FEDERAL COURT OF AUSTRALIA

Hancock liquidator of South Townsville Developments Pty Ltd (in liq) (No 2) [2019] FCA 622

ORDERS

THE COURT ORDERS THAT:

1.    The affidavit by Geoffrey Trent Hancock sworn on 24 January 2019 containing 15 paragraphs and a bundle of documents marked “Exhibit GTH-2” have its suppression on the Court file removed.

2.    By close of business on 6 May 2019, the parties should seek to agree and implement orders as to confidentiality which give effect to these reasons for judgment.

3.    The plaintiff pay the applicants’ costs of the interlocutory application, as agreed or assessed, such amount to be paid from the plaintiff’s assets.

4.    Final orders will be made on the papers and without a further oral hearing.

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

REASONS FOR JUDGMENT

GRIFFITHS J:

1    By an interlocutory application filed on 28 March 2019, the applicants, Lauvan Pty Limited (Lauvan) and Mittabell Pty Limited (Mittabell) seek to vary orders made by the Court on 25 January 2019 or, alternatively, to have orders 2 and 3 made on that day set aside.

2    The primary judge’s reasons for making the orders are set out in Hancock liquidator in the matter of South Townsville Developments Pty Limited (in liq) [2019] FCA 71 (NSD 105 of 2019). The applicants are defendants in separate proceedings which have the Court file number NSD 1948 of 2018.

Background matters summarised

3    The Company’s then administrator (Mr Hancock) commenced proceeding NSD 1948 of 2018 against Lauvan and Mittabell on 15 October 2018. Mr Hancock was then appointed liquidator of the Company on 20 November 2015. In NSD 1948/2018, the Company seeks an order pursuant to s 588FF of the Corporations Act 2001 (Cth) (the Act) for repayment by Lauvan and Mittabell of approximately $6.4m plus interest and declaratory relief. Those two companies provided loan funds to the plaintiff Company to enable it to carry out a residential development.

4    The Liquidator made an ex parte application to the Duty Judge in January 2019. The Court made orders pursuant to s 477(2B) of the Act approving the entry by the Liquidator into a funding agreement with respect to the proceeding in NSD 1948/2018. The Court also made orders under ss 37AF and 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) protecting the confidentiality of the Liquidator’s affidavit and the annexed funding agreement in relation to proceeding NSD 1948/2018.

5    The primary judge noted at [11] that the Liquidator sought the confidentiality orders so as to further the interests of the Company’s creditors and to prevent Lauvan and Mittabell from obtaining a unfair advantage not available to ordinary litigators by learning the terms and conditions under which the plaintiff in proceedings NSD 1948/2018 is able to pay the legal costs and expenses of that proceeding. Her Honour accepted the Liquidator’s contentions and made confidentiality orders for a period of three years. In particular, her Honour made confidentiality orders in respect of the Liquidator’s affidavit sworn 24 January 2019 and Annexure A to that confidential affidavit, which is a copy of the funding agreement.

The interlocutory application

6    As noted above, the Court’s orders made on 25 January 2019 resulted from an ex parte application and hearing. I accept that neither Lauvan or Mittabell had notice of the Liquidator’s application notwithstanding that it was preceded by an exchange of correspondence between the parties in which the applicants sought information from the plaintiff concerning any litigation funding arrangements, which information the plaintiff refused to disclose on the basis that it was irrelevant to the issues in the proceedings or to any entitlement the applicants might have to security for costs. This correspondence was not referred to in the Liquidator’s earlier affidavit sworn 24 January 2019, but there is a reference there to the proof of debt provided by the applicants in the amount of approximately $600,000.

7    The applicants now seek orders which would have the effect of some parts or all of the litigation funding agreement being disclosed to them. Their interlocutory application is made against the background of the plaintiff refusing their recent request that they be provided with a copy of that particular document.

8    Lauvan and Mittabell are the only defendants in the proceedings NSD 1948/2018, which proceedings are in Stewart J’s docket. They claim to be the sole secured creditors of the Company. That claim is disputed by the Liquidator but it is unnecessary to resolve it for the purposes of this interlocutory application. The applicants claim that they are still owed approximately $600,000 under their loan agreement with the plaintiff, but the Liquidator disputes that claim for reasons set out in his affidavit sworn 29 April 2019. Perhaps more significantly, Lauvan and Mittabell have made an application for security of costs in the other proceeding and that application is listed to be heard by Stewart J on 7 May 2019.

