FEDERAL COURT OF AUSTRALIA

Wingecarribee Shire Council v Lehman Brothers Australia Limited (No 3)
[2010] FCA 747

THE COURT ORDERS THAT:

1.                  In relation to the Applicants' notice of motion dated 22 June 2010:

1.1              City of Swan Council and Parkes Shire Council be joined as the second and third applicants to the proceedings respectively.

1.2              The applicants have leave pursuant to Order 13 rule 2 of the Federal Court Rules (Cth), to:

(a)               amend the Further Amended Application dated 29 August 2008 by filing and serving a Second Further Amended Application in the form as included in the Exhibit at pages 143 to 151 to the Affidavit of Amanda Kim Banton sworn 1 July 2010;

(b)               amend the Further Amended Statement of Claim dated 29 August 2008 by filing and serving a Second Further Amended Statement of Claim in the form as included in the Exhibit at pages 82 to 138 of the Affidavit of Amanda Kim Banton sworn 1 July 2010.

1.3              The applicants pay the respondents’ costs thrown away (if any) by reason of the amendments referred to in 1.2 hereof.

1.4       The applicants have leave pursuant to section 471B of the Corporations Act 2001 (Cth) to proceed with, and to the extent necessary, to begin the proceedings.

1.5       Any argument regarding the costs of the respondent's notice of motion dated 29 October 2009 be reserved.

1.6       The costs in respect of the applicants' notice of motion dated 22 June 2010 be costs in the cause (including the cost of the adjournment on 2 July 2010).

2.                  In relation to the further conduct of the proceedings:

2.1              The proceedings shall, subject to any further order of the court, be conducted as proceedings to which Part IVA of the Federal Court Act of Australia 1976 (FCA Act) applies.

2.2              Pursuant to s 33Q of the FCA Act:

(a)               the following sub-groups are established and the parties named below are appointed as the respective sub-group representatives of those sub-groups and their members;

(i)             the Wingecarribee Shire Council sub-group, for whom the sub-group representative is the First Applicant;

(ii)           the City of Swan Council sub-group, for whom the sub-group representative is the Second Applicant; and

(iii)          the Parkes Shire sub-group for whom the sub-group representative is the Third Applicant;

(b)               within the common questions of law and fact set out in paragraph 63 of the Second Further Amended Statement of Claim:

(i)             the questions set out in paragraphs 63.7 and 63.8 will be sub-group common issues for determination in relation to the claims of the Wingecarribee Shire Council sub-group;

(ii)           the questions set out in paragraphs 63.9 and 63.10 will be sub-group common issues for determination in relation to the claims of the City of Swan Council sub-group;

(iii)          the questions set out in paragraphs 63.11 and 63.12 will be sub-  group common issues for determination in relation to the      claims of the Parkes Shire Council sub-group.

2.3              The proceedings are referred to a person agreed between the parties for mediation pursuant to s 53A of the Federal Court of Australia Act 1976 (Cth) and Order 72 of the Federal Court Rules, provided that if the parties are unable to agree on such a person on or before 5 August 2010 the matter is listed for directions on 6 August 2010.

2.4              The court directs as follows:

(a)               on or before 5 July 2010, the Respondent shall request any further and better particulars of the Second Further Amended Statement of Claim;

(b)               on or before 16 July 2010, the Applicants shall serve their responses to the Respondent's request for further and better particulars;

(c)               on or before 28 July 2010, the Respondent shall file and serve its Defence to the Second Further Amended Statement of Claim;

(d)               on or before 29 July 2010 the parties are to exchange their lists, describing the documents or categories of documents that they seek by way of discovery from the other party;

(e)               on or before 30 July 2010 the solicitors for the Applicants and the Respondent shall confer and seek to finalise agreement on the documents or categories for discovery, a timetable for production of discovery by tranches and, so far as possible, the questions on which expert evidence will be sought;

(f)                 on or before 2 August 2010 the Applicants shall provide discovery of documents of the First Applicant:

(i)             on which it relies;

(ii)           that adversely affect its own case;

(iii)          that adversely affect the Respondent's case;

(iv)         that support the Respondent's case; and

(v)           to the extent possible, documents agreed in (e) above;

(g)               on or before 30 August 2010, the parties are to exchange the final tranche of discovery as agreed by the parties in (e) above or as otherwise ordered by the court;

(h)               on or before 1 October 2010, the parties shall exchange outlines of the evidence of any lay witnesses they propose to call in chief, provided that such outlines are not to be used in cross-examination without leave of the Court;

(i)                 on or before 15 October 2010, the parties shall exchange their expert evidence in chief;

(j)                 on or before 22 October 2010, the parties shall exchange outlines of the evidence of any lay witnesses they propose to call in reply, provided that such outlines are not to be used in cross-examination without leave of the Court;

(k)               on or before 29 October 2010, the experts instructed by the parties shall meet and confer without lawyers in relation to their respective reports for the purpose of preparing a joint report identifying common ground on expert issues, the issues on which the experts' views are in dispute and a summary of the key points of difference.

(l)                 on or before 9 November 2010 the experts shall provide the parties with their joint report;

(m)             on or before 23 November 2010, the parties shall serve any expert evidence in reply, which shall be limited to those matters of expert evidence that are in dispute;

(n)               on or before 7 December 2010 the parties shall exchange position papers for mediation; and

(o)               the mediation shall commence on 13 December 2010. It is to be completed on or before 16 December 2010, or such other date as is agreed by the parties.

