adopted the obiter statements in Clarke v Great Southern (No 4) leads to the conclusion that by reason of not opting out the group members should be taken to have elected to be bound by the claims made in the group proceedings, and thus group members would be estopped from seeking to raise new claims not raised in the group proceedings (although arising out of related to the issues in the group proceedings) by seeking directions or orders under s 33Q, 33R, 33S, 33T or 33ZF as suggested by Timbercorp Finance.

Although Timbercorp Finance did not argue that failure to opt out, in itself, precludes the defendants from relying on the defences they now rely on, something more should be said about such an argument in the event that it is submitted that I should have dealt with this argument.

With the greatest respect, I disagree with the obiter statements in Clarke v Great Southern (No 4), that by not opting out of the group proceedings, group members are thereafter precluded from raising any subsequent claims or defences regarding the loan agreements, and the obiter statements to similar effect in Clarke v Great Southern (No 3).

In group proceedings, Anshun estoppel has its usual application to the plaintiff. In relation to group members, however, Anshun estoppel has an awkward, if any, application. This is especially so in a group proceedings regime that adopts an opt-out procedure.

It must be accepted that in any group proceeding, despite the extensive notice requirements in the Part 4A regime, there is an appreciable risk that there will be some people who are unknowingly caught by the group proceeding. That is, they are group members without realising it. As a result, they will fail to opt out and they will be bound in some way by the judgment in the group proceeding. In enacting the Part 4A regime, Parliament has decided that the unfairness occasioned to such unknowing group members is outweighed by the benefits of the opt-out regime. The premise of Part 4A is not that the notification requirements result in all potential group members being notified such that failure to opt out may be treated as a conscious decision to ‘stay in’. Rather, the premise of Part 4A is that the benefits of the opt-out regime outweigh any unfairness caused by that regime.

In my opinion, Courts should be wary of reading too much into a failure to opt out. A group member may fail to opt out because, as was said in Clarke v Great Southern (No 4) that he/she has ‘accepted that the claims as pleaded in the group proceedings represent all of the claims reasonably available to’ him/her. However, a group member may also fail to opt out because he/she did not realise he/she was a group member. There are myriad reasons why a group member may fail to opt out. It is not possible to infer from such a failure that the group member does not have any individual claims/defences or does not wish to pursue any such claims/defences. Nor does such a failure amount to a representation that the group member does not have any individual claims/defences or does not wish to pursue any such claims/defences.

Further, in circumstances where an opt-out notice does not explain the effects of Anshun estoppel, and it has not authoritatively been held that Anshun estoppel applies to preclude group members from raising individual claims/defences in subsequent proceedings, a failure to opt out does not readily support an inference that group members accepted the application of Anshun estoppel to their claims/defences.

Had Part 4A adopted an opt-in procedure, Anshun estoppel would have a much easier and more justifiable application to group members in group proceedings. In an opt-in regime, group members may more readily be assimilated to the position of parties to proceedings, and inferences may more readily be drawn from group members failing to raise related claims/defences. This is because group members would have made a conscious decision to opt in to the group proceeding.

As it is, Part 4A adopts an opt-out regime. Legislating to extend the binding effect of a judgment to individuals who are not party to a proceeding and who may not be aware of the proceeding is a radical step. It is an extension that could not be achieved without legislation, and one that should go no further than expressly provided for in the legislation.

Further arguments on Anshun

I have dealt with Timbercorp Finance’s general arguments on Anshun estoppel. In addition, Timbercorp Finance put forward submissions that some of the issues raised in the defences were in substance dealt with in the proceedings and accordingly Anshun estoppel arises by reason of those facts.

Were any of the defences resolved in the group proceedings?

