FEDERAL COURT OF AUSTRALIA

Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471

ORDERS

THE COURT ORDERS THAT:

1.    The application made by the plaintiff for leave to proceed against the first defendant pursuant to s 500(2) of the Corporations Act 2001 (Cth) be refused.

2.    The plaintiff pay the first defendant’s costs of and incidental to that application.

3.    There be no orders as to the costs of that application as between the plaintiff, on the one hand, and the second and third defendants, on the other hand.

4.    The Interlocutory Application filed by the plaintiff on 18 December 2015 be dismissed.

5.    The plaintiff pay the second defendant’s costs of and incidental to that Interlocutory Application.

6.    There be no orders as to the costs of that Interlocutory Application as between the plaintiff, on the one hand, and the first and third defendants, on the other hand.

7.    The proceeding be listed for case management on a date to be fixed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FOSTER J:

1    On 23 December 2014, the plaintiff, Rushleigh Services Pty Ltd (Rushleigh) commenced this proceeding against Forge Group Ltd (In Liquidation) (Receivers and Managers Appointed) (Forge). At that time, Forge was subject to the control of receivers and managers and also in liquidation. It was the only defendant in the proceeding at the time when this proceeding was commenced.

2    This proceeding is a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The group upon whose behalf Rushleigh sues are those persons or entities who:

(a)    purchased shares in Forge on the Australian Securities Exchange (ASX) at any time during the period from 7 March 2012 to 1 November 2013 (the relevant period);

(b)    have entered into a litigation funding agreement with IMF Bentham Limited; and

(c)    are alleged by Rushleigh to have suffered loss or damage by reason of the contravening conduct adumbrated in the current iteration of Rushleigh’s Statement of Claim.

Certain related or associated parties are excluded from the definition of the relevant group. It should be noted that some of the group members may no longer be shareholders in Forge.

3    In the original iteration of its Statement of Claim, Rushleigh complained that Forge failed to comply with the continuous disclosure requirements imposed upon it by s 674 of the Corporations Act 2001 (Cth) (Corps Act) and also engaged in misleading and deceptive conduct or conduct that was likely to mislead or deceive in contravention of s 1041E of the Corps Act, s 1041H of the Corps Act, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and s 18 of the Australian Consumer Law. It claimed declaratory relief, statutory damages, statutory compensation, interest and costs.

4    Rushleigh did not obtain the leave of the Court to proceed against Forge prior to filing its Originating Application. Rather, in Prayer 1 of the claims for relief made by it in that Application, it sought a declaration pursuant to s 471B of the Corps Act that it have leave, nunc pro tunc, to issue the proceeding against Forge.

5    Subsequently, Rushleigh amended its claim for leave to proceed in order to rely upon s 500(2) of the Corps Act instead of s 471B of that Act. Because the liquidation of Forge is a creditors’ voluntary liquidation, s 500(2) of the Corps Act is the correct source of power for the grant of the leave to proceed sought by Rushleigh.

6    When this proceeding was first returned before the Court, Forge informed the Court that it opposed the grant of leave to proceed as sought by Rushleigh. For this reason, I fixed the hearing of that Application for 10 April 2015 and made appropriate timetabling orders.

7    On 10 April 2015, after the leave to proceed hearing had progressed for some little time, the parties agreed to adjourn the further hearing of that Application pending the outcome of further endeavours on behalf of the liquidators of Forge to obtain funding in order to bring proceedings against the directors of Forge for essentially the same matters as were the subject of the allegations made by Rushleigh in the Statement of Claim filed by it in the present proceeding. The parties’ agreement to adjourn the leave to proceed hearing was brought about by certain submissions made at that hearing by Senior Counsel for Forge to the effect that granting leave to proceed to Rushleigh would be an exercise in futility in the event that the liquidators of Forge were able to secure litigation funding in respect of foreshadowed proceedings against the directors of Forge. Forge had submitted the grant of leave to proceed to Rushleigh would upset the subordination of shareholder claims effected by s 563A of the Corps Act, at least while Forge itself has a viable claim against its directors.

8    Rushleigh’s application for leave to proceed was stood out of the list for some considerable time in order to enable the liquidators of Forge to pursue litigation funding.

9    By December 2015, it had become apparent that the hoped-for funding was not likely to be secured.

10    In the meantime, on 21 September 2015, Rushleigh obtained the leave of the Court to join Peter Geoffrey Hutchinson and David Michael Simpson as the second and third defendants in this proceeding. Mr Hutchinson had been a Director of Forge, and the Executive Chairman and Managing Director of Forge, at all material times until July 2012. Mr Simpson had been a Director of Forge and the Managing Director of Forge at all material times from 9 July 2012. At the same time, Rushleigh was given leave to amend its Originating Application and Statement of Claim in accordance with drafts of those documents provided to the Court and to Forge in early September 2015. Those amendments were not confined to amendments made as a consequence of the joinder of Messrs Hutchinson and Simpson.

11    In late 2015, Rushleigh reactivated its application for leave to proceed. In addition, by an Interlocutory Application filed on 18 December 2015, Rushleigh sought the following relief:

1.    Pursuant to section 5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), or alternatively section 1337H of the Corporations Act 2001 (Cth), [this] proceeding be transferred to the Supreme Court of New South Wales.

2.    The costs of [this] proceeding to date and the costs of this interlocutory application to be costs in the cause.

3.    Such further or other orders as the Court considers appropriate.

12    By these Reasons for Judgment, I determine Rushleigh’s application for leave to proceed against Forge and Rushleigh’s application to transfer this proceeding to the Supreme Court of NSW. I note that Forge continues to oppose the grant of leave to proceed against it and that Messrs Hutchinson and Simpson neither consent to nor oppose the grant of such leave although Mr Hutchinson did make a submission suggesting that leave to proceed should be refused unless and until Rushleigh provides a proper and adequate explanation as to how the litigation will proceed if leave to proceed is granted. Mr Hutchinson opposes the transfer of the proceeding to the Supreme Court of NSW whereas both Forge and Mr Simpson are agnostic about such a transfer. I leave aside for the moment all questions of costs in respect of the two applications with which I am dealing.

