FEDERAL COURT OF AUSTRALIA

HFPS Pty Limited (Trustee) v Tamaya Resources Limited (In Liq) (No 1) [2016] FCA 442

ORDERS

THE COURT ORDERS THAT:

1.    Upon condition that the plaintiffs will not seek to enforce any judgment which they may obtain against Tamaya Resources Limited (In Liquidation) (Tamaya), pursuant to s 500(2) of the Corporations Act 2001 (Cth), the plaintiffs be granted leave to proceed with this proceeding against Tamaya, such leave to operate and be effective from 5 February 2015.

2.    Subject to any leave to amend hereafter granted by the Court, the claims which may be made by the plaintiffs against Tamaya be confined to those claims made by them against Tamaya in the Originating Application filed in this proceeding on 28 May 2014 and in the Amended Statement of Claim filed in this proceeding on 29 October 2014.

3.    The costs of and incidental to the application made by the plaintiffs herein for leave to proceed against Tamaya be costs in the proceeding as between the plaintiffs and Tamaya.

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

REASONS FOR JUDGMENT

FOSTER J:

1    This proceeding was commenced on 28 May 2014 as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth).

2    In 2008, the plaintiffs acquired shares in Tamaya Resources Limited (In Liquidation) (Tamaya), which is the first defendant in this proceeding.

3    The second to seventh defendants were the directors of Tamaya in 2007 and 2008. The eighth defendant, Deloitte Touche Tohmatsu (Deloitte), was the auditor of Tamaya in 2007 and 2008. The ninth defendant, Timothy Biggs, was the Deloitte partner in charge of the relevant audits of Tamaya (the eighth and ninth defendants, together, the Deloitte defendants).

4    This proceeding is one of four proceedings that have, to date, been case managed together. I formed the view at an early stage that all four proceedings should be heard together. The other three proceedings are:

(a)    Proceeding NSD 185 of 2013. In this proceeding, Tamaya is the sole plaintiff and its directors are the defendants. In this proceeding, Tamaya claims damages or compensation against its directors for losses suffered by it as a result of the acquisition by Tamaya of Iberian Resources Limited in 2007.

(b)    Proceeding NSD 327 of 2014. In this proceeding, Tamaya and its liquidator are the plaintiffs and Deloitte, Mr Biggs and two other partners of Deloitte are the defendants. In this proceeding, Tamaya claims damages or compensation against Deloitte and its partners as a result of alleged misstatements in Tamaya’s financial statements and report for 2007.

(c)    Proceeding NSD 328 of 2014. In this proceeding, Tamaya is the sole plaintiff and its former directors are the defendants. In this proceeding, Tamaya seeks damages or compensation in relation to alleged misstatements contained in Tamaya’s financial report for 2007.

5    On 26 October 2008, Messrs Hutchison and Gibbons were appointed as joint and several administrators of Tamaya at a meeting of its directors.

6    On 19 December 2008, the same gentlemen were appointed as joint and several liquidators of Tamaya at a meeting of Tamaya’s creditors. Thereafter, Tamaya has remained in liquidation.

7    In this proceeding, the plaintiffs allege that Tamaya contravened the continuous disclosure requirements imposed upon it by the Corporations Act 2001 (Cth) and the ASX Listing Rules in respect of its 2007 Annual Financial Statements and also made misrepresentations in respect of those statements and the 2007 Annual Report. The plaintiffs also allege that, in the course of raising funds under a Share Purchase Plan and Sophisticated Investor Placement, Tamaya misrepresented the use to which the funds so raised would be put. The plaintiffs also allege that the director defendants breached the statutory and equitable duties owed by them to Tamaya in respect of the same matters and that the Deloitte defendants failed in their duties owed to Tamaya in respect of the same matters.

8    In the current iteration of the plaintiffs’ pleaded case (the Amended Statement of Claim filed on 29 October 2014) (ASC), the group members to whom this proceeding relates are those persons who:

(a)    Acquired shares in Tamaya in the period from, and including, 28 May 2008 to, and including, 27 October 2008; and

(b)    Are alleged to have suffered losses or damage by or resulting from the wrongful conduct of the defendants as pleaded in the ASC.

(See par 4 of the ASC and par 2 of the Originating Application filed on 28 May 2014.)

9    On 5 February 2015, the plaintiffs in this proceeding filed an Interlocutory Application in which they sought an order granting leave to them pursuant to s 500(2) of the Corporations Act to proceed against Tamaya upon terms that they not enforce any judgment obtained against it without the leave of the Court. That application was supported by the affidavit of Paul Thomas Coves affirmed on 4 February 2015. At the time he affirmed that affidavit, Mr Coves was the solicitor for the plaintiffs in this proceeding. He ceased to act as such in late August 2015. As matters developed, the plaintiffs’ application for leave to proceed against Tamaya was opposed by the Deloitte defendants and the director defendants. Tamaya itself neither consented to nor opposed the grant of leave to proceed although it did resist the making of such an order nunc pro tunc. In their Interlocutory Application, the plaintiffs did not seek an order nunc pro tunc. Nonetheless, in their submissions, they have made it clear that they do seek such an order.

