FEDERAL COURT OF AUSTRALIA

R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (Administrators Appointed) (in liq) [2023] FCA 703

ORDERS

THE COURT ORDERS THAT:

Notice to Group Members

1.    The interlocutory application filed on 10 March 2023 by the applicants seeking orders approving a notice to group members be stood over until the delivery of judgments in:

(a)    Jade Elliott-Carde & Anor v McDonald’s Australia Limited (VID 726 of 2021); and Shop, Distributive and Allied Employees Association v Bandec Pty Ltd & Anor (SAD 127 of 2022); and

(b)    Leah Maree Greentree & Anor v Jaguar Land Rover Australia Pty Ltd (NSD 1010 of 2022); and Michelle Elizabeth Jennings v Jaguar Land Rover Australia Pty Ltd (NSD 85 of 2023).

Joinder of Insurers

2.    The applicants be granted leave under s 500(2) of the Corporations Act 2001 (Cth), nunc pro tunc, to commence these proceedings against the first respondent (Blue Sky), on terms to be agreed between the applicants and Blue Sky or as otherwise determined by the Court.

3.    Pursuant to r 9.05(1) of the Federal Court Rules 2011 (Cth) (FCR), each of:

(a)    Chubb Insurance Australia Limited (ACN 001 642 020);

(b)    Certain underwriters at Lloyds being:

(i)    Liberty Managing Agency Limited for and on behalf of Syndicate 4473;

(ii)    ASTA Managing Agency Ltd for and on behalf of Lloyd’s Underwriter Syndicate No. 2786 EVE; and

(iii)    Hardy (Underwriting Agencies) Limited, managing agent for and on behalf of Lloyd’s Syndicate HDU 382;

(c)    Zurich Australian Insurance Limited (ABN 000 296 640); and

(d)    XL Insurance Company SE (ARBN 083 570 441),

(together, the Insurer Respondents) be joined as respondents to the proceedings as the fifth, sixth, seventh and eight respondents respectively.

4.    Pursuant to FCR 1.32, unless the Insurer Respondents elect, the obligation of the Insurer Respondents to take any step in the proceedings, including pleading or responding to a pleading, is suspended until the conclusion of the initial trial or further order of the Court.

5.    Blue Sky be granted liberty to apply in relation to any terms to be imposed in relation to the leave granted under Order 2 of these orders.

Pleadings

6.    Pursuant to FCR 8.21 and 16.51 (and s 33K of the Federal Court of Australia Act 1976 (Cth)), the applicants be granted leave to file and serve by 5pm on 28 June 2023 a consolidated originating application and statement of claim in the form at Annexures MAM-5 and MAM-6 to the Affidavit of Ms Melissa Ann Morgan sworn 19 June 2023, save for any amendments required in relation to the name of the Insurer Respondents.

7.    Pursuant to FCR 1.34:

(a)    the requirements of FCR 8.23(2) be dispensed with for the purposes of the consolidated originating application; and

(b)    the requirements of FCR 16.59(2) be dispensed with for the purpose of the consolidated statement of claim.

8.    On or by 28 July 2023, the respondents (other than the Insurer Respondents and Blue Sky) file and serve their defences.

9.    The time for Blue Sky to file and serve any defence be extended to a date to be fixed at the next case management hearing.

Security for Costs

10.    The applicants provide security for the second respondent’s costs in the amount of $150,000 by way of payment of cash into Court within 21 days of these orders being made (for costs incurred and up to and including the filing of defences).

11.    The applicants provide security for the third respondent’s costs in the amount of $150,000 by way of payment of cash into Court within 21 days of these orders being made (for costs incurred and up to and including the filing of defences).

12.    The applicants provide security for the fourth respondent’s costs in the amount of $300,000 by way of payment of cash into Court within 21 days of these orders being made (for costs incurred and up to and including the filing of defences).

13.    The applicants be granted liberty to apply to vary the form of security ordered pursuant to Orders 10, 11 and 12 above.

14.    If security is not provided in accordance with Orders 10 to 12, the proceeding be stayed pursuant to FCR 19.01(1)(c) as against each of the respondents for whom such security is not provided.

Other

15.    The matter be listed for a further case management conference on a date to be fixed.

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

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from the transcript)

LEE J:

A    INTRODUCTION

1    Before the Court are several applications in a securities class action brought against Blue Sky Alternative Investments Limited (Blue Sky), a company in liquidation. It is unnecessary to set out the complex background to this proceeding, which I have canvassed in two judgments, namely:

(1)    R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (Administrators Appointed) (in liq) (Carriage Application) [2022] FCA 1444 (at [6]–[22]); and

(2)    R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (Administrators Appointed) (in liq) (Carriage Application No 2) [2023] FCA 142 (at [4]–[6]).