Leave to Proceed

The Relevant Principles

13    Section 500(2) of the Corps Act provides:

500    Execution and civil proceedings

…

(2)    After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

14    The legislation is silent as to the relevant principles to be applied to the determination of an application for leave to proceed pursuant to s 500(2) of the Corps Act.

15    In Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314 at 315–317, McPherson J, when sitting as a judge of the Full Court of the Supreme Court of Queensland, summarised the relevant principles. I extract the following relevant propositions from his Honour’s summary:

(a)    A decision granting or refusing leave to proceed against a corporation in liquidation involves the exercise of a judicial discretion;

(b)    The prohibition against commencing or proceeding with an action or other proceeding against a company once a winding up order is made or the company is placed into liquidation is a feature of companies legislation of long standing;

(c)    Without the relevant restriction, a corporation in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well as in some cases completely unnecessary. This explanation has been accepted in a number of Canadian cases and was also accepted by Street J in Re AJ Benjamin Ltd (In Liq) [1969] 2 NSWR 374 at 376, (1969) WN (Pt 1) (NSW) 107 at 109–110;

(d)    Generally, what is substituted for litigation in the ordinary form is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a judge who determines that appeal de novo;

(e)    A claimant should proceed by way of lodgment of a proof of debt unless he or she can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute; and

(f)    It is impossible to state in an exhaustive manner all of the circumstances in which leave to proceed may be appropriate. However, in the past, those circumstances have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved and the stage to which the proceedings, if already commenced, may be progressed.

16    These remarks of his Honour were approved by the Full Court of this Court (Wilcox, Burchett and Beazley JJ) in Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 at 554–555.

17    In Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22], I said:

In Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484, Lee J discussed the relevant considerations which should ordinarily guide the exercise of the discretion to grant leave to proceed against a corporation in liquidation. The following considerations may be extracted from his Honour’s judgment:

(a)    The purpose of having a requirement for leave is to prevent a corporation in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily.

(b)    In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate in respect of the particular claim, to proceed by way of action.

(c)    For leave to be granted, it must be shown that there is a serious or substantial question to be tried and a real dispute between the parties. Leave will not be granted where the applicant does not have a genuine claim or where the claim would be futile.

18    One factor of importance in deciding whether leave to proceed should be granted is whether the relevant corporation was insured against the liability in respect of which the plaintiff is suing (Re Sydney Formworks Pty Ltd (In Liq) [1965] NSWR 646 at 651; (1965) 82 WN (Pt 1) (NSW) 558 at 564 per McLelland CJ in Eq).

19    The question of whether leave should be granted nunc pro tunc also arises for consideration in the present case.

20    No party took any particular point about this. It seemed to me that the defendants accepted that, if leave to proceed were granted, there was no reason not to grant it nunc pro tunc. Nonetheless, the Court must be satisfied that an order in those terms would be appropriate.

21    There is a substantial body of authority which supports the proposition that the Court has jurisdiction to grant leave nunc pro tunc to commence an action instituted in contravention of s 500(2) of the Corps Act. Those authorities were referred to by Zeeman J in Oceanic Life Ltd v Insurance & Retirement Services Pty Ltd (In Liq) (1993) 11 ACSR 516 at 521. Further, in Bell Group Ltd v Westpac Banking Corp (2000) 104 FCR 305 at 317–320 [43]–[58], Carr J explained why the failure on the part of a plaintiff to obtain leave under s 471B of the Corporations Law did not preclude this Court from having jurisdiction in a proceeding commenced without leave. That reasoning applies equally to s 500(2) of the Corps Act.

22    One case referred to and followed by Carr J in Bell Group Ltd v Westpac Banking Corp was Re Sydney Formworks Pty Ltd (In Liq). In that case, [1965] NSWR at 649–650, 82 WN (Pt 1) (NSW) at 562, McLelland CJ in Eq said:

The result of the cases on the Companies Acts which I have mentioned is that the section cannot be pleaded in bar to the action and that the court administering the liquidation may give leave, if it thinks proper to do so, to continue an action which has been commenced without leave.

This view is in keeping with what I consider to be the obvious intention of the section, namely, to ensure that the assets of the company in liquidation will be administered in accordance with the provisions of the Companies Act and that no person will get an advantage to which, under those provisions, he is not properly entitled, and to enable the court effectively to supervise all claims brought against the company which is being wound up.

23    His Honour explained in that passage that one of the options for the Court when considering a leave to proceed application is to grant leave to continue an action which was commenced without leave and thus simply ignore the question of whether leave to commence the action should also be granted.

24    After considering three additional NSW authorities, his Honour said ([1965] NSWR at 651, 82 WN (Pt 1) (NSW) at 564):

I am clearly of opinion that this Court in the present case has jurisdiction now to make an order that will enable the action for damages against the company to continue, whether the order be couched in terms simply giving leave to continue with the action or in terms that the applicant may be at liberty nunc pro tunc to commence the action …

25    In light of the above authorities, I am of the opinion that, insofar as the present proceeding includes claims against Forge by Rushleigh, the proceeding is within the jurisdiction of this Court. That is, this proceeding has been validly commenced. No-one suggested otherwise.