9    I accept the applicants’ submission (and reject the Company’s submission to the contrary) that they have standing to bring this interlocutory application (see generally Deloughery v Weston [2010] NSWCA 148; 79 ACSR 180). I am satisfied for the purposes of s 37AH(2) of the FCA Act that the applicants have a sufficient interest in the question whether the suppression order or non-publication order should be made, not the least because they are being sued in the other proceeding and they have applied for security for costs.

10    As matters stand at present, the applicants know nothing about the details of the funding agreement apart from the fact that such an agreement exists and was the subject of the Court’s orders dated 25 January 2019. In particular, they claim that notwithstanding they are being sued in the other proceedings (in which the Liquidator would ordinarily be required to provide security for costs), they do not know:

(a)    whether funding is offered to the Liquidator, the Company or both;

(b)    the terms and conditions of the funding and whether, for example, it is advanced conditionally upon the successful outcome of the proceedings;

(c)    any limitations on the funding, such as whether it covers adverse costs orders made in favour of the applicants;

(d)    who stands to benefit from the litigation under the terms of the funding agreement and whether any benefit is conferred on the Liquidator;

(e)    the extent of any benefit, including whether it prejudices their position as the alleged sole secured creditors of the Company; and

(f)    the identity of the funder.

11    Mr Harris SC, who appeared for the Liquidator, contended that there was no disadvantage to the applicants if they sought and obtained an order for security for costs because there would be a dedicated fund available to them in respect of those costs. Accordingly, he submitted that the funding agreement was irrelevant. I respectfully disagree. I consider that the applicants should have access to portions of the funding agreement which are relevant to their assessment of how they should conduct their security for costs application. Their forensic decisions concerning security for costs ought to be made on an informed basis. It may well be, for example, that having regard to the relevant terms of the funding agreement they may not press for a separate order providing security for costs.

12    The applicants state that they would be content if an order were made which permitted the Liquidator to redact parts of the funding agreement as might disclose the Liquidator’s litigation strategy, the total of the “war chest” or any estimate as to costs because these are not matters of concern to them. The applicants also indicate that they and their legal advisors are willing to keep the document confidential if there were commercially sensitive matters about it.

13    In oral argument, Mr Harris SC urged the Court not to require identification of the funder or the guarantor. I consider that these matters are potentially relevant to the applicants’ forensic choices, as referred to above.

14    I am satisfied that orders should be made to this effect.

15    I reject the Company’s submission that the terms of the funding agreement have no relevance to the other proceedings, particularly where security for costs has been sought. In a letter dated 24 January 2019 to the applicants’ solicitors, the plaintiff’s solicitors stated that any application for security for costs filed by the applicants would be opposed.

16    I accept that it may be appropriate in many instances for parts of a funding agreement to be suppressed, such as material that would put the Liquidator in a disadvantageous position compared with ordinary litigants, as has been acknowledged in cases such as In the matter of Octavia Administration Pty Ltd (In Liquidation) [2014] NSWSC 344 and Needham, in the matter of Bruck Textile Technologies Pty Ltd (in liq) [2016] FCA 837 (Needham). But that is not to say that a funding agreement should invariably be suppressed in its entirety. It is notable, for example, that in Needham, notwithstanding that the Court made orders which suppressed the full terms of the funding agreement there, Gleeson J summarised features of the funding agreement in her Honour’s publicly available reasons for judgment in circumstances where her Honour plainly regarded the features as not being confidential. Her Honour said at [21] and [22]:

21.    The funding agreement provides for the repayment of funds advanced by the Commonwealth and the Commonwealth’s admitted debt in priority to other creditors. However, as the Commonwealth is already a priority creditor pursuant to s 560, Mr Needham does not believe that the interests of any third party creditors are compromised as a result of the funding agreement.