10    When the plaintiffs’ application for leave to proceed was heard by me last year, the final hearing of all four proceedings was fixed to commence on 12 October 2015. That hearing had previously been fixed to commence on 1 June 2015.

11    Since then, Tamaya and its current liquidator have settled the entirety of proceedings NSD 185 of 2013 and NSD 328 of 2014. In addition, the plaintiffs in this proceeding have reached a settlement in principle with Tamaya and the director defendants, leaving the Deloitte defendants as the only active defendants in this proceeding. Proceeding NSD 327 of 2014 remains on foot. The effect of these settlements is that the hearing fixed to commence on 16 May next will involve only proceeding NSD 327 of 2014 and that part of this proceeding which concerns the plaintiffs’ claims against the Deloitte defendants.

12    The terms of the settlement of proceedings NSD 185 of 2013, NSD 328 of 2014 and all claims in this proceeding other than those against the Deloitte defendants are confidential. I have now seen an unredacted copy of each of the two Settlement Deeds and they have been provided to the legal representatives of the Deloitte defendants in connection with the present application. In determining the present application, I propose to take into account the fact that settlements have been reached as outlined at [11] above and, to the extent necessary, the terms thereof.

13    The settlement of this proceeding is subject to certain conditions. Upon those conditions being fulfilled, the claims made in this proceeding against the directors are to be dismissed and the claims made in this proceeding against Tamaya are to be discontinued. The plaintiffs covenant not to sue the director defendants or Tamaya. In the meantime, no steps are to be taken to progress these settled claims.

14    Notwithstanding that the plaintiffs in this proceeding have reached a settlement with all defendants except the Deloitte defendants, the parties have requested that I deliver judgment on the plaintiffs’ application for leave to proceed against Tamaya. This is so, notwithstanding the fact that the plaintiffs have also sought an order to the effect that, once leave to proceed is granted, all future steps in this proceeding against Tamaya should be stayed pending consummation of the settlement. I confess that, given that the plaintiffs in this proceeding have settled their claims against Tamaya, I have difficulty seeing the point of my determining the present application. However, I have been asked to do so and I am prepared to do so upon the assumption that the question of whether the plaintiffs are granted leave to proceed has utility for the settlements already agreed and possibly for the ongoing conduct of the remaining proceedings.

15    By these Reasons for Judgment, I determine the plaintiffs’ application for leave to proceed against Tamaya.

Principles

16    Section 500(2) of the Corporations 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.

17    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 Corporations Act.

18    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.

19    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.

20    In Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22]–[24], I said:

22    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.

23    In the present case, the following considerations point to the grant of leave:

(a)    If leave is granted, virtually no additional expense or inconvenience will be visited upon the respondent. If leave is granted, judgment will be entered immediately.

(b)    The applicant’s claim is based upon a foreign award. Although that award is binding upon the parties to it without any further step needing to be taken (s 8(1) of the IAA), if the award is to be enforced in Australia, steps must be taken either in an appropriate State or Territory court or in this Court to obtain a judgment in order to give effect to the award. When appropriate regard is had to s 2D of the IAA which specifies the objects of the IAA and to s 39 of the IAA, there is good reason to make the path to recovery by the award creditor easier by granting leave and allowing judgment to be entered rather than leave the award creditor to the vagaries of the proof of debt process.

(c)    There is no opposition to leave being granted.

24    Although there is no evidence before the Court as to the financial position of the respondent and thus no basis upon which the Court can make an assessment as to whether the award creditor is likely to recover any part of the amount awarded to it, the above considerations weigh heavily in favour of the grant of leave. In my judgment, there is no consideration of any moment which would weigh in the balance against the grant of leave.

21    Senior Counsel for the Deloitte defendants submitted that the discretion given to the Court was a “broad discretion” and “an absolute discretion”. He argued that the exercise of the discretion should not be fettered by rigid rules but should be exercised by paying due regard to the particular circumstances of the individual case.

22    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).

23    In the present case, Senior Counsel for the Deloitte defendants submitted that, because the plaintiffs had delayed in making their application for leave to proceed and had done so in circumstances which betrayed a less than frank dealing with the Court on the subject, leave to proceed should be refused. It was submitted on behalf of the Deloitte defendants that the litigation was being conducted under the close control and supervision of a litigation funder, International Litigation Partners No 2 Ltd (ILP) not for the benefit of the plaintiffs in the present proceeding but rather for the benefit of Tamaya in the other three proceedings, ILP having agreed to fund Tamaya and its liquidator in those proceedings. ILP has also agreed to fund the plaintiffs in this proceeding.

