Federal Court of Australia

Mutch v ISG Management Pty Ltd (No 3) [2023] FCA 648

ORDERS

THE COURT ORDERS THAT:

1.    The discontinuance of this proceeding be approved pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) and r 26.12(4) of the Federal Court Rules 2011 (Cth).

2.    Leave is granted to the applicant to discontinue the proceeding by filing a notice of discontinuance.

3.    Leave is granted to the respondent to discontinue all cross-claims in the proceeding.

4.    There be no order as to costs.

THE COURT DECLARES THAT:

5.    Orders 1 and 2 do not affect any rights of the applicant or any group member in the proceeding to pursue the claims that are the subject of this proceeding in another proceeding.

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

REASONS FOR JUDGMENT

BROMBERG J:

1    By an interlocutory application dated 30 March 2023 (Discontinuance Application), the applicant seeks the Court’s approval to discontinue this proceeding pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) and r 26.12(4) of the Federal Court Rules 2011 (Cth). The Discontinuance Application is made with the support of the liquidator of the respondent, ISG Management Pty Ltd (in liquidation) (ISGM). In support of its application, the applicant relies on the affidavit of Ms Vicky Antzoulatos sworn on 30 March 2023 (March 2023 Affidavit). A further affidavit of Ms Antzoulatos dated 2 September 2021 (September 2021 Affidavit) is also relevant to the Application, as is the affidavit sworn by Mr Hadi Boustani dated 5 May 2023 (May 2023 Affidavit).

2    The basis for the Discontinuance Application is that the respondent is in liquidation and, in those circumstances, there is no utility in continuing the proceeding. For the reasons that follow, I have determined that discontinuing the proceeding and all cross-claims would not be unfair, unreasonable or adverse to the interest of group members. I will therefore grant the approval sought by the applicant.

background

3    This proceeding has a relatively long and complicated history, some of which is described in my judgments in Mutch v ISG Management Pty Ltd [2020] FCA 362 and Mutch v ISG Management Pty Ltd (No 2) [2020] FCA 954. I will only set out below that which is strictly relevant to the Discontinuance Application.

4    In 2018, the applicant commenced a representative proceeding under Pt IVA of the Act against ISGM. The primary issue raised by the proceeding was whether, as the applicant alleged, he and at least 3,348 other group members were employees of ISGM or, as ISGM alleged, those persons were employees or contractors of various corporations which provided services to ISGM. On the basis that he and group members were employees of ISGM but had not been paid employee entitlements, the applicant alleged that ISGM had contravened various provisions of the Fair Work Act 2009 (Cth) and sought compensation and penalties for those contraventions.

5    On 23 April 2019, ISGM filed a cross-claim against the applicant and a former corporation associated with him, Mutch Better Communications Pty Ltd. On 22 February 2021, the Court granted leave to the respondent to file cross-claims against each group member and an associated corporate entity of that group member (Cross-Claims Against Group Members) but ordered that all Cross-Claims Against Group Members be stayed. Those cross-claims have remained stayed throughout the proceeding. A notice of cross-claim dated 11 March 2021 was then able to be served on group members, although it is not clear whether any service was effectuated. If served, each of the notices of cross-claim advised that the cross-claim had been stayed by the Court and that the group member, or other cross-respondent to the cross-claim, need not take any action to respond to the cross-claim.

6    On 1 July 2021, ISGM and its parent company, Tandem Corporation Pty Ltd, and a number of related companies, were placed into voluntary administration effective that day. Mr Matthew Caddy and Mr Keith Crawford of McGrathNicol were appointed as voluntary administrators of ISGM.

7    On 7 July 2021, the Court made orders suspending any of the then unperformed timetabling orders made in the proceeding.

8    The September 2021 Affidavit attaches a number of exhibits, including the minutes of the first and second meetings of creditors of ISGM and its related companies, and the Administrators’ Report to Creditors dated 29 July 2021. Those materials show that, at the second meeting of creditors on 5 August 2021, the creditors voted to wind up ISGM and Tandem Corporation, as well as the other related companies, and appointed the voluntary administrators as liquidators.

