FEDERAL COURT OF AUSTRALIA

Norman, in the matter of Forest Enterprises Australia Limited (Administrators Appointed) (Receivers & Managers Appointed) v FEA Plantations Ltd (Administrators Appointed) (Receivers Appointed) (No 3) [2011] FCA 624

THE COURT ORDERS THAT:

1.     The Plaintiffs pay the costs of the First Defendant (FEA Plantations Ltd (Administrators appointed) (Receivers appointed)) on a party and party basis.

2.    The Plaintiffs pay the costs of the Second Defendant (FEA Growers Group Inc) on an indemnity basis.

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.

THE COURT ORDERS THAT:

1.    As between the Plaintiffs and the First Defendant (FEA Plantations Ltd (Administrators appointed) (Receivers appointed)) the costs of the application lie where they fall.

2.    The costs of the Second Defendant (FEA Growers Group Inc) be paid out of any surplus that may exist in the winding up of the managed investment schemes of which FEA Plantations Ltd (Administrators appointed) (Receivers appointed) was the responsible entity after payment of all secured and priority debts.

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

Background

1    The procedure (provided for by s 424(1) of the Corporations Act 2001 (Cth) and other sources) which enables certain parties, for example trustees, insolvency practitioners and officers of the court to make a summary application for directions is most useful. These applications, which can be brought on quite quickly and usually do not require the joinder of a defendant, permit the applicant to obtain advice which, if followed, provides not only guidance for the party as regards the proper performance of his or her duties, but also protects them against allegations of misconduct.

2    The court’s powers on this summary procedure are, however, quite narrow. They are limited to giving guidance in relation to the manner in which the applicant should carry out his or her functions. No substantive rights are determined. But it often occurs that substantive legal issues are raised in such an application. When this occurs the application can easily be adapted to enable the court to deal with the substantive issues. Usually all that is necessary is to join, or give notice to, affected parties.

3    The applications brought by the receivers of the Forest Enterprises Australia group of companies (FEA Group) fall into each camp. The FEA Group operated a number of forestry managed investment schemes that had become insolvent. The applications concerned how the receivers should conduct themselves and how the assets of the insolvent schemes should be administered.

Internal Leases Application (VID 692 of 2010)

4    The so-called “internal leases application” raised several substantive issues. The issues included:

(1)    which FEA Group company was the landlord of the land on which forestry operations were conducted;

(2)    was the FEA Group tenant in breach of the lease;

(3)    had the FEA Group tenant repudiated the lease;

(4)    did the FEA Group tenant have a right of set-off against the landlord.

5    In order to have those issues resolved, on 9 September 2010 a FEA Group company, FEA Plantations Ltd, was made a defendant to the application. The FEA Growers Group Inc (FEA Growers Group), a body set up to represent the interests of the investors, was also added as a defendant. The defendants were necessary parties in order for the substantive issues to be resolved. In their absence the issues could not have been resolved.

6    The receivers were unsuccessful in the arguments they put regarding the internal leases. It follows that they should be required to pay the costs of FEA Plantations Ltd. Those costs should be paid on the usual party and party basis.

7    The position of the FEA Growers Group Inc is different. It was joined to represent all the investors of the managed investment schemes. As my reasons delivered on 21 December 2010 ([2010] FCA 1444) show, the economic interests of the investors were directly affected by the outcome of the application. And, in any event, I required them to be represented to ensure that all investors had a voice in the proceeding and were bound in the result of my determinations. It is usual for a party of this nature to be paid its costs on an indemnity basis. That is what should happen here.

External Leases Application (VID 555 of 2010)

8    The proceeding concerning the external leases is of quite a different character. The principal question raised in that application concerned how the receivers should protect themselves from statutory liability in the event that the FEA Group tenants did not carry out the obligations imposed on them by various statutes. In other words, the application is properly characterised as an application for directions.

9    On 9 September 2010, FEA Plantations Ltd and the FEA Growers Group were joined as defendants and were heard to oppose the relief the receivers sought.

10    In the result no order was made. There is now a controversy whether the basis upon which I declined to make any order was factually correct. Evidence has been submitted to suggest that I may not have been properly informed of the true position at trial. I do not propose to consider that evidence for reasons which will become immediately apparent.

11    Although I did not make any orders on the receivers’ application, I did, in my reasons (191 FCR 39), explain why, contrary to the submissions of the FEA Growers Group, the receivers were not under the obligations imposed on an officer of a responsible entity by s 601FD(1) of the Corporations Act. It was this section which gave rise to the possibility that the receivers might be obliged to do those things which the tenants did not do. Having got rid of this section as a source of potential liability, it was unnecessary to make any order on the receivers’ application, regardless of how I might have resolved what now appear to be contested facts.

12    In those circumstances, as between the receivers and FEA Plantations Ltd, the costs of the application should lie where they fall. I have been somewhat troubled by the costs of the FEA Growers Group because it is a group that represents investors. I think it appropriate to make an order that its costs be paid out of any surplus amounts, that is, any surplus that may exist after payment of all secured and priority debts.

Associate:

Dated:    3 June 2011

SCHEDULE OF PARTIES (VID 692 of 2010)

TIMOTHY BRYCE NORMAN and SALVATORE ALGERI IN THEIR CAPACITY AS JOINT AND SERVERAL RECEIVERS AND MANAGERS OF FOREST ENTERPRISES AUSTRALIA LTD ACN 009 553 548 (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) and of FEA CARBON PTY LTD ACN 009 505 195 (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) and TASMANIAN PLANTATION PTY LTD ACN 009 560 463 (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (CONTROLLERS ACTING)

First and Second Plaintiffs

FOREST ENTERPRISES AUSTRALIA LTD ACN 009 553 548 (ADMINISTRATORS APPOINTED) (RECEIVERS AND MANAGERS APPOINTED)

Third Plaintiff

TASMANIAN PLANTATION PTY LTD ACN 009 560 463 (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (CONTROLLERS ACTING)

Fourth Plaintiff

FEA CARBON PTY LTD ACN 009 505 195 (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED)

Fifth Plaintiff

FEA PLANTATIONS LIMITED ACN 055 969 429 (ADMINISTRATORS APPOINTED) (RECEIVERS APPOINTED)

First Defendant

FEA GROWERS GROUP INC. A0054610B

Second Defendant