Rushleigh’s Claims in the Present Case

26    In its Amended Statement of Claim filed on 21 September 2015 (ASOC), Rushleigh makes the following allegations:

(a)    In March 2012, Forge made a number of false representations concerning its acquisition of a company called CTEC Pty Ltd and the amount that that acquisition was likely to contribute to the revenue of Forge for the 2012 and 2013 Financial Years;

(b)    In March 2012, Forge also made a number of false representations as to the contribution to its earnings likely to be made from its contract to construct a power station near Mt Isa, Qld, to be known as the Diamantina Power Station (the DPS project);

(c)    As at 7 March 2012, and at all material times thereafter, Forge was aware that its guidance of forecast revenue and earnings to be achieved from the DPS project for the 2012 Financial Year was unreliable;

(d)    Forge falsely represented that it had complied with its statutory obligations under the Corps Act and the ASX Listing Rules in that its Annual Report and Results Report for each of the 2012 and 2013 Financial Years did not give a true and fair view of its financial position and performance;

(e)    As at late September 2013, and at all material times thereafter, Forge was aware that there was a real risk of significant margin erosion as a result of cost overruns and delays in the DPS project and in the West Angelas Power Station project for which a subsidiary of Forge was responsible; and

(f)    Throughout the relevant period, Forge was aware that it was not complying with the continuous disclosure regime laid down by s 674 of the Corps Act.

27    As mentioned at [3] above, Rushleigh relies upon various statutory remedies founded upon contraventions of the Corps Act and the ASIC Act.

28    Specific allegations of a similar kind are made against both Mr Hutchinson and Mr Simpson. In very general terms, the allegations made against those two gentlemen concern the same subject matter as underpins the allegations made against Forge itself.

29    It is correct to say, as Rushleigh does, that the allegations made in the ASOC against Forge are not precisely the same as those made in that pleading against Mr Hutchinson and Mr Simpson. They are, in truth, however, substantially the same. Moreover, given the particulars of the false representations and contravening conduct provided in the ASOC, it is very likely that, if Forge were to be found liable to Rushleigh, both Mr Hutchinson and Mr Simpson will also be found liable to Rushleigh. Each of them was, for a time, the most senior executive and a director of Forge. Mr Hutchinson was also the Executive Chairman of Forge. It is very likely that each of them would have been well aware of the representations that were made by Forge as alleged in the ASOC (if those representations are found to have been made) and that each of them was also alive to the requirements of s 674 of the Corps Act. No doubt it is their knowledge of the true position and perhaps that of others that will be relied upon to sheet home liability to Forge. In the circumstances which I have outlined, it is unlikely that Forge would be held liable in respect of the contraventions alleged in the ASOC against it and, at the same time, that the individuals would be found not to be liable in respect of the contraventions alleged against them.

30    The views which I have expressed at [29] above are, of necessity, preliminary. I have looked at the likely working out of this situation as between Forge and its directors only for the purpose of considering and determining whether there is any utility in granting to Rushleigh leave to proceed against Forge, and for no other purpose.

31    In par 8 of its Written Submissions dated 23 December 2015 filed in support of its transfer application, Rushleigh said that, if its transfer application is successful, it intends to amend its claim, including so as to seek declaratory relief under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMPA) against Ace Insurance Limited (ACE) which was the insurer under the Forge directors and officers policy for the relevant period (viz 2013–2014) (the D&O policy).

32    The D&O policy is a claims made policy. Excess layers are provided by Allianz Australia Insurance Limited (Allianz) and Axis Speciality Europe SE (Axis).

33    By the time of the second hearing before me, Rushleigh had decided not to apply to amend the ASOC and its Amended Originating Application filed in this Court. Its preferred course was to effect an amendment to its claims after this proceeding is transferred to the Supreme Court. To this end, Rushleigh placed before the Court a draft of a Summons and Commercial List Statement which it proposes to seek leave to file in the Supreme Court if the matter is transferred to that Court. The defendants named in that draft are Forge, Mr Hutchinson, Mr Simpson, ACE, Allianz and Axis.

34    In its draft Commercial List Statement, Rushleigh claims a declaration that the liability of Forge, Mr Hutchinson and Mr Simpson to Rushleigh and the group members (as defined) is a charge on all insurance monies that are or may become payable to Forge, Mr Hutchinson and Mr Simpson (including, in particular, under the D&O policy) and an order that the insurers pay the charged monies to Rushleigh and the group members. That claim is supported by a more detailed exposition of the basis of the claim later in the draft.

35    The balance of the draft contains the same allegations as are made in the ASOC.

36    In an affidavit affirmed by him on 17 December 2015, Timothy Michael Luke Finney, who is the solicitor at Slater and Gordon Limited with the carriage of this matter, said (at par 8) that:

I estimate that the total value of loss and damage of claimants [sic] … may be up to approximately $100 million plus interest and costs.

37    Mr Finney did not explain how he arrived at that “estimate”. The figure of $100 million exceeds the level of cover provided to all insureds under the D&O policy and the excess layers by a significant amount.

The Present Position

38    The forensic landscape has changed substantially since the 10 April 2015 hearing.

39    First, Messrs Hutchinson and Simpson have been joined as defendants to this proceeding. This step appears to have been taken to circumvent the issues raised at the 10 April 2015 hearing and in the Written Submissions prepared for that hearing concerning the order of priority in which the D&O policy will respond to Rushleigh’s claims. Clause 5.12 of the D&O policy requires that payments by way of indemnity in respect of claims made against the directors and officers of Forge should be paid in priority to (inter alia) the payment of claims made against Forge itself. By joining Messrs Hutchinson and Simpson and making claims against them, Rushleigh has ensured that its claims against Messrs Hutchinson and Simpson as directors of Forge will not be subordinated to Forge’s claims against the same individuals (should such claims ever be made) and will be paid in priority to its claims against Forge itself (if successful). This step effectively means that Rushleigh’s claims against Messrs Hutchinson and Simpson will rank equally with Forge’s claims against those persons if and when the question of the order of payments under the D&O policy is required to be considered. The joinder of Messrs Hutchinson and Simpson effectively removed the priorities arguments in respect of payments under the D&O policy from the contest as to whether leave to proceed against Forge itself should be granted. Those arguments had been the main focus of the 10 April 2015 hearing and of the Written Submissions prepared for that hearing. Other arguments based upon s 563A of the Corps Act remain in play although it may not, in the end, be necessary to deal with them in any detail.