The Facts Relied Upon by the Parties

24    In this section of these Reasons, I propose to set out as briefly as possible the facts relied upon by the parties in support of their respective contentions directed to the present application.

25    The plaintiffs read and relied upon two affidavits affirmed by Mr Coves: The first was the affidavit affirmed by him on 4 February 2015 and the second was the affidavit affirmed by him on 10 February 2015.

26    The facts were established by Mr Coves’ two affidavits, by two affidavits affirmed by Ms Goodman, the solicitor for the Deloitte defendants, and by the exhibits to those affidavits. The affidavits of Ms Goodman were affirmed on 20 April 2015 and on 19 May 2015 respectively. The documents contained in Exhibit SG3 to the first of Ms Goodman’s affidavits, the documents contained in the annexures to her second affidavit and other documentary tenders made during the course of the hearing have all been used as sources for this summary.

27    I now turn to set out the facts as demonstrated by the evidence.

28    Although this proceeding was commenced on 28 May 2014, it was not until early September 2014 that all defendants had been served with the Originating Application and Statement of Claim. The Deloitte defendants were served a little earlier, on 15 August 2014.

29    Notwithstanding that service had not been effected upon all defendants, the Court held the first directions hearing in the proceeding on 22 August 2014.

30    On 20 August 2014, two days before that directions hearing, Mr Coves sent an email to Mr Lindholm, the representative of ILP with whom he had dealt at all relevant times in respect of this proceeding. In that email, Mr Coves sought instructions from Mr Lindholm as to whether (inter alia) the plaintiffs should seek a direction requiring the filing of an Interlocutory Application for leave to proceed against Tamaya.

31    On 21 August 2014, Mr Coves again sought instructions as to whether an application for leave to proceed against Tamaya should be made. In his response to Mr Coves, Mr Lindholm described this proceeding (referred to in the email as “this class action”) as “… the tail of the dog, not the head”.

32    At the directions hearing held on 22 August 2014, I was told by the legal representative for the plaintiffs who appeared on that occasion that the plaintiffs needed to seek the leave of the Court to proceed against Tamaya. For this reason, an order was made on that occasion that any interlocutory application in which such relief was to be sought should be filed by 19 September 2014.

33    On 26 August 2014, Mr Lindholm sent an email to Mr Coves in which he said:

… until the funder is satisfied as to the viability of the commercial claim against the company you are not to serve or seek leave against the company.

34    The instruction given by Mr Lindholm in his email of 26 August 2014 was given notwithstanding that the Court had made an order on 22 August 2014 that required any application for leave to proceed to be filed and served by 19 September 2014.

35    By email sent by Mr Coves to Mr Lindholm on 27 August 2014, Mr Coves confirmed that he understood the instructions which had been given by Mr Lindholm concerning service of the proceeding on Tamaya and any application for leave to proceed against it.

36    By email sent on 8 September 2014, Mr Coves requested Mr Lindholm to provide instructions as to whether Tamaya should now be served and whether an application for leave to proceed against it should be filed. He drew Mr Lindholm’s attention to the deadline imposed by the orders of the Court made on 22 August 2014 in respect of any such application.

37    On 17 September 2014, Mr Coves again chased Mr Lindholm for instructions as to whether any application for leave to proceed against Tamaya should be filed in accordance with the orders made by the Court on 22 August 2014.

38    On 1 October 2014, Mr Coves sought instructions as to whether Tamaya should now be served. Mr Lindholm instructed him that it should.

39    By email sent at 10.24 am on 7 October 2014, Mr Coves sought Mr Lindholm’s instructions as to whether the funder wanted the plaintiffs’ legal representatives to seek a direction providing for the filing and service of an application for leave to proceed against Tamaya.

40    Having not heard from Mr Lindholm, Mr Coves sent a follow up email at 5.22 pm on 7 October 2014.

41    Later that same day, at 8.44 pm, Mr Lindholm sent an email to Mr Coves in which he said:

No [referring to Mr Coves’ request in respect of any application for leave to proceed], the plan was to serve the claim but not seek leave until Tamaya provided it to their insurer and tried to settle it.

We don’t need a timetable for leave to proceed or an order for a motion you just file one so don’t play to the defendants’ timetable.

42    According to a file note made by Mr Coves, at 8.00 am on 8 October 2014, in a telephone conversation, Mr Lindholm instructed Mr Coves that he did not want to seek leave to proceed against Tamaya.

43    The proceeding was again before the Court on 8 October 2014 at 9.30 am for directions. At the beginning of that directions hearing, Counsel who then appeared for the plaintiffs said:

We don’t propose to seek leave to proceed against [Tamaya].

44    When reporting to Mr Lindholm as to the orders made on 8 October 2014, Mr Coves specifically recorded in his reporting email that no directions about leave to proceed had been made on 8 October 2014.