9    On 1 November 2021, the Court made orders releasing the applicant’s legal representative, Shine Lawyers, from the implied undertaking referred to in order 16 of the Court’s orders dated 15 September 2020 as to the use of the List of Known Group Members. Following those orders, and as set out in the March 2023 Affidavit, Shine:

(a)    identified whether particular group members were entitled to access the Fair Entitlements Guarantee Scheme (FEG Scheme) established by the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act);

(b)    communicated with relevant group members about their potential entitlement to access the FEG scheme;

(c)    lodged 134 claims on behalf of group members to access the FEG scheme;

(d)    lodged 756 proofs of debt on behalf of group members with the liquidator; and

(e)    provided a submission to the Fair Entitlements Guarantee program at the Department of Employment and Workplace Relations on behalf of applicable group members in support of their claims to access the FEG Scheme.

10    On 24 November 2022, Shine received letters of determination from the FEG program advising that the claims of relevant group members had been rejected.

11    On 22 December 2022, Shine lodged a request for a review under s 38 of the FEG Act in respect of 133 group members. As of the date of this judgment, there has been no outcome of that review request.

12    On 16 March 2023, the parties provided their consent to proposed orders seeking the Court’s approval to discontinue the proceeding and all cross-claims. Following correspondence with the Court in which the parties were informed that a formal application should be made, the applicant subsequently filed the Discontinuance Application.

13    On 3 April 2023, and in order to provide group members with an opportunity to oppose the Discontinuance Application, the Court made orders that Shine and the liquidators of ISGM publish and distribute to group members a notice informing them of the proposed discontinuance, the role of the Court and the basis upon which discontinuance may be granted. The notice also invited group members to provide to Shine any objections to the proposed discontinuance and the basis for such an objection.

14    On 5 May 2023, the applicant filed the May 2023 Affidavit, which confirmed the publication and distribution of the notice to group members and annexed each of the 24 objections received by Shine, including three objections received after the deadline for providing objections.

CONSIDERATION

15    A party must obtain the Court’s approval to discontinue any representative proceeding. Section 33V of the Act provides:

33V    Settlement and discontinuance—representative proceeding

(1)    A representative proceeding may not be settled or discontinued without the approval of the Court.

(2)    If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.

16    The principles regarding when a Court should approve a discontinuance have recently been summarised in Davaria Pty Limited v 7-Eleven Stores Pty Ltd [2020] FCA 1234 at [45]-[46] (Moshinsky J), Babscay Pty Ltd v Pitcher Partners (2020) 148 ACSR 551 at [19]-[28] (Anastassiou J) and Tate v Westpac Banking Corporation (No 2) [2020] FCA 1374 at [30]-[37] (Middleton J).

17    In Babscay, Anastassiou J stated at [20]-[23], [27]-[29]:

[20]    The discontinuance of a proceeding in the strict sense is the unilateral act of the applicant. Leaving to one side the cost consequences, the discontinuance of the proceeding puts the applicant in the same position as if the proceeding had not been commenced, save for the effluxion of time in relation to any limitation period within which an action must be brought.

[21]    In relation to representative proceedings, the qualification just mentioned does not apply to group members. In such circumstances, time for the purposes of a limitation period is suspended upon the commencement of a representative proceeding and does not run again for a group member unless the group member opts out under s 33J or the proceeding is determined without finally disposing of the group member’s claim: s 33ZE(1) of the Act. I shall refer to the significance of this protection further below.