40    In any event, it is now quite clear that the liquidators of Forge have not secured funding to sue the directors of Forge and that it is now very unlikely that they will ever be in a position to mount such a case.

41    Second, Rushleigh has informed the Court that it proposes to sue ACE, Allianz and Axis in order to enforce its statutory charge under s 6 of the LRMPA. It contends that it can only do so in the Supreme Court of NSW because of the NSW Court of Appeal decision in Chubb Insurance Company of Australia Limited v Moore (2013) 302 ALR 101 (Chubb). In that case, the Court of Appeal held that s 6 of the LRMPA applies only to claims brought in a Court in NSW and thus cannot be engaged in this Court.

42    Rushleigh has modified its claim for leave to proceed against Forge since the 10 April 2015 hearing. As at the date of that hearing, Rushleigh pressed for a grant of unconditional leave to proceed although it was prepared to accept a number of conditions on that leave, if the Court considered such an approach to be appropriate. For example, it was prepared to agree to:

(a)    Exempting the liquidators of Forge from filing pleadings;

(b)    Leave extending only to obtaining judgment with a prohibition on enforcing such judgment without the further leave of the Court.

43    However, Rushleigh was not prepared to forego discovery from Forge. It offered to fashion a protocol to minimise the costs of discovery.

44    Now Rushleigh is prepared to accept that Forge ought not be required to file pleadings, affidavit material or otherwise participate in the proceeding. It wants the opportunity to obtain judgment against Forge and wishes to preserve its right to apply for an order for discovery. It has propounded a complex and sophisticated protocol for dealing with discovery.

45    On 28 July 2015, Swiss Re International (Swiss Re) and QBE Insurance (Australia) Ltd (QBE) commenced a proceeding in the Supreme Court of NSW against some of the former directors of Forge as well as against ACE, Allianz and Axis. Mr Simpson is a defendant in that proceeding. Mr Hutchinson is not a party to that proceeding. I shall refer to that proceeding as “the Swiss Re proceeding”.

46    As submitted by Rushleigh, the Swiss Re proceeding concerns surety bonds that Swiss Re and QBE allegedly provided for the benefit of Forge. In this connection, it is alleged that:

(a)    In the period from November 2013, Forge and certain of its directors made representations to Swiss Re and to QBE including in respect of Forge’s financial position, its solvency and its access to cash. It is also alleged that Forge and certain of its directors failed to disclose certain matters to Swiss Re and to QBE;

(b)    The representations allegedly made by Forge and certain of its directors, or their non-disclosures, were misleading or deceptive; and

(c)    As a result of that alleged misleading and deceptive conduct, Swiss Re and QBE issued surety bonds in November and December 2013 and again in January 2014. Those bonds were called on, with the effect that Swiss Re and QBE were required to pay amounts to the persons holding the benefits of the bonds. Those matters are alleged to constitute loss or damage suffered by Swiss Re and QBE as a result of the contravening conduct on the part of the defendants. The amount of compensation sought by Swiss Re and QBE exceeds $150 million, before interest and costs.

47    To some degree, there is an overlap in the allegations made in this proceeding and those made in the Swiss Re proceeding, although the period of overlap is very short.

48    It is clear that, should Swiss Re and QBE be successful against the directors of Forge, those directors will most likely be covered under the D&O policy. The directors’ claims to indemnity under that policy will take priority over any claim which Forge itself might have under the D&O policy.

Consideration

49    Rushleigh contends that there is a serious question to be tried in respect of the claims which it makes in the ASOC. Subject to its argument based upon s 563A of the Corps Act, Forge does not dispute this.

50    Rushleigh also argues that the balance of convenience favours the grant of leave.

51    It says that the D&O policy responds to its claims against Forge because those claims fall within the definition of Securities Claim as defined in Endorsement 4 forming part of the D&O policy. This is not in dispute. Thus, it is common ground that both Forge and its directors are insured under the D&O policy. This common ground reflects a correct interpretation of the D&O policy.

52    However, the claims against the directors of Forge in this proceeding will (if successful) almost certainly exhaust all levels of cover under the D&O policy leaving Forge itself with no access to the indemnity provided to it under that policy. The claims made against the directors in the Swiss Re proceeding also have the very real potential to exhaust the entire proceeds of the D&O policy including the excess layers.

53    The D&O policy is a costs inclusive policy (see cl 5.5). Thus, the policy proceeds will be diminished by the payment of the liquidators’ costs and the directors’ costs.

54    Further, as far as the evidence before me goes, it is very unlikely that there will be any return to the general body of unsecured creditors of Forge. There was some evidence before me to the effect that Forge was intending to commence a number of proceedings which had the potential to recover for Forge approximately $490 million. Based upon this evidence, Mr Finney speculated in his affidavit that the prospect of a return to unsecured creditors cannot be ruled out.

55    The evidence to which I have referred at [54] above was very general and, in my judgment, should be accorded very little weight. It only spoke to the position as at October 2015 and was entirely speculative in nature. It was not brought up-to-date nor was it fleshed out with any detail.

56    I am not persuaded that there is any real prospect of any return to the general body of unsecured creditors of Forge.