45    On 8 October 2014, and for some time thereafter, Tamaya was represented by Piper Alderman. When the lawyers representing Tamaya in this and in the related proceedings left Piper Alderman in late 2014 and early 2015, Tamaya changed its representation from Piper Alderman to Squire Patton Boggs, the firm to which those solicitors had moved.

46    At 3.23 pm on 8 October 2014, Mr Lindholm instructed Mr Coves to send a letter to Piper Alderman informing them that the plaintiffs in this proceeding did intend to seek leave to proceed against Tamaya and offering to mediate the plaintiffs’ claims against Tamaya. The letter also contained an enquiry as to whether Tamaya was insured. There was also a suggestion that any mediation should be concluded by December 2014. I note that, by 8 October 2014, the legal representatives of the plaintiffs and Mr Lindholm were well aware that the final hearing of this and the other three proceedings was fixed to commence on 1 June 2015.

47    Mr Coves prepared a draft letter in accordance with Mr Lindholm’s instructions and forwarded it to Mr Lindholm for his final approval. Mr Lindholm gave that approval at 4.49 pm on 8 October 2014.

48    A letter in accordance with the draft approved by Mr Lindholm was sent to Piper Alderman later on 8 October 2014.

49    On 21 November 2014, this proceeding was again before the Court for directions. Counsel who then appeared for the plaintiffs did not mention the question of leave to proceed.

50    When reporting to Mr Lindholm about the directions hearing on 21 November 2014, Mr Coves drew Mr Lindholm’s attention to the fact that the question of leave to proceed against Tamaya was still outstanding. He said that he wanted instructions in relation to whether he wished Mr Coves’ firm to apply to seek leave to proceed against Tamaya. Mr Coves said that the application should be made soon in order to have it made returnable at the next directions hearing on 19 December 2014.

51    On 2 December 2014, Mr Coves sought Mr Lindholm’s instructions as to whether he (Coves) should approach Piper Alderman to seek their consent to an order granting the plaintiffs leave to proceed against Tamaya.

52    By email sent at 5.26 pm on 5 December 2014, Mr Coves followed up Mr Lindholm seeking instructions in relation to the question of whether the plaintiffs should now file an application in which they sought leave to proceed against Tamaya. Mr Coves pointed out to Mr Lindholm that delay in making the application could prejudice the plaintiffs’ prospects of success in obtaining leave to proceed, particularly when the Court was pushing all parties to meet the 1 June 2015 hearing date. Mr Coves sought Mr Lindholm’s urgent instructions in relation to the question of leave to proceed.

53    On 12 December 2014, Mr Lindholm instructed Mr Coves to seek the liquidator’s consent to an order granting to the plaintiffs leave to proceed against Tamaya. Mr Coves had again chased up Mr Lindholm about this and other matters on 11 December 2014.

54    In accordance with Mr Lindholm’s instructions, on 15 December 2014, Mr Coves wrote to Piper Alderman seeking the liquidator’s consent to an order that the plaintiffs have leave to proceed against Tamaya.

55    By letter dated 17 December 2014, Piper Alderman informed Mr Coves that the liquidator neither consented to nor opposed the making of an order granting leave to proceed against Tamaya.

56    On 19 December 2014, there was a further directions hearing held in this proceeding. At Transcript p 6/44–47, Counsel who then appeared for the plaintiffs in this proceeding informed the Court that the plaintiffs intended to apply for leave to proceed against Tamaya. By way of explanation offered on that occasion for this volte-face, Counsel informed the Court that the plaintiffs wished to tap into Tamaya’s insurance policy.

57    As a result of the observation made by Counsel for the plaintiffs on 19 December 2014, I made an order requiring the plaintiffs to file and serve any application for leave to proceed against Tamaya by no later than 4 February 2015. That application was to be made returnable on 11 February 2015.

58    On 30 January 2015, Mr Coves wrote to Squire Patton Boggs setting out reasons why he considered that his clients’ application for leave to proceed against Tamaya was likely to be successful.

59    On 4 February 2015, Mr Lindholm told Mr Coves that he (Lindholm) would chase up the liquidator’s response to Mr Coves’ letter of 30 January 2015.

60    On 9 February 2015, Mr Coves served upon Squire Patton Boggs a Notice to Produce requiring production to the Court of any relevant policy of insurance maintained by Tamaya together with correspondence from the insurer in relation to any claim made by Tamaya under that policy.

61    Prior to the directions hearing held on 11 February 2015, Squire Patton Boggs had indicated to Mr Coves that the liquidators neither consented to nor opposed the plaintiffs’ application for leave to proceed against Tamaya.

62    The plaintiffs opposed the Court receiving evidence and submissions from the Deloitte defendants in opposition to their application for leave to proceed against Tamaya. They contended that those parties had no standing to oppose that application. At the hearing before me of the plaintiffs’ application for leave to proceed, I rejected that submission. I will address that submission later in these Reasons.