[22]    The legal effect of a unilateral discontinuance compared with a settlement agreement may be readily summarised as follows. In the case of a discontinuance, the applicant is free to commence a new proceeding against the same respondents if so advised. As there is no agreement by which the proceeding is compromised, there can be no merger of the applicant’s rights in the proceeding. Similarly, in the absence of any judicial determination, there can be no res judicata or issue estoppel: see, eg, Caason Investments Pty Ltd v Cao (No 3) [2020] FCA 91 at [132] (Murphy J); Thirteenth Corp Pty Ltd v State (2006) 232 ALR 491; [2006] FCA 979 at [33] (Jessup J); Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 450 NSWLR 543 at 556–557 (Clarke JA).

[23]    In contrast, where a settlement agreement has been reached it will be binding upon all group members who have not opted out of the representative proceeding pursuant to s 33J of the Act. Subject to Court approval under s 33V of the Act, the rights of the group members merge in the settlement agreement, or in the case of an accord executory, merge upon performance of the terms of the agreement. The legal consequences for group members of a settlement agreement are therefore more significant, as the agreement will operate to extinguish their rights in the proceeding and bar them from bringing later proceedings in relation to the same causes of action.

…

[27]    The competing approaches were briefly canvassed by Yates J in Simonetta v Spotless Group Holdings Ltd [2017] FCA 1071 at [12]. However, his Honour did not express a concluded view about whether the approach in Mercedes Holdings Pty Limited v Waters (No 1) (2010) 77 ACSR 265; [2010] FCA 124 or Laine was to be preferred:

[12]    In Mercedes Holdings Pty Limited v Waters (No 1) (2010) 77 ACSR 265; [2010] FCA 124 (Mercedes Holdings) at [10] and [24], Perram J said that the question arising on an application for discontinuance is whether the proposed discontinuance would be fair and reasonable not only in the interests of the immediate parties but of the group members as a whole. In Laine v Thiess Pty Ltd [2016] VSC 689 (Laine), Dixon J analysed the matter somewhat differently by considering whether the discontinuance would be unfair or unreasonable or adverse to the interests of group members: see at [34]. The applicants suggested that the approach in Laine might be more apt where, as here, the practical effect of the discontinuance, if approved, will be to do no more than return group members to the position they were in before the commencement of the proceeding. I think there is some merit in that submission but, as the question was not addressed in any detail, and as my consideration of the present application does not turn on any difference between the approach in Mercedes Holdings and the approach in Laine, I will refrain from expressing any concluded view on it.

[28]    I respectfully agree with the articulation of the principle by Dixon J in Laine. In my view, his Honour’s statement of the principle to be applied in the case of a unilateral discontinuance, which does no more than return group members to the position they were in before the commencement of the proceeding, aptly describes the focus of the Court’s consideration in the present context.

[29]    I am satisfied that the discontinuance is not unfair, unreasonable or adverse to the interests of group members. I have reached this conclusion largely as a matter of analysis of the legal effect of the discontinuance discussed above. Indeed, it seems to me that in cases of unilateral discontinuance such as this, generally it should not be necessary for the applicant to be put to the trouble and expense of preparing detailed material, including obtaining a fully reasoned opinion from counsel addressing the prospects of success of the proceeding, or more aptly, the lack thereof, in support of the application for approval of the discontinuance.

18    Whilst I do not consider that the difference in the tests postulated above has significance for this application, the authorities ultimately express a preference that the task of the Court is to assess “whether the discontinuance would be unfair or unreasonable or adverse to the interests of group members”: Laine v Thiess Pty Ltd [2016] VSC 689 at [34] (Dixon J); Babscay at [28]-[29] (Anastassiou J). Applying that test, I consider that the proposed discontinuance would not be unfair or unreasonable or adverse to the interests of the group members as a whole.

19    I am satisfied on the basis of the evidence referred to above at [6] and [8] that the respondent is in liquidation. A proceeding cannot continue against a company in liquidation without leave of the Court: Corporations Act 2001 (Cth) s 500(2). Even if I assume that leave will be granted, there is no evidence or even an assertion before me which supports the proposition that the proceeding has any utility for either the applicant or group members. Nor is any such utility otherwise apparent.