57    In a Written Submission filed by Forge on 8 February 2016, Forge advanced a number of submissions as to why, in light of the present circumstances, the Court should not grant to Rushleigh leave to proceed against it. Those submissions may be summarised as follows:

(a)    By joining Messrs Hutchinson and Simpson to the present proceeding, Rushleigh has created a satisfactory pathway to securing the proceeds of the D&O policy for itself and the group members without having to negotiate the potential impediment constituted by the payment priority set out in the D&O policy viz that payments required to be made by way of indemnity of the individual directors are to be made in priority to payments required to be paid by way of indemnity to Forge. Thus, since the joinder of Messrs Hutchinson and Simpson, Rushleigh is not required to obtain a judgment against Forge in order to access the proceeds of the D&O policy;

(b)    Rushleigh’s proposal to join the insurers, ACE, Allianz and Axis, provides an even more direct pathway to the proceeds of the D&O policy. This is another reason for refusing leave to proceed against Forge itself;

(c)    If, as seems highly probable, there will be no funds available in the liquidation of Forge to distribute to unsecured creditors, there will be no utility in proceeding against Forge because such a course will not produce any financial benefit to Rushleigh;

(d)    If Forge is correct as to the operation of s 563A of the Corps Act, proceeding against Forge is pointless. Leave to proceed will involve the needless diminution of Forge’s resources. The liquidators of Forge are duty bound to realise the company’s assets for the benefit of the company’s actual creditors and to analyse and, if appropriate, to defend Rushleigh’s claim against Forge. The liquidators cannot, consistent with their duties, leave the claim undefended if there is a reasonably arguable defence;

(e)    Rushleigh’s “half way house” (viz leave to proceed on conditions) should be rejected as unworkable;

(f)    The prosecution of other litigation (including the Swiss Re proceeding) will inevitably erode the proceeds of the D&O policy. Such erosion should be minimised;

(g)    Rushleigh has advanced no good reason as to why it should be granted leave to proceed against Forge. Its main interest in doing so seems to be to secure the benefit of discovery as against Forge in order to bolster its prospects against Messrs Hutchinson and Simpson. In light of all of the other relevant factors, seeking leave to proceed in order to secure the benefits of discovery is not a good reason for leave to be granted. There is no reason why the production of relevant documents cannot be secured by the issue of subpoenas; and

(h)    No reason has been demonstrated for allowing Rushleigh and the group members to circumvent the proof of debt process in the circumstances of the present case.

58    Rushleigh endeavoured to meet the above submissions in a lengthy Written Submission filed on 15 February 2016. I shall now address those submissions.

59    Rushleigh submitted that I should proceed upon the basis that the liquidators of Forge are unlikely to obtain funding for proceedings against the directors of Forge and, for that reason, such a proceeding is not likely ever to be commenced by the liquidators. As I have already mentioned, I agree with that assessment.

60    Rushleigh submitted that its claims against Messrs Hutchinson and Simpson are narrower than its claims against Forge although there is considerable overlap between the two sets of claims. In its Written Submissions, Rushleigh endeavoured to demonstrate its proposition that the claims against Forge are wider and, in some respects, different from those made against Messrs Hutchinson and Simpson. There was an air of unreality about these submissions. However, even if I were to accept them, I have difficulty in also accepting the ultimate proposition advanced by Rushleigh that, simply because its claims against Forge are wider than those which it makes against Messrs Hutchinson and Simpson, there is continuing utility in the maintenance of its claims against Forge. Perhaps the unstated assumption in this last proposition is that Rushleigh’s claims against Forge may yield a larger money award. There was no evidence to support such a proposition. In any event, as I have already noted, Rushleigh’s claims against Messrs Hutchinson and Simpson (if successful) will almost certainly exhaust the amount of cover provided under the D&O policy to all insured parties thereunder, as will the claims made by Swiss Re and QBE in the Swiss Re proceeding.

61    For reasons which I have already discussed at [54]–[56] above, I am not at all persuaded that the foreshadowed litigation against Clough Operations Pty Ltd and other persons is likely to swell the coffers of Forge to such an extent that the general body of unsecured creditors might receive a return.

62    In answer to the submissions made by Forge in respect of Rushleigh’s proposal to join the insurers under the D&O policy to the present proceeding, Rushleigh made the curious submission that there was no certainty that those insurers would actually be joined as parties to this proceeding and that, in any event, no application to join those insurers had yet been made. Rushleigh went on to submit that, if the insurers under the D&O policy were joined as parties to this proceeding, Forge could effectively drop out of the proceeding and leave the defence of Rushleigh’s claims to the insurers.

63    In circumstances where Rushleigh has not yet taken any steps to progress the joinder of the insurers to this proceeding and now takes the position that it will not do so, these submissions should be rejected out of hand.

64    Rushleigh went on to submit that, if it is confined to the proof of debt process, there is a real potential for inconsistent findings to be made by different judges of this Court in relation to the same subject matter. In this context, the hypothesis was that there could be an appeal from the liquidators’ rejection of a proof of debt giving rise to relevant findings which might cover the same general subject matter as findings made by this Court in the narrower claims made against Messrs Hutchinson and Simpson in this proceeding. In circumstances where the liquidators are unlikely to initiate a proof of debt process (because there is no point in doing so), this potential for inconsistent findings is entirely speculative. This submission made by Rushleigh should also be rejected.

65    Rushleigh submitted that it was more likely than not that the insurers would pay the liquidators’ legal costs in defending the present proceeding. I agree. However, payment of these costs will inevitably diminish the available pool of funds to the various claimants on the D&O policy.

66    Rushleigh again placed reliance upon the simple proposition that the existence of a responsive insurance policy is an important factor that weighs in favour of the grant of leave to proceed. In many cases, that contention may be true. However, in the present case, it is fairly obvious that Forge itself will not secure practical access to the proceeds of the D&O policy because those proceeds will be exhausted in paying by way of indemnity the liabilities which Rushleigh will (if successful) establish by way of judgment against Messrs Hutchinson and Simpson and those which Swiss Re and QBE will (if successful) establish against the director defendants in the Swiss Re proceeding.

67    Finally, Rushleigh emphasises its desire to secure discovery from Forge as a proper reason for the Court to grant leave to proceed.