The Parties’ Submissions

The Plaintiffs’ Submissions

63    The plaintiffs submitted that:

(a)    They have a genuine and cogent set of claims against Tamaya. In support of this proposition, the plaintiffs explained the structure of their claims against Tamaya by reference to various paragraphs of the ASC.

(b)    There is a serious question to be tried in relation to the plaintiffs’ claims and a real dispute to be litigated.

(c)    Because, in effect, Tamaya is advancing the same claims in the other related proceedings as the plaintiffs advance in this proceeding concerning the various contraventions relied upon by the plaintiffs in this proceeding, it will be difficult for Tamaya to defend the present proceeding with the consequence that it is likely that no substantial costs will be incurred in requiring it to do so.

(d)    Tamaya is insured under a relevant policy of insurance dated 20 August 2008. That policy is a directors and officers policy but contains provisions indemnifying Tamaya itself.

(e)    Tamaya itself neither consents to nor opposes leave to proceed being granted.

(f)    The circumstance that ILP is the litigation funder of the plaintiffs in this proceeding as well as being the litigation funder of Tamaya in the other three proceedings is irrelevant. There is nothing wrong with ILP conducting all four funding activities.

(g)    Delay may be a factor although, in the circumstances of the present case, delay will not cause any prejudice to any relevant party.

(h)    At par 93 of their Written Submission dated 13 May 2015, the plaintiffs summarised their submissions in the following terms:

93    In circumstances where:

(a)    the application for leave to proceed is consented to by Tamaya;

(b)    the Plaintiffs have genuine and arguable claims, with reasonable prospects of success, against Tamaya;

(c)    Tamaya has in place a policy of insurance that, prima facie, responds to the claims sought to be brought against it;

(d)    Tamaya (and the defendants in the Related Proceedings) have been on notice of the claims and the nature of those claims since 28 May 2014;

(e)    the Plaintiffs have served their evidence with respect to the claims sought to be brought against Tamaya;

(f)    Deloitte has not been able to identify any prejudice or change of position on its part;

(g)    the significant overlap between the claims in the Class Action Proceedings and the Related Proceedings will means that the defendants will not suffer any real prejudice in meeting the Plaintiffs claim or evidence; and

(h)    the case management of the Class Action Proceedings and the Related Proceedings is unlikely to be impacted in any significant way,

the Court should, in the exercise of its discretion, grant the First and Second Plaintiff leave to proceed against Tamaya.

The Defendants’ Submissions

64    The Deloitte defendants opposed the grant of leave to proceed. The director defendants joined in that opposition and adopted the submissions advanced by the Deloitte defendants. In addition, Senior Counsel for the fourth defendant, one of the directors, emphasised that the joinder of Tamaya would present a threat to the hearing date.

65    Tamaya was represented by Senior and Junior Counsel at the hearing of the plaintiffs’ application for leave to proceed. It was submitted on behalf of Tamaya that, while it had previously adopted a position of neither consenting to nor opposing the plaintiffs’ application for leave to proceed against it, it had done so upon the basis that the order which was being sought was that which was contained in the plaintiffs’ Interlocutory Application filed on 5 February 2015. Tamaya submitted that it had never consented to the grant of leave nunc pro tunc and was not prepared to do so now. It was submitted on behalf of Tamaya that the Court should not destroy any potential limitation defences that it may have by granting leave to proceed nunc pro tunc. Senior Counsel for Tamaya submitted that the plaintiffs had been guilty of inordinate delay in making and pressing their application for leave to proceed and that they should not now be granted the indulgence of having the order made nunc pro tunc. In addition, Tamaya submitted that it was open to Tamaya to substantively defend this proceeding on at least the issues of reliance, causation and damage as well as upon the basis that the relevant claims were statute-barred. Tamaya submitted that the plaintiffs had acted in breach of s 500(2) of the Corporations Act by commencing the proceedings without leave and had not explained their delay in making their application for leave to proceed nor had they explained the other deliberate forensic choices which they had made along the way.

66    The Deloitte defendants made a wholesale attack upon the plaintiffs’ bona fides based upon the history which I have summarised at [24]–[61] above and submitted that the Court should not reward parties who do not deal openly and frankly with the Court. They went on to submit that the evidence demonstrated that, by instructing Mr Coves to inform the Court that the plaintiffs did not propose to seek leave to proceed against Tamaya while at the same time seeking to settle their claims against Tamaya under the threat of pursuing their entitlement to seek leave to proceed against it, the present proceeding was being conducted, not in the interests of the plaintiffs, but rather in the interests of ILP in its capacity as funder of Tamaya in the three related proceedings.

67    Senior Counsel for the Deloitte defendants made the following submissions:

(a)    There has been inordinate and unexplained delay on the part of the plaintiffs in making their application for leave to proceed against Tamaya. That application should have been made either before the proceeding was commenced on 28 May 2014 or very soon thereafter. Orders were made on 22 August 2014 designed to advance that application but those orders were ignored.