20    Group members are not prejudiced by the discontinuance of a proceeding which has no utility to them. Furthermore, discontinuance, unlike settlement, does not prevent group members from bringing later proceedings against ISGM, related companies or the directors of ISGM in relation to the same, or similar, causes of action as were agitated in this proceeding. Pursuant to s 33ZE(1) of the Act, “any limitation period that applies to the claim of a group member to which the proceeding relates is suspended”. This means that discontinuance of the proceeding puts the group members in the same position as if the proceeding had not been commenced and they are not prejudiced by the proceeding commencing but ultimately discontinuing.

21    As discussed above at [13]-[14], the group members have been notified of the Discontinuance Application and have been provided with an opportunity to object and provide submissions opposing the Discontinuance Application. Twenty-four objections have been lodged. Understandably, the objections express frustration. However, the objections made do not provide a basis or a reason why the discontinuance of the proceeding would be unfair or unreasonable or adverse to the interests of group members. Many of the objections do not address the basis for the objection made at all. Other objections allege financial and other hardship and mistreatment experienced by group members at the hands of ISGM. Some objections include information intended to support the claim that the group member was an employee of ISGM. Some impliedly accuse the directors or other persons formerly in control of ISGM of deliberately putting ISGM into liquidation in order to avoid paying its debts, and then pursuing ISGM’s business activities through a different ‘phoenixed’ corporation under their control. Some objections assert that ISGM’s directors should be held responsible.

22    Those objections are understandable and the frustration implicit in all of them may be considered justified. However, the objections provide no reason for concluding, even on an arguable basis, that the proceeding provides a mechanism for dealing with the wrongful conduct asserted by the objections or otherwise addressing the harm complained of. In respect of the point made that the directors of ISGM should be held responsible, I note that the proceeding is not a proceeding brought against the directors of ISGM. In any event, if those group members who have raised that objection want to proceed against the directors in a further proceeding, they are at liberty to do so now and would remain at liberty to do so if the proceeding is discontinued.

23    I am not satisfied that group members would suffer any relevant prejudice if the proceeding was discontinued because, in essence, the proceeding is inutile and, on its discontinuance, they would simply be returned to the position they were in prior to the commencement of the proceeding.

24    I am therefore satisfied that the proposed discontinuance of the proceeding would not be unfair or unreasonable or adverse to the interests of group members as a whole. In coming to that view, I consider that leave should be given pursuant to r 26.12 of the Rules for the discontinuance of each and every cross-claim made in the proceeding. I am satisfied that it is unlikely that any of the cross-respondents to the Cross-Claims Against Group Members have incurred any costs because, at all relevant times, those cross-claims were stayed and the cross-respondents were advised that they need not take any action in relation to the cross-claim against them.

25    Furthermore, no objection has been made by any group member to the discontinuance of the cross-claims, including in circumstances where group members were informed via the notice referred to above at [13]-[14] that all cross-claims were intended to be discontinued with no order as to costs. In relation to the cross-claim made against the applicant and his associated corporate entity, I am satisfied that the discontinuance of that cross-claim is consented to. I am therefore satisfied that the discontinuance of the cross-claims imposes no unfairness, unreasonableness or is otherwise adverse to the interests of group members as a whole.

Declaration

26    Consistent with the approaches taken in Babscay at [43] (Anastassiou J) and Simonetta v Spotless Group Holdings Ltd [2017] FCA 1071 at [29] (Yates J), I consider it appropriate to make a declaration so group members are not left in any doubt that the approval of the discontinuance does not affect the rights and interests of group members in any other proceeding that they may wish to bring to pursue similar claims. Although this declaration was not sought by the applicant, I consider it especially apposite in this proceeding where a number of group members have lodged objections on the basis that ISGM or its directors should be held liable for their alleged conduct.

Conclusion

27    Accordingly, I will grant leave for the applicant to file a notice of discontinuance to discontinue the proceeding, and for the respondent to discontinue all cross-claims, and will make orders to that effect.

Associate:

Dated:    16 June 2023