68    As the authorities make clear, a claimant should proceed by way of lodgment of a proof of debt unless he or she can demonstrate that there is some good reason why departure from that procedure is justified in the case of the particular claim in dispute. The Court must guard against permitting claims to be agitated by way of ordinary litigation against a company in liquidation because of the very real prospect that allowing such a course will needlessly diminish the assets of the company in liquidation.

69    In the present case, I have formed the view that it is highly unlikely that, at the conclusion of the liquidation of Forge, there will be any return to the general body of unsecured creditors. Once the secured creditors and priority creditors are paid, there will almost certainly be a shortfall in respect of the remaining creditors’ claims. Furthermore, although there is in existence an insurance policy which responds to Rushleigh’s claim against Forge, for the reasons which I have explained, there is virtually no prospect that any part of the sum insured under that policy will be paid to Rushleigh pursuant to the indemnity granted by the insurers under that policy to Forge itself. The proceeds of the policy will almost certainly be exhausted by the claims of Swiss Re and QBE and the indemnity that will be required to be honoured should Rushleigh succeed against Messrs Hutchinson and Simpson. Although in theory there is a possibility that Rushleigh could succeed against Forge but not against Mr Hutchinson or Mr Simpson, or both, that possibility is not likely. In any event, Rushleigh can access such part of the proceeds of the D&O policy as would be available to it were it successful in the present proceeding against Forge through the ordinary proof of debt process.

70    It seems to me that Rushleigh’s main motivation in pressing its application for leave to proceed is to secure discovery from Forge. Presumably, it considers that the discovery process is likely to yield useful material for use against Messrs Hutchinson and Simpson in its case against those persons. Even if this motivation were an appropriate one, about which I have considerable doubt, in my judgment it is not a sufficient reason for the Court to make the order sought by Rushleigh.

71    For all of the above reasons, I propose to refuse leave to proceed against Forge. Rushleigh’s application for such leave will be dismissed with costs.

Transfer to the Supreme Court of NSW

Background and the Parties’ Arguments

72    Subsections (1), (2) and (7) of s 1337H of the Corps Act provide as follows:

1337H    Transfer of proceedings by the Federal Court and State and Territory Supreme Courts

(1)    This section applies to a proceeding (the relevant proceeding) in a court (the transferor court) if:

(a)    the relevant proceeding is:

(i)    a proceeding with respect to a civil matter arising under the Corporations legislation; or

(ii)    a subsection 1337B(3) proceeding; and

(b)    the transferor court is:

(i)    the Federal court; or

(ii)    a State or Territory Supreme Court.

(2)    Subject to subsections (3), (4) and (5), if it appears to the transferor court that, having regard to the interests of justice, it is more appropriate for:

(a)    the relevant proceeding; or

(b)    an application in the relevant proceeding;

to be determined by another court that has jurisdiction in the matters for determination in the relevant proceeding or application, the transferor court may transfer the relevant proceeding or application to that other court.

…

(7)    The fact that some references in this section to the interests of justice include the desirability of related proceedings being heard in the same jurisdiction does not of itself mean that other references to the interests of justice, in this section or elsewhere in this Act, do not include that matter.

73    By reason of the operation of s 1337A of the Corps Act, a similar power to order a transfer of proceedings from this Court to a State court found in s 5 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (Cross-Vesting Act) is excluded. That exclusion applies even when the proceeding contains some claims brought under the Corps Act and others that are not (Re Westgate Wool Co Pty Ltd (In Liq) (2006) 206 FLR 190 at 194 [18] per Debelle J; and Re Rectron Electronics Pty Ltd [2013] NSWSC 610 at [28] per Black J).

74    Although Rushleigh invoked s 5 of the Cross-Vesting Act as well as s 1337H of the Corps Act when it filed its Interlocutory Application, by the time of the hearing before me it had abandoned all reliance upon the Cross-Vesting Act.

75    Section 1337L of the Corps Act sets out a number of specific matters to which the Court must have regard when considering whether to transfer a proceeding to a State court. That section is in the following terms:

1337L    Further matters for a court to consider when deciding whether to transfer a proceeding

In deciding whether to transfer under section 1337H, 1337J or 1337K a proceeding or application, a court must have regard to:

(a)    the principal place of business of any body corporate concerned in the proceeding or application; and

(b)    the place or places where the events that are the subject of the proceeding or application took place; and

(c)    the other courts that have jurisdiction to deal with the proceeding or application.

76    Rushleigh submitted that, when used in s 1337H(2) of the Corps Act, the expression “interests of justice” has a broad meaning. It submitted that relevant factors would include:

(a)    The application of substantive law;

(b)    Any forensic advantage or detriment conferred by procedural law;

(c)    The reasons for the plaintiff’s choice of forum;

(d)    Any substantive connections with the forum;

(e)    The balance of convenience to parties and witnesses; and

(f)    Convenience to the court system.

77    The submissions which I have extracted at [76] above were supported by a number of references to authority in this and other courts. It is not necessary for me to refer to those authorities. While I can readily accept that the matters which I have listed at [76] above provide a useful set of potential considerations, each case must ultimately turn on its own facts. Further, in the present case, I do not see the s 1337L factors as being of great significance in resolving Rushleigh’s transfer application.

78    In support of its application for an order transferring the present proceeding to the Supreme Court of NSW, Rushleigh made the following submissions.

79    The claims made by the plaintiffs in the Swiss Re proceeding (if successful), on their own, are likely to exhaust the amounts available under the D&O policy and the excess layers of insurance. A similar observation may be made in respect of the claims made by Rushleigh in this proceeding. In those circumstances, s 6 of the LRMPA is important.

80    Section 6 of the LRMPA relevantly provides:

6     Amount of liability to be charge on insurance moneys payable against that liability

(1)    If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person’s liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

…

(3)    Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.