As discussed above, Timbercorp Finance primarily submitted that Anshun principles gave rise to blanket preclusion of individual defences following a group proceeding. However, it also made submissions about specific features of some of the defences in question which it says warrant Anshun estoppel. It did not make clear whether it put these specifics forward as examples of how the alleged blanket preclusion would apply, or whether it put these reasons forward as additional and separate to the general rule. Nor did it make submissions about all of the individual defences raised by Mr & Mrs Collins or Mr Tomes. To the extent that it did not address a particular defence specifically, it appears that it relied on its general submissions alone. Given that Timbercorp Finance bears the onus of establishing that there is Anshun estoppel, I will not go beyond its submissions in considering aspects of the individual cases.

Timbercorp Finance concedes in its submissions that the defences now raised by the defendants were not adjudicated on in the group proceeding and for the greater part the common questions determined in Woodcroft-Brown v Timbercorp did not encompass them.

The claims against Timbercorp Finance in the group proceeding

The defendants to the group proceeding were Timbercorp Securities, three directors, Timbercorp Finance, and Timbercorp Limited. Essentially the plaintiff alleged that certain representations were made about the viability of the Timbercorp Group. It was alleged that Timbercorp Finance was a party to the representations. The representations were alleged to be in the relevant product disclosure statements. Some representations were allegedly made by omission.

Relevantly, to the claims made in the defences, one group of representations were entitled ‘TSL scheme contributions representations’. The plaintiff alleged that by reason of matters previously alleged (which I will come to) the offering of loans by Timbercorp Finance to finance the scheme contributions constituted representations that:

(a)the scheme contributions equalled or exceeded the true costs of the establishment and ongoing management of that recent scheme;
(b)the scheme members’ payment of the scheme contributions would be applied to fund the relevant scheme;
(c)the scheme contributions would be sufficient to fund the relevant scheme.

(the TSL scheme contributions representations)

There were no particulars of the representation save for the reference to paragraphs 8B, 8C and 8E, 32, 33A and 38A. Paragraphs 8B, 8C and 8E alleged that TSL and Timbercorp Finance were important companies in the Timbercorp Group that operated in tandem. Paragraphs 32, 33A and 38A alleged that Timbercorp Finance authorised TSL promoting its finance services and pleadings about the PDS statements.

The plaintiff alleged that the offering of loans by Timbercorp Finance to finance the scheme contributions constituted representations by Timbercorp Finance that:

(a)the scheme contributions equalled or exceeded the true costs of the establishment and ongoing management of that recent scheme;
(b)the scheme members’ payment of the scheme contributions would be applied to fund the relevant recent scheme;
(c)the scheme contributions would be sufficient to fund the relevant recent scheme.

(the TFL scheme contributions representations).

The plaintiff alleged that each of the TSL scheme contributions representations and the TFL scheme contribution representation was false and/or misleading in that:

(a)at the time they were made, there was no reasonable basis for making them;
(b)the scheme contributions were not sufficient to fund the relevant recent scheme.

The particulars provided in support of this plea included the following:

(c)the fact that prior to the appointment of KordaMentha as administrators of the Timbercorp Group in April 2009, the Timbercorp Group operated all Scheme cash flows through a central bank account and that fees and expenses paid in respect of one scheme were being used to fund the operations of another or other expense of the Timbercorp Group.

Under the heading of causation, the plaintiff alleged, inter alia, that in reliance on the Timbercorp Finance ‘scheme costs representations’, the plaintiff, inter alia, entered into loan agreements with Timbercorp Finance or another lender in 2007 and/or 2008 to fund scheme project payments whether in recent schemes or existing schemes.

One of the common issues of law or fact pleaded by the plaintiff was:

Whether the TFL scheme representations were made and if, so whether the TFL financial representations were misleading or deceptive in contravention of [certain statutory provisions.]

As mentioned earlier, the relief sought by the plaintiff on his own behalf and on behalf of the group members was in respect of both the alleged breaches of statutory duties and in respect of the alleged misleading and deceptive conduct that any loans entered into with TFL during the relevant period were void or otherwise unenforceable.

The learned trial judge in the group proceeding found that the TFL scheme contribution representations alleged were not made.