(b)    On 8 October 2014, the Court was informed that the plaintiffs did not intend to seek leave to proceed against Tamaya. That communication was made on instructions notwithstanding that, the day before the directions hearing (viz 7 October 2014) and early in the morning of the directions hearing, Mr Lindholm was apparently seeking to keep ILP’s options open as to whether or not an application for leave to proceed would ultimately be made. His plan was to negotiate a settlement of the plaintiffs’ claims with Tamaya and its insurer, if at all possible.

(c)    At the time I conducted the hearing of the plaintiffs’ application for leave to proceed, the final hearing of all of the four proceedings was fixed to commence on 12 October 2015. Thus, delay had significant implications for that hearing date.

(d)    The change of position notified to the Court on 19 December 2014 was explained on that occasion as being the result of the plaintiffs’ desire to “tap into” Tamaya’s D&O policy of insurance. There is no real advantage in the plaintiffs’ doing so because the directors have first call on the proceeds of that policy and it is unlikely that Tamaya would ever secure indemnity thereunder.

(e)    The only identifiable benefit that could potentially arise in relation to leave being granted is to ILP. The damages report served in proceeding NSD 327 of 2014 reveals that Tamaya was approximately $10 million better off as a result of continuing to trade after 31 March 2008. In that proceeding, in order to generate a compensable loss, Tamaya’s expert (Mr Searby) was asked to assume that Tamaya would be made liable for the entire loss claimed by the plaintiffs in this proceeding (approximately $30 million). Once this assumption is made, the estimated loss for continuing to trade after 31 March 2008 is approximately $20 million. This assumption was instructed to be adopted even though no leave to proceed had been granted against Tamaya. In order to generate substantial fees as a result of funding Tamaya in the related proceedings and the plaintiffs in the present proceeding, ILP needed the plaintiffs in this proceeding to pursue their claims against Tamaya in order to keep the other proceedings alive and to generate significant loss.

(f)    The grant of leave to proceed would seriously jeopardise the 12 October 2015 hearing date.

(g)    No group member has ever expressed any interest in pursuing any claim against Tamaya and there is no suggestion that any such person has lodged a proof of debt. In those circumstances, the Court ought not exercise its discretion to grant leave to pursue a claim to be made by someone who has never expressed an interest in pursuing such a claim.

(h)    Any grant of leave ought not, in the circumstances, unfairly alter substantive rights by reference to limitation periods.

(i)    The Court was misled on 8 October 2014 when it was informed that the plaintiffs did not intend to pursue any application for leave to proceed against Tamaya. The Court ought not countenance such behaviour.

Consideration

68    After I reserved my decision on the present application, I was again compelled to vacate the hearing dates which I had previously fixed for October and November 2015. In light of that circumstance, there were no longer any case management imperatives feeding into the exercise of the Court’s discretion in relation to the plaintiffs’ application for leave to proceed. Further, earlier this year, I was informed that the plaintiffs had settled their claims against the director defendants and also against Tamaya. I have already briefly alluded to this circumstance. The upshot of that settlement is that the final hearing which is due to commence in May 2016 will not involve a hearing of any claims against the director defendants or against Tamaya in this proceeding but rather will be confined to the plaintiffs’ claims against the Deloitte defendants. This circumstance also renders case management imperatives nugatory.

69    I have read the unredacted Settlement Deed entered into between the plaintiffs in this proceeding, Tamaya, its liquidator and the director defendants. I am aware of the limit of cover under the relevant insurance policy. I am also aware of the settlement amount to be paid by the insurer under that policy by way of indemnity of the director defendants. Even allowing for the fact that the cover provided under the relevant policy is costs inclusive, it seems to me to be likely that, subject always of course to the policy responding to the claims made by the plaintiffs against Tamaya, there will be funds available by way of indemnity to Tamaya under the provisions of the policy. Thus, contrary to the submissions made by the Deloitte defendants, the likelihood is that indemnity under the relevant policy will be available to Tamaya.

70    As to the question of whether the Court was misled on 8 October 2015, I am not persuaded that the Court was misled in the manner submitted on behalf of the Deloitte defendants.

71    In the period from 22 August 2014 to 7 October 2014, Mr Coves sought instructions from Mr Lindholm on a number of occasions as to whether or not he was to proceed to file and serve an application for leave to proceed against Tamaya. Those instructions were not forthcoming until 8.44 pm on 7 October 2014. The instructions were that Mr Coves was not to take steps to seek leave to proceed until he and Mr Lindholm had had an opportunity to discuss the insurance position with the liquidator of Tamaya and had the opportunity to settle the plaintiffs’ claims against Tamaya. It appears that a bald instruction not to seek leave to proceed was given by Mr Lindholm to Mr Coves at 8.00 am on 8 October 2014 although that instruction must be seen against the background of the earlier communication the night before. While it is true that, later on 8 October 2014, Mr Lindholm instructed Mr Coves to make contact with Piper Alderman and to open a dialogue with them upon the basis that the plaintiffs did intend to seek leave to proceed against Tamaya, this step should also be considered against the background of the earlier communications.