81    In Chubb, Emmett JA and Ball J held (in a joint judgment with which Bathurst CJ, Beazley P and Macfarlan JA agreed), in respect of a claims made insurance policy (such as the D&O policy in the present case), the statutory charge provided for in s 6 of the LRMPA does not attach to insurance monies that may be payable until liability is determined by a judgment or other award. At 127 [118], their Honours said:

… The charge comes into existence on the happening of an event giving rise to a liability to pay damages or compensation for which a claim may be made. The charge, however, only attaches to or descends on moneys that are or may become payable in respect of that liability to pay damages or compensation. There is nothing to which the charge can attach, or on to which it can descend, unless and until a liability to pay damages or compensation has been determined. The liability is not determined, so as to give rise to an entitlement to payment by the insurer, unless and until a determination has been made, by judgment, award or settlement, that the insured is liable.

(Emphasis in original)

82    The observations of Emmett JA and Ball J in Chubb have particular significance in the present case where there are two or more claims against the proceeds of the D&O policy. Rushleigh argued that the effect of Chubb is that, where one of the claims is determined first in time, some or all of the insurance monies may be paid out in satisfaction of that claim, potentially rendering nugatory any claims that have not yet been determined. In particular, at 128 [126]–[127], their Honours said:

Under the terms of the primary policy, an insured is entitled to be indemnified against any loss. Where the indemnity concerns an obligation to satisfy a judgment, award or settlement, the right to the indemnity arises at the time when the liability is established by that judgment, award or settlement: see Bradley v Eagle Star Insurance Co Ltd [1989] AC 957 at 966; [1989] 1 All ER 961 at 965; Distillers Co Biochemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 25–6; 2 ALR 321 at 340–1; [1974] HCA 3. At that time, the insured is entitled to sue on the indemnity and, subject to exhaustion of the maximum liability under the relevant contract of insurance, is entitled to recover the amount of the judgment, award or settlement. The fact that other claims have been, or may be brought, against the insured, or any other insured indemnified by the same contract of insurance, does not alter the first insured’s right to indemnity in respect of the liability that has been determined.

If s 6 caught all moneys available at the time when the charge arises, and s 6(1) applied to a second claim, an insurer could not safely pay the first ascertained claim if the second claim might exceed the amount of the limit that would then remain, unless it could be satisfied that that first ascertained claim has priority under s 6(3). Again, on that approach, the effect of s 6 would be, by a side wind, to alter the rights of the contracting parties. The insurer would be entitled to refuse to pay a claim that it was obliged by the terms of the contract of insurance to pay, because it would run the risk of having to pay more than the maximum amount it contracted to pay.

(Emphasis in original)

83    Building on these propositions based upon Chubb, Rushleigh then submitted that, in the present case, there is a real risk that, if this proceeding is not transferred to the Supreme Court of NSW so that it can be determined at the same time as the Swiss Re proceeding, the claims made by Rushleigh on its own behalf and on behalf of group members in this proceeding will be rendered nugatory if the Swiss Re proceeding is determined first. Rushleigh submitted that an outcome such as that would be contrary to the interests of justice.

84    As a separate submission, Rushleigh submitted that the transfer of this proceeding to the Supreme Court of NSW would remove any doubt as to whether Rushleigh and the group members could assert a claim under s 6 of the LRMPA in this proceeding. Rushleigh submitted that there was doubt as to that matter based upon part of the reasons of the Court of Appeal (see, in particular, Chubb at 143–144 [202]–[204]).

85    It was submitted on behalf of Rushleigh that other judges of this Court have accepted the proposition that there is doubt as to whether s 6 of the LRMPA may be engaged in a proceeding in this Court (for example, see Amos v Tarrants Financial Consultants Pty Ltd [2013] FCA 1344 at [5]–[6] per Griffiths J). Justice Nicholas in Hopkins v AECOM Australia Pty Ltd (No 4) (2015) 328 ALR 1 (AECOM) took the opposite view. In that case, his Honour observed that the argument that s 6 could not be litigated in this Court overlooked the fact that s 79 of the Judiciary Act 1903 (Cth) would have the effect of picking up and applying s 6 of the LRMPA in a proceeding in the Federal Court.

86    Rushleigh accepted that the reasoning of Nicholas J in AECOM is compelling. However, it pressed the argument that, because there is still legitimate doubt as to whether or not the section can be engaged in a proceeding in this Court, the proceeding should be transferred to the Supreme Court of NSW.

87    As a separate submission, Rushleigh also submitted that another reason for transferring the proceeding is that it involves the true interpretation of a NSW statute.

88    It was also submitted on behalf of Rushleigh that considerations of case management and efficiency support the transfer of this proceeding to the Supreme Court of NSW. The idea behind this submission was that the hearing of this proceeding and the hearing of the Swiss Re proceeding could somehow be organised to take place at the same time or very close together with a view to avoiding the possibility that the proceeds of the D&O policy will be paid out to the party who succeeds first.

89    Next, Rushleigh submitted that the transfer would not occasion any prejudice to any of the defendant parties in this proceeding. Rushleigh emphasised that the proceeding had not progressed very far in this Court and little extra cost would be occasioned by the transfer.

90    As this proceeding would likely be heard in Sydney in any event, Rushleigh argued that the question of suitable venue was not a significant matter in the present case.

91    In a further Written Submission filed on 24 February 2016, Rushleigh developed its argument concerning the likely benefit to it and the group members in the event that this proceeding is transferred to the Supreme Court of NSW. In that Written Submission, it emphasised the fact that the events which gave rise to the loss claimed in this proceeding took place prior to the occurrence of the events the subject of the Swiss Re proceeding. Because of this circumstance, so the argument ran, in the event that judgment were given in this proceeding and in the Swiss Re proceeding at the same time, Rushleigh and the group members would gain priority over the whole of the proceeds of the D&O policy by reason of the operation of s 6(3) of the LRMPA.