‘No loan’ defence

The no loan defence raised by the defendants in the instant proceedings is, in effect, that the defendants agreed with Timbercorp Finance that it would lend to the defendants a certain sum that was to be advanced to Timbercorp Securities in discharge of a liability owed by the defendants for the purchase of an interest in various schemes. The defendants allege that the loan was not made as, contrary to the agreement, the moneys were advanced to Timbercorp Group.

Timbercorp Finance says that this defence is at odds with the foundation of the group proceeding that there was a loan but that loan ought to be set aside or excused. Timbercorp Finance says that the defence is in effect an alternative defence to that pleaded in the group proceeding. Further, Timbercorp submits that there was no element of the no loan defence that precluded them being raised in the group proceeding .

As it is, the no loan defence was not raised in the group proceeding. Timbercorp Finance concedes that no issue estoppel issues are raised by it. It appears, rather, to be a twofold argument. The first aspect is the same as that discussed above: that the defendants could and should have raised this defence in the group proceeding. The second is an argument that Anshun arises because (in the view of Timbercorp Finance) this defence closely overlaps with the substance of a contradictory positive assertion made in the group proceeding.

Accordingly, if I am wrong and the defendants could have sought directions to seek to have resolved issues not raised in the group proceeding, then I accept the similarity in the issue would have been a relevant matter to be taken into account in considering whether or not the Anshun estoppel was enlivened to prevent them pleading the matter in their defence to the claim by Timbercorp Finance.

However, in my opinion, the submission of Timbercorp Finance is subject to the same response that I have made earlier when dealing with whether or not it was not unreasonable to seek directions on issues not raised in the group proceeding (on the assumption group members could, which assumption I reject).

Accordingly, I find that the defendants are not estopped under Anshun principles from now raising the issues of no loans or loan moneys not being advanced to Timbercorp Securities in their defences as it was not unreasonable for them not to raise the issue for directions for the reasons discussed above.

‘Ring-fencing’ defence

Timbercorp Finance says the ‘ring‑fencing’ defence overlaps with allegations in the group proceeding that Timbercorp Finance falsely represented to group members that payments would be applied to fund the relevant scheme. It submits that the fact that the representations in the group proceeding and those in the defences now in question are from different alleged sources is unimportant. Likewise, it submits that it is inconsequential that one is a misrepresentation claim and the other is a contractual defence.

For the reasons I have already discussed in general, and for reasons analogous to those concerning the ‘no loan’ defence, I am not persuaded that the defendants could or should have raised the ring-fencing defence for case management in the group proceeding.

Additionally, I am not persuaded that there is a risk of inconsistent judgments. Timbercorp Finance did not point to any specific finding in the group proceeding or any specific potential finding on the ring-fencing defence that might contradict each other.

One can imagine that there would have been a risk of inconsistent judgments if, for instance, Judd J had found that ring-fencing representations had been made but they were not misleading, yet a court in another proceeding subsequently found that other ring-fencing representations had been made and were misleading. However, that is not the case. Judd J found that the representations alleged in the group proceeding were not made. Even if a court now found that ring-fencing representations were made by another source, I do not see a risk of inconsistent judgments.

‘Non-recourse’ defence

Timbercorp Finance says that Mr Tomes’ ‘non-recourse’ defence is similar to the issues raised in the group proceeding in that it alleges a false representation, and that if Mr Tomes was ever to raise this issue, it should have been in the group proceeding.

For the reasons above, both in relation to the operation of Part 4A generally and analogously to the ‘no loan’ and ‘ring-fencing’ defences, I am not persuaded.

M+K retainers and correspondence

Timbercorp Finance also places significance on the retainers Mr & Mrs Collins and Mr Tomes respectively had with M+K Lawyers. It also points to correspondence from M+K to Timbercorp Finance’s liquidators and to client group members in the group proceeding. The latter includes circulars distributed by M+K to client group members, including Mr & Mrs Collins and Mr Tomes.