22.    Other relevant features of the agreement are:

(1)    The Commonwealth will meet adverse costs orders with respect to the proposed litigation;

(2)    The Commonwealth will provide security for costs in connection with the litigation;

(3)    The Commonwealth will pay 80% of the liquidator’s fees and 80% of the lawyer’s fees, meaning that the liquidators and their solicitors will only be paid the final 20% of their fees in the event that the estate comes into sufficient funds.

17    In Martin John Green in his capacity as liquidator Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited [2008] NSWSC 390, Einstein J approved the appropriateness of redacting particular clauses of a funding agreement which, if disclosed, could have the potential to reveal the plaintiff’s likely legal strategies and reveal the confidential circumstances of the availability of funding. This included provisions in the funding agreement relating to capping limits and the maximum amount the funder was willing to provide to the liquidator to run the case. Likewise, it was accepted that confidentiality should attach to matters bearing upon the bringing of the proceedings in the first place and considerations relating to whether the proceedings should be compromised or otherwise pursued depending upon the circumstances at any given time. His Honour stated at [30] that disclosure of such matters would provide to the defendant “information which could reveal the plaintiff’s likely legal strategies and would reveal the confidential circumstances of the availability of funding”. His Honour also made a pertinent observation at [33] and [34] as to the relevance of these matters in the context of an application for security for costs.

18    I respectfully agree with those matters.

19    Viewed pragmatically, it is understandable that the primary judge made orders in the terms of those which were made on 25 January 2019, which were unqualified insofar as the confidentiality of the funding agreement is concerned. The matter came before her Honour urgently in her capacity as Duty Judge and on an ex parte basis. The primary focus was on the Liquidator’s application for orders nunc pro tunc pursuant to s 477(2B) of the Act approving the entry into the funding agreement. A separate affidavit by the Liquidator was relied upon in support of the confidentiality order. It is understandable that, in those circumstances, her Honour was willing to act in accordance with the common practice of making a suppression or non-publication order in respect of the funding agreement itself (see the cases referred to by the primary judge in [10] of her reasons for judgment). Significantly, her Honour made provision for anyone with a sufficient interest to seek access to the confidential affidavit and funding agreement on providing the plaintiff with at least three business days’ notice in writing. Her Honour also imposed a three year cap on the confidential order, subject to the Court varying that period. As noted above, under s 37AH(2) of the FCA Act, any person who, in the Court’s opinion, has a sufficient interest in the question is entitled to appear and be heard by the Court on an application for a suppression order or non-publication order. In my view, this is sufficiently broad to cover an application to vary a suppression or non-publication order which has already been made, as is the case here.

Conclusion

20    For these reasons, I am satisfied that orders along the lines of those sought by the applicants should be made. In particular, I consider that those parts of the funding agreement which directly relate to the applicants’ application for security for costs should be disclosed to the applicants and their legal advisors prior to the hearing before Stewart J of that application on 7 May 2019. This includes the identity of the funder and guarantor, the terms and conditions relating to the guarantee/indemnity and the funder’s liability to pay or comply with any costs order made by the Court in the applicants’ favour in the proceedings in NSD 1948 of 2018, as well as terms and conditions relating to the plaintiff’s right to terminate the funding agreement and the consequences of any such termination.

21    The parties should seek to agree and implement orders which give effect to these reasons concerning confidentiality, including any undertaking as to confidentiality to be given by the applicants and their legal advisors, by close of business next Monday and prior to the hearing before Stewart J the following day.

22    On the issue of costs of this application, I have carefully considered the applicants’ submission that the Liquidator should bear those costs personally but I am not persuaded that there is an appropriate basis for doing so. I consider that it is appropriate that the Company bears the costs of this interlocutory application having regard to its consistent opposition to any orders being made which affect the orders made on 25 January 2019. It is too early to say definitively that the Company will not ultimately have assets from which such costs could be paid.

23    Finally, for reasons which are not entirely clear, it appears that the suppression order made on 25 January 2019 has been attached to the non-confidential affidavit of the Liquidator and not the confidential affidavit. That error should be rectified. The plaintiff should now take appropriate steps to file the confidential affidavit, to which the suppression order applies, in accordance with the primary judge’s direction and expectation.

Associate:

Dated:    3 May 2019