72    There is no doubt that it would have been far better for the Court to have been informed that the plaintiffs intended to seek leave to proceed against Tamaya unless their claims against it could be settled rather than being informed that the plaintiffs did not intend to seek leave to proceed. Such a statement would have conveyed the true position accurately. Had that been done, it is likely that little criticism would have been levelled at the plaintiffs. Nonetheless, I am not persuaded that the only complexion to be placed upon these circumstances is the sinister one which the Deloitte defendants urge upon me. Further, I am not persuaded that, in dealing with the plaintiffs’ application for leave to proceed, Mr Lindholm and Mr Coves were acting only in the interests of ILP and Tamaya (insofar as its claims in the related proceedings were concerned).

73    In any event, the position was made clear on 19 December 2014.

74    The reality is that, in all the circumstances, the delay occasioned by the approach adopted by the plaintiffs was probably a delay of no more than four months. The Deloitte defendants do not appear to make much of the delay which occurred prior to 22 August 2014.

75    In circumstances where the delay has had no real impact on the case management of this or the related proceedings and was not the reason, or part of the reason, for the hearing dates to be vacated on the two occasions when this has occurred, I do not consider that it would be a proper exercise of the Court’s discretion to refuse to grant leave to the plaintiffs to proceed against Tamaya merely because of the delay occasioned by the decisions taken on behalf of the plaintiffs in early October 2014.

76    I am also mindful that the present proceeding is a representative proceeding. It is clear (but not surprising) that the day to day instructions provided to the plaintiffs’ lawyers in respect of the conduct of this proceeding have been provided by Mr Lindholm as the relevant operative of ILP. The plaintiffs have ceded to ILP the effective management of the litigation. While it may be argued that, in those circumstances, the plaintiffs should be held to account for the conduct of their agent (ILP), I do not think that, even if I were of the view that the decisions made in early October 2014 were made by ILP entirely in its own interests (which I am not), the plaintiffs and the other group members should suffer substantive prejudice because of this.

77    I am satisfied that the plaintiffs have a genuine set of claims against Tamaya as pleaded in the ASC and in their Originating Application. There is a serious question to be tried in relation to those claims and a real dispute to be litigated. I am not persuaded that, by reason of the conduct of Mr Lindholm and possibly Mr Coves in the period between late August 2014 and 19 December 2014, leave to proceed should be refused. The fact that there is an insurance policy which, in all likelihood, will provide some cover to Tamaya in respect of the claims made by the plaintiffs against it in this proceeding is a circumstance to be taken into account in favour of the grant of leave to proceed. The delay which has occurred in making and pursuing the plaintiffs’ application for leave to proceed against Tamaya has not visited substantive prejudice upon the Deloitte defendants and should therefore not carry much weight in the determination of the present application. The liquidator neither consents to nor opposes the grant of leave to proceed but does object to an order being made nunc pro tunc.

78    Having regard to all of the factors to which I have referred at [77] above, I propose to grant to the plaintiffs leave to proceed against Tamaya upon terms.

79    I now turn to address the question of whether leave should be granted nunc pro tunc.

80    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 Corporations 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 Corporations Act.

81    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 J 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.

82    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.

83    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 …

84    In light of the above authorities, I am of the opinion that, insofar as the present proceeding includes claims against Tamaya by the plaintiffs, the proceeding is within the jurisdiction of this Court. That is, this proceeding has been validly commenced.

85    Tamaya and the Deloitte parties oppose the grant of leave to proceed nunc pro tunc by reason of the inordinate and unexplained delay on the part of the plaintiffs in bringing forward their application for leave to proceed. One factor underpinning that submission seems to be the proposition that, if leave to proceed is not granted nunc pro tunc, Tamaya (and perhaps other defendants) will be able to raise limitation defences against the plaintiffs in respect of the period after 30 September 2014.

86    The Deloitte defendants also submitted that the decision of Carr J in Bell Group Ltd v Westpac Banking Corp is wrong. However, I disagree with that submission. In any event, I would follow his Honour’s judgment unless I considered it to be plainly wrong (which I do not).

87    As presently advised, I am not persuaded that a proceeding commenced in contravention of s 500(2) of the Corporations Act has not been “commenced” for the purposes of considering the application of relevant Statutes of Limitation. To regard such a proceeding as not having been commenced would accord to the subsection an effect which the authorities referred to by Carr J in Bell Group Ltd v Westpac Banking Corp would deny.