In part, it submits that the M+K retainers and correspondence illuminate and confirm the nature of the group proceeding. These submissions mirror those it makes directly about the group proceeding. Specifically, Timbercorp Finance says it confirms firstly the ‘non-liability’ subject matter and secondly the ‘once and for all’ approach to litigation. It says that the correspondence shows that M+K considered or intended the group proceeding to provide a ‘single definitive ruling’.

Even assuming for the sake of argument that the retainers and correspondence show that M+K considered non-liability to be the subject matter of the group proceeding, for analogous reasons to those above, that does not preclude Mr & Mrs Collins or Mr Tomes from raising the defences now in question.

As for the ‘single definitive ruling’ argument, I have some doubt that the correspondence bears out an intention that there would be no other litigation in any circumstance. It does not seem to me that M+K was suggesting that, if the group proceeding should fail and Timbercorp Finance should bring recovery proceedings, M+K intended that its clients should nevertheless abandon defences that were otherwise available to them. The comments in the correspondence are not detailed or highly developed. However, if anything, they seem to me to suggest that M+K hoped (or intended) that the group proceeding would succeed, thus resolving the matter once and for all, for instance in that success would forestall any recovery proceedings. However, even if there is doubt about what intentions the correspondence reflects, the views of a plaintiff’s solicitor cannot, without more, change what would otherwise be the legal position. Merely saying them aloud to clients or other parties does not give them force. For instance, this was not a term of settlement.[212] Accordingly, I am not persuaded that any suggestion in the correspondence that M+K saw the group proceeding as ‘once and for all’ can, of its own force, create a blanket bar on litigation or defence. Indeed, that submission would be hard to reconcile with Timbercorp Finance’s own submission that certain defences must still be available, as discussed above.
[212]I need not, and do not, express a view about the effect of such a term of settlement. I raise the example merely to note that it would raise different considerations.

Thirdly, Timbercorp Finance submits that the retainers and correspondence show that the group proceeding was to encapsulate not only common questions but also idiosyncratic individual issues. Consequently, it says that M+K had an obligation to investigate and pursue the best interests of its clients.

Without reaching a concluded view, I have some doubt that the retainers were such that M+K was supposed to deal with clients’ idiosyncratic issues within the group proceeding.

But even if that were so, Timbercorp Finance did not explain how that could translate into Anshun estoppel, rather than perhaps some cause of action between Mr & Mrs Collins and Mr Tomes. I am not persuaded that it would.

Anshun estoppel is chiefly informed by what issues were so relevant to those in the original proceeding that it would have been unreasonable not to raise them at the same time. Those issues are either relevant or not. The degree of relevance is not transformed by whether they fell within the scope of a retainer or not.

I have already found that the defences now in question are not so closely related to the group proceeding that an Anshun estoppel arises, given the context of the limited and the non-existent ability of a group member to raise additional issues under Part 4A.

Of course, preclusionary principles may still operate against a non-party who has indirect control of litigation. The scope of a retainer could plausibly speak to a person’s ability to influence or control litigation. However, that was not the case here. Mr & Mrs Collins and Mr Tomes did not have control of, or influence over, the direction of the group proceeding.

Timbercorp Finance further argues that M+K had prior awareness of the non-pooling issue and of Mr Tomes’ potential defences. However, for the same reasons as those I have expressed in relation to the issue of the retainers, I am not persuaded that any choice on M+K’s part not to pursue those matters within the group proceeding creates an Anshun estoppel where one would otherwise not exist.

Conclusion on Anshun

For the above reasons, I find that the defendants are not estopped by Anshun principles from pleading the defences in these proceedings on the two grounds: first, that Anshun was not engaged in the first place and, secondly, if it was then the carve out applied under the unreasonableness test.

Abuse of process

The relevant principles are set out above. In view of my findings with respect to the construction of the Act and the application of Anshun principles, I do not consider that the pleading of the defences to the claims of Timbercorp Finance is an abuse of process by either of the defendants.