3.                  The proceedings are listed for further directions on 6 August 2010 and 17 December 2010.

4.                  The parties have leave to issue subpoenas.

5.                  The notice of motion filed by the respondent on 29 October 2009 be dismissed.

6.                  Liberty to apply for further orders and directions on 3 days' notice to the Associate to Rares J.

THE COURT NOTES THAT:

7.         Without admission by the respondent and reserving all of its rights including to apply to set aside the notice to produce filed by the applicants on 5 July 2010 if it is called upon the Court notes that the applicants have not called on their notice to produce filed and served on 5 July 2010.  However, the applicants' reserve their position as to the need for production of the documents sought in the notice to produce for the purposes of preparing for and attending mediation (as provided for by these orders) and to give effect to any settlement agreement reached between the parties as a result of the mediation.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                     These proceedings commenced before me in 2007 as a claim solely by Wingecarribee Shire Council.  The proceeding was based on the consequences of Wingecarribee Council having acquired financial products known shortly as CDOs, namely, collateralised debt obligations.  The financial products became somewhat publicly more known as a result of what became the global financial crisis, part of which was concerned with the collapse in the United States of America of Lehman Brothers’ parent.

2                     The amendment application today has arisen because a number of other local government authorities throughout Australia allege that they also had dealings with Lehman Brothers in relation to similar instruments. 

3                     Lehman Brothers initially went into administration under a deed of company arrangement.  In October last year, I ordered that it be placed in liquidation (City of Swan v Lehman Bros Australia Ltd (No 2) [2009] FCA 1160) following a decision of the Full Court, subsequently upheld by the High Court, that the deed was invalid:  City of Swan v Lehman Brothers Australia (2009) 179 FCR 243;  affirmed:  Lehman Brothers Holdings Inc v City of Swan (2010) 265 ALR 1.

4                     The parties have subsequently engaged in very constructive negotiations to convert the proceedings into a class action under Part IVA of the Federal Court of Australia Act 1976 (Cth) and to proceed with a timetable that today was described as ambitious, but nonetheless, hopefully, practicably achievable.  The proposed timetable is intended to prepare the matter for hearing and, in the interim, provide each of the parties with sufficient information and explanation of the other’s cases, so that a mediation may be possible by the end of this year.   The parties have discussed, and Lehman Brothers does not oppose, the making of orders today that will give effect to that timetable.

5                     Each has made detailed and helpful written submissions about the Court’s powers to convert these proceedings into a class action from the form in which Wingecarribee Council alone had commenced them.  In Watson v AWB Limited [2007] FCA 1367, Gyles J determined that he would follow a number of other decisions by single judges of the Court who had held that there was power under Part IVA to grant leave to amend proceedings, not initially commenced under it, so as to convert them to representative proceedings.  This is not an occasion, in light of the position the parties have taken, where it is necessary or desirable to engage in any reconsideration of the course of authority in the Court that has determined that this power exists. 

6                     Section 33C(1) enables proceedings to be commenced under Part IVA.  The section does not require that any proceedings brought under the Part must always originate as proceedings under it.  There is a reasonable basis to consider that the section is intended to be expansive, rather than constrictive, of the Court’s powers.  It is quite inappropriate to read provisions conferring jurisdiction or conferring powers on a court by making implications or imposing limitations which are not found in the express words:  Owners of ‘Shin Kobe Maru’ v Empire Shipping Co Inc (1994) 181 CLR 504 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.  In addition, the Court has powers to permit the amendment of proceedings.  Those powers of amendment are not displaced by anything expressly said in Part IVA. 

7                     The initial proceeding brought by Wingecarribee Council identified a matter within the jurisdiction of the Court.  Other councils now claim that similar issues relating to that controversy have arisen between them and Lehman Brothers from their acquisition of similar financial products.  Those councils may well have been part of the Wingecarribee Council matter as it was originally commenced:  cp  Re Wakim;  Ex parte McNally (1999) 198 CLR 511 at 585-587 [139]-[145] per Gummow and Hayne JJ.  However, in any event, there is now before the Court an application to determine what is claimed to be a wider controversy between the various proposed subgroups of Councils that dealt with Lehman Brothers and it in relation to the provision to them of CDO products.  In addition, s 22 of the Federal Court of Australia Act requires the Court to determine all matters in controversy in one proceeding if that is possible, as I explained in Strong Wise Ltd v Esso Australia Resourses Pty Ltd (No 2) [2010] FCA 575 at [53]-[55].

8                     Because Lehman Brothers is in liquidation, it is necessary to grant, if the proceeding is to proceed in the Court, leave to begin and proceed with it under s 471B of the Corporations Act 2001 (Cth).  The parties recognise that a substantial controversy between them has arisen in the liquidation.  These proceedings will assist the liquidators in determining the admission of debts in the liquidation, and in determining a significant range of issues that would, in any event, be highly likely to require litigation.

9                     For these reasons, it seems to me to be appropriate to grant the amendment and to grant leave under s 471B so as to the proceedings to be commenced by the new applicants, and to proceed with all of the applicants against Lehman Brothers.

10                  The parties are yet to address some formal questions for the purposes of the conduct of proceedings under Part IV referred to in Practice Note CM 17, including questions relating to opt out notices.  This has not yet been done, no doubt because the parties have been in concentrated and productive discussions with a view to isolating the essential issues that need to be litigated and propounding a timetable that is calculated to bring the proceedings on efficiently for hearing if they are unable to be resolved at the proposed mediation.  I have indicated that these other issues can be dealt with in a directions hearing early next month.

11                  For all these reasons, I am satisfied that the orders which the applicants now propose, and that have been amended in discussions between counsel and myself in the course of today, are appropriate.  I will make those Orders.

Associate:                                                                    

Dated:  16 July 2010