92    As noted at [12] above, the only defendant who opposed the transfer application was Mr Hutchinson.

93    Senior Counsel who appeared for Mr Hutchinson made the following submissions:

(a)    In order to justify a transfer of this proceeding to the Supreme Court of NSW, Rushleigh must demonstrate that it is in the interests of justice that the transfer order be made. It has failed to demonstrate that proposition. The expression “the interests of justice” is not synonymous with the interests of a party (BHP Billiton Ltd v Schultz (2004) 221 CLR 400). Nor is the selection (or change) of jurisdiction to be made in order to achieve the application of any law for a party including for that matter s 6 of the LRMPA (Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) v Stevens [2014] NSWSC 659).

(b)    A fundamental underlying premise in the discretionary considerations relied upon by Rushleigh in its transfer application is the notion that the Supreme Court will be able and willing to hear and determine the Swiss Re proceeding and this proceeding at the same time in order to provide to Rushleigh the advantages which a concurrent determination would provide to it by reason of the operation of s 6(3) of the LRMPA. This submission requires this Court to speculate as to the way in which the Supreme Court would organise its cases, an exercise which this Court should not undertake.

(c)    The reasons advanced by Rushleigh in support of the order for transfer do not justify the making of that order. At present, there is no judgment in favour of Rushleigh against any of the defendants. Indeed, there may never be such a judgment. Further, there is no proceeding presently on foot between Rushleigh and the insurers. Rushleigh has consciously and studiously avoided commencing such a proceeding in this Court. In addition, in order for it to prosecute a claim against those insurers, it would first need to obtain leave pursuant to s 6(4) of the LRMPA. It has not even sought leave at this stage. The outcome of any future application for leave under s 6(4) of the LRMPA is a matter of speculation. The outcome of the Swiss Re proceeding is a matter of pure speculation as matters presently stand.

(d)    There are few overlapping issues of substance between the Swiss Re proceeding and this proceeding.

(e)    The reasoning of the Court of Appeal in Chubb is probably unsound. The reasoning of Nicholas J in AECOM should be preferred and followed.

(f)    Mr Hutchinson does not wish to be embroiled in the Swiss Re proceeding in the Supreme Court. He is currently not a party to that proceeding and is a complete stranger to the subject matter of that proceeding. Indeed, the present proceeding raises issues which are somewhat narrower in compass when compared with those raised in the Swiss Re proceeding.

Consideration

94    In my judgment, there is considerable doubt as to the correctness of the decision of the NSW Court of Appeal in Chubb. The reasoning in the judgment of Nicholas J in AECOM is compelling and, as presently advised, I would favour the view expressed by his Honour. It is not, therefore, plain or beyond argument that the applicability of s 6 of the LRMPA in any given case cannot be litigated in this Court.

95    Second, I am not persuaded that there is any real likelihood that the Supreme Court will case manage the Swiss Re proceeding and this proceeding when transferred in such a manner as to provide the outcome which Rushleigh desires viz judgment in its favour at the same time as judgment is delivered in the Swiss Re proceeding. There is little overlap between the two sets of proceedings and there is no particular reason why the Supreme Court, at this point in time, would accede to the proposals advanced by Rushleigh in respect of the case management of the two proceedings. Nor is there any particular reason why the two proceedings should be heard together.

96    Further, even if the Supreme Court were to address both matters in the fashion desired by Rushleigh, Mr Hutchinson would be confronted with a much larger piece of litigation in which many of the issues would not concern him. It is all very well to say that he could advisedly pick and choose when he would attend at court in connection with such litigation, but a decision on his part to absent himself from time to time would create considerable risks for him in respect of the outcome. He should not be placed in that position.

97    There is no evidence before me as to the likely attitude which the insurers would take to a claim made against them by Rushleigh in this proceeding based upon s 6 of the LRMPA. I do not see why I should assume that the insurers would argue that this Court has no jurisdiction to determine such a claim based upon the reasoning of the Court of Appeal in Chubb. It is not immediately apparent to me why the insurers would necessarily wish to argue that this Court has no jurisdiction in respect of such a claim. Notwithstanding indications given from time to time that Rushleigh proposes to bring a claim against the insurers pursuant to s 6 of the LRMPA, it has not yet done so. It seems to me that it has eschewed doing so in this Court in order to avoid cutting out the ground from under its arguments in support of the transfer order claimed by it.

98    Finally, even if everything which Rushleigh has submitted in relation to the transfer application were to be accepted, at the moment I see no reason why it could not start a separate proceeding in the Supreme Court of NSW in which it would claim all necessary relief in relation to the insurance issues that it presently sees may arise in due course. While this is not a desirable course, it is one that is nonetheless available to Rushleigh. Adopting such a course would avoid the need to transfer the entire existing proceeding to the Supreme Court simply because of the apparent s 6 of the LRMPA problem.

99    For all of the above reasons, I propose to refuse Rushleigh’s application to transfer this proceeding to the Supreme Court of NSW.

Costs

100    Messrs Hutchinson and Simpson did not involve themselves in Rushleigh’s application for leave to proceed against Forge pursuant to s 500(2) of the Corps Act. Forge, by its liquidators, successfully resisted that application. I think that the appropriate orders for costs in respect of that application are that Rushleigh pay Forge’s costs of and incidental to that application and that there be no orders as to costs as between Rushleigh and Mr Hutchinson and Mr Simpson.

101    Mr Hutchinson opposed the transfer application but the other parties did not involve themselves in that application. Again, I think that Rushleigh should pay Mr Hutchinson’s costs of and incidental to that application but that there should be no orders as to costs as between Rushleigh, on the one hand, and Forge and Mr Simpson, on the other hand.

Conclusions

102    I will make orders in accordance with these Reasons.

103    The proceeding will be listed for case management on a date to be fixed.    

Associate:

Dated:    7 December 2016