In particular, I have found that the defendants are not estopped from raising their defences. I have found that the ‘means’ of raising their defences in the group proceeding as alleged by Timbercorp Finance was in fact not open to them. I have also found that the group plaintiff was a statutory privy only to the extent as provided by the statute under s 33ZB.

On the other hand, the defendants are entitled to their common law rights to present evidence and argue in court their defences to Timbercorp Finance’s claims. It is clearly not an abuse for them to exercise their fundamental common law rights and I so find.

The discovered documents

There is a related issue to the no loan defence that attracted a good deal of evidence in the hearing. Mr & Mrs Collins contend that they only became aware of the fact that the moneys they borrowed were not advance to Timbercorp Securities but was instead advance to Timbercorp Limited after the group proceeding had concluded.

Timbercorp Finance contends that if the documents discovered by it in the group proceeding were carefully examined by Mr & Mrs Collins, or their solicitors, Mr & Mrs Collins could have ascertained that in fact that the moneys they borrowed were not advance to Timbercorp Securities but was instead advance to Timbercorp Limited.

Timbercorp Finance sought to use this fact to support its contention that if Mr & Mrs Collins sought to argue that it was not unreasonable for them not to raise for directions the no loan defence, in answer to Anshun estoppel, then the fact that they could have discovered the true state of affairs during the group proceeding would undermine their claim.

It was assumed that Mr & Mrs Collins would be entitled to examine the discovered documents for the purpose of making a claim that was not raised in the group proceeding. No submission was made in support of this contention. There was no discussion of the Harman principles and whether or not Mr & Mrs Collins (who were not parties to the litigation)could inspect the documents to raise a claim not raised by the plaintiff in the group proceeding.

Assuming that Mr & Mrs Collins could have inspected the discovered documents and assuming that if they had inspected them they would have discovered that the loan moneys they were to borrow were not advanced as agreed, then I accept that would have been a relevant matter to be taken into account in considering whether or not the Anshun estoppel was enlivened to prevent them pleading the matter in their defence to the claim by Timbercorp Finance.

Notwithstanding those matters, if I am wrong and the defendants could have sought directions to seek to have resolved issues not raised in the group proceeding, I am still of the opinion for the reasons given earlier that it was not unreasonable for Mr & Mrs Collins not to have raised that defence for directions for the reasons I have given earlier and accordingly I find that they are not estopped under Anshun principles from now doing so in their defences to the claims of Timbercorp Finance.

Other matters

Objections were taken by the defendants to the affidavits relied on by Timbercorp on the grounds that they contained much by way of hearsay evidence. Timbercorp accepted that this was the case, but submitted that I should receive them into evidence under s 189 (3) of the Evidence Act 2008. As it is, the defendants have been successful and none of the hearsay matters were genuinely in dispute. Further the application of the provisions referred to in s 189(1) would, in my opinion, have caused or involved unnecessary expense or delay.

In making those findings I have considered the importance of the evidence in the proceeding, the nature of the proceeding and the probative value of the evidence. In my opinion, the defendants have not been prejudiced in the conduct of the proceeding by the admission of the plaintiff’s affidavit material.

General considerations

I accept that if the defendants (and other group members) are entitled to raise individual defences that Timbercorp Finance will be faced with long and lengthy litigation. I also accept that this may put great stress on the resources of the Court. Nevertheless, for the reasons given, I do not find that the defendants should be denied the opportunity to maintain the defences that they do against the claims made against them by Timbercorp Finance. The principle of legality is, of course, the rule of statutory construction that Parliament does not intend to interfere with common law rights and freedoms unless such an intention is demonstrated by clear and unequivocal language.[213] It was described by French CJ in Momcilovic v The Queen[214] as follows:

42The common law in its application to the interpretation of statutes helps to define the boundaries between the judicial and legislative functions. That is a reflection of its character as "the ultimate constitutional foundation in Australia". It also underpins the attribution of legislative intention on the basis that legislative power in Australia, as in the United Kingdom, is exercised in the setting of a "liberal democracy founded on the principles and traditions of the common law." It is in that context that this Court recognises the application to statutory interpretation of the common law principle of legality.
43The principle of legality has been applied on many occasions by this Court. It is expressed as a presumption that Parliament does not intend to interfere with common law rights and freedoms except by clear and unequivocal language for which Parliament may be accountable to the electorate. It requires that statutes be construed, where constructional choices are open, to avoid or minimise their encroachment upon rights and freedoms at common law. The range of rights and freedoms covered by the principle has frequently been qualified by the adjective "fundamental". There are difficulties with that designation. It might be better to discard it altogether in this context. The principle of legality, after all, does not constrain legislative power. Nevertheless, the principle is a powerful one. It protects, within constitutional limits, commonly accepted "rights" and "freedoms". It applies to the rules of procedural fairness in the exercise of statutory powers. It applies to statutes affecting courts in relation to such matters as procedural fairness and the open court principle, albeit its application in such cases may be subsumed in statutory rules of interpretation which require that, where necessary, a statutory provision be read down so as to bring it within the limits of constitutional power. It has also been suggested that it may be linked to a presumption of consistency between statute law and international law and obligations.

[213]Momcilovic v The Queen (2011) 245 CLR 1, per French CJ at [43]–[44]; Watson v AWB Ltd (2009) 181 FCR 96; and Re Australian Property Custodian Holdings Limited (in liquidation) (receivers and managers appointed) No 3 [2013] VSC 154.

[214]Momcilovic v The Queen (2011) 245 CLR 1, [42].

The opportunity for Mr & Mrs Collins and Mr Tomes to raise their individual defences falls within such a right. As the High Court of Australia held in Tomlinson v Ramsey Food Processing Ltd:

It is a principle at the core of our legal system that a party claiming or denying the existence of a legal right or obligation should have an opportunity to present evidence and arguments to establish the facts and law on which the claim or denial is founded.[215]

[215][2015] HCA 28, per French CJ, Bell, Gageler and Keane JJ at [38].

As is evident from the detailed discussion of the legislation above, there is no clear and unequivocal language indicating such an intention in Part 4A. On the contrary, the silence speaks volumes, and the detailed provisions are far more easily reconciled with the view that Part 4A does not so operate.

Timbercorp Finance referred to what may be important consequences arising from the decision in the proceedings before me. Timbercorp Finance submits that the position contended for by it would prevent inappropriate and wasteful re-litigation of subject matter properly within the scope of a group proceeding. Timbercorp Finance contends that to any extent to which the position it argues for tended to encourage the raising of further matters within the confines of a given group proceeding, that would be both positively desirable given the policy which Timbercorp Finance says underlines the Act (to resolve all issues arising out the matter) and as a matter of practicality would readily be able to be managed in the appropriate fashion by the court in particular proceedings pursuant to the broad and flexible case management powers bestowed under Part 4A of the Act.

I do not agree. For a start, the court does not have broad and flexible case management powers bestowed on it under Part 4A as I discuss above. More importantly, the approach of Timbercorp Finance would be to deny individual investors (many of whom have suffered badly through the mismanagement of the Timbercorp Group) their day in court (which every person is otherwise entitled to at common law) to resist the claims of Timbercorp Finance which if successful will only add to the woes of the investors.

In my opinion, to require all the individual defences to be dealt with in the group proceeding would be to undermine the main purpose of group proceedings which is to resolve common issues between prospective plaintiffs against a prospective defendant to avoid a multiplicity of proceedings on the same common issues.[216] In fact as discussed above, under Part 4A that may not be permissible in respect of some individual defences where the plaintiff and six other group members do not have such a defence.
[216]Mobil v State of Victoria, [12] per Gleeson CJ.

Preliminary questions answered

For these reasons, I would answer the preliminary question in each of proceeding no 2972 of 2014 and 4921 of 2014 as follows: the defendants are not precluded from raising any of the defences pleaded to the claims of Timbercorp Finance in the proceeding; and I so order.

I will hear the parties on costs.

[2015] VSC 461

2 September 2015