88    As I have already mentioned, in their Written Submissions, the Deloitte defendants submitted that, on any view of matters, all relevant limitation periods had expired by no later than 30 September 2014. This was so, so it was submitted, because Tamaya had been suspended from quotation on the ASX on 30 September 2008 and had never been reinstated. It subsequently went into external administration on 26 October 2008. Thus, by the time that the plaintiffs filed their Interlocutory Application on 5 February 2015, all relevant limitation periods had expired.

89    Tamaya and the Deloitte defendants submitted that, if they are correct in their foundational submission that, for limitation purposes, a proceeding should not be regarded as having been commenced until leave to proceed is granted or until leave to proceed nunc pro tunc is granted, I should refrain from granting the orders sought by the plaintiffs nunc pro tunc in order to preserve any limitation defences which might be available to the Deloitte defendants and Tamaya.

90    If I were to accept the submissions made on behalf of Tamaya and the Deloitte defendants, it would not matter whether I expressed the requisite leave to proceed as coming into effect on the date the order for leave to proceed is made or at some earlier time (for example, on 5 February 2015). Their limitation arguments would still be available to them.

91    I think, in all the circumstances, that I should not grant leave to proceed nunc pro tunc. A consequence of that decision will be to leave the limitation arguments, such as they may be, intact for a later date. However, I think that I should order that the leave which I propose to grant should come into effect on 5 February 2015 when the plaintiffs filed their Interlocutory Application for leave to proceed.

92    For the above reasons, I do not propose to grant leave to proceed nunc pro tunc.

Other Matters

The Standing of the Deloitte Defendants

93    At the hearing before me, I rejected the plaintiffs’ arguments that the Deloitte defendants do not have standing to resist the plaintiffs’ application for leave to proceed against Tamaya. I now provide brief reasons for that decision. Counsel for the plaintiffs was unable to point to any authority which would support such a broad submission. In my judgment, there is nothing in the section itself or in the authorities which have considered the section which would require the Court to refuse to hear a person with a legitimate interest in the application for leave to proceed. In my judgment, the Deloitte defendants were persons with such an interest and I saw no reason why they should not be permitted to be heard on the question of whether or not leave to proceed should be granted and, if so, upon what terms.

Reasons for Privilege Ruling

94    In answer to Notices to Produce served upon them by the Deloitte defendants, the plaintiffs and Tamaya produced a number of documents in respect of which the plaintiffs claimed privilege. Initially, that claim to privilege was challenged. However, as the argument developed, that challenge was abandoned. The only argument ultimately advanced by the Deloitte defendants in support of the production to them of all documents in respect of which privilege had been claimed was that privilege had been waived. I accepted that argument. The waiver was said to arise from the plaintiffs’ conduct in seeking to rely upon some aspects of their internal communications involving ILP as providing an explanation for their conduct while withholding the balance of those communications. The point was captured succinctly by Allsop J (as his Honour then was) in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 at 519–520 [58] where his Honour said:

It is unnecessary to explore the existence or extent of any such qualification to what Jordan CJ said in Thomason about undue influence or cases such as Re Coomber. It is sufficient to understand, I think, that in most undue influence cases (and in Thomason when its circumstances are appreciated) the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication. Read with an understanding of the effect of the then governing influence of Attorney General (NT) v Maurice (1986) 161 CLR 475 on the views of Hodgson J, the above expression of the matter is consistent with the expression of principle by Hodgson J in Standard Chartered.

95    In the circumstances, the plaintiffs cannot, on the one hand, rely upon some of the relevant communications and, on the other hand, withhold the balance.

96    These are my reasons for making the ruling which I did in respect of issue waiver.

The Bundle of Documents Marked as MFI-1

97    During the hearing, I marked as MFI-1 a bundle of emails and other documents tendered by the plaintiffs as a complete record of all relevant communications internally within their camp with a reservation to these Reasons for Judgment of the question of whether or not I should limit the use to which those documents should be put. As the argument developed, I reconsidered that ruling and admitted all of the documents without limitation as Exhibit 3.

Conclusions

98    For all of the above reasons, I propose to grant leave to the plaintiffs to continue the present proceeding against Tamaya. I will not make an order that they have leave to commence this proceeding nunc pro tunc.

99    Although I have decided not to refuse leave to proceed, I have done so in part because of subsequent events. Further, the plaintiffs have failed to obtain an order for leave to proceed nunc pro tunc. This may or may not turn out to be significant. In any event, the plaintiffs were, at the very least, dilatory in making the necessary application. It was that dilatoriness which was at the heart of the Deloitte defendants’ resistance to the making of the orders sought. That resistance was not unreasonable in the circumstances. Nor was the opposition put up by the other defendants.

100    I think, in all the circumstances, that the appropriate order for costs is that the costs of the application for leave to proceed be costs in the proceeding.

101    There will be orders accordingly.

Associate:

Dated:    28 April 2016

SCHEDULE OF PARTIES