2    Although some real progress has been made today, the proceeding continues to be mired in preliminary skirmishes.

B    THE CURRENT POSITION

3    There are, essentially, three matters before the Court today.

4    First, there is an issue relating to the ongoing conduct of the consolidated proceeding in the context of an asserted uncertainty as to the power of the Court to make a common fund order (CFO). Secondly, there are issues concerning the appropriate constitution of the proceeding, including whether the applicants should be granted leave under s 500(2) of the Corporations Act 2001 (Cth) (Corporations Act) to proceed against Blue Sky, and to join its insurers pursuant to r 9.05(1) of the Federal Court Rules 2011 (Cth) (FCR). Thirdly, there are issues concerning security for costs.

5    I will deal with each matter in turn.

C    COMMON FUND ORDERS

6    In March 2023, prior to the consolidation of the proceedings, the first applicant, R&B Investments Pty Ltd (as trustee for the R&B Pension Fund) (R&B Investments) filed an interlocutory application seeking orders pursuant to ss 33X and 33Y of the Federal Court of Australia Act 1976 (Cth) (FCA Act) for the approval of notices to be sent to group members. Relevantly, the proposed notices foreshadowed the applicants seeking a form of CFO at the conclusion of the proceeding.

7    This is said to have raised an issue as to power because it has been suggested recently that this Court is bereft of power to make a CFO under Pt IVA of the FCA Act: see Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84 (at [190] per O’Callaghan J). In Blue Sky (No 2) (at [18]), I expressed doubts as to the correctness of that proposition, and went on to note that:

I also doubt that the making of such an order is necessarily restricted to funders. Even leaving aside the question of statutory power in the context of “Settlement CFOs”, as I indicated in Klemweb [Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Ltd [2019] FCAFC 107; (2019) 369 ALR 583], this Court, as a Court of equity, will apply fundamental equitable principles in the execution of its jurisdiction, including the maxim that equity is equality. One of the outer workings of this maxim is seen in relation to the proper order for costs in representative proceedings brought in Chancery in respect of the reimbursement for the costs of litigation. I went on to observe (at 612–3 [139]–[141]):

[139]        Focussing on the context of Pt IVA proceedings, it is not apparent to me why a properly formulated common fund order that relates, in its operation to a common fund and involves a contingency payment to a solicitor could not, in some cases, be appropriate to ensure justice in some Pt IVA proceedings. …

[140]        In circumstances where there is real doubt about the ability to intervene with contractual promises given to funders absent any complaint by the contractual counterparty … the practical benefit of common fund orders has been to maintain control over disproportionate deductions from modest settlements, prevent windfalls, and ensure the Court’s protective and supervisory role in relation to group members is given effect. …

[141]        Subject to being properly framed… I do not consider it unlikely that a common fund order incorporating a contingency payment could be made. When one has regard to the equitable roots and restitutionary basis of common fund orders, it is not apparent why a common fund order incorporating a contingency component is antithetical to doing justice in a Pt IVA proceeding in an appropriate case.

8    The particular type of CFO sought by the applicants in this case is similar to that contemplated in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Ltd [2019] FCAFC 107; (2019) 369 ALR 583, namely an order which incorporates the payment of an amount, in addition to legal costs, out of any approved settlement pursuant to s 33V(2) of the FCA Act (or under ss 33Z, 33ZA or 33ZJ(3) or otherwise upon judgment) whereby a “just” distribution is made to the solicitors who have borne the risks of funding the litigation and securing the creation of the settlement fund (or judgment sum) for the benefit of group members. This form of CFO has commonly been labelled a “solicitors’ common fund order”: see Klemweb (at 587–588 [16]–[23] per Middleton and Beach JJ; at 612–613 [139]–[141] per Lee J).

9    Presently, to my knowledge, there are two sets of proceedings before the Court which bear upon the question of this Court’s power to make a CFO:

(1)    Jade Elliott-Carde & Anor v McDonald’s Australia Limited (VID 726 of 2021); and Shop, Distributive and Allied Employees Association v Bandec Pty Ltd & Anor (SAD 127 of 2022); and

(2)    Leah Maree Greentree & Anor v Jaguar Land Rover Australia Pty Ltd (NSD 1010 of 2022); and Michelle Elizabeth Jennings v Jaguar Land Rover Australia Pty Ltd (NSD 85 of 2023).

10    The first matter concerns a question I reserved to the Full Court for consideration as to whether the Court has power to make a “settlement CFO”, whereas the second matter concerns the determination of a carriage application in which one of the carriage proposals contemplates the applicant seeking a solicitors’ CFO at the conclusion of the proceeding.

11    Additionally, in advance of the case management hearing today, I have had the benefit of an affidavit sworn by the solicitor for R&B Investments, Ms Amanda Kim Banton. Ms Banton is experienced in class actions and has deposed to the public importance of clarity being obtained in relation to the question of power to make a CFO in the terms sought by the applicants.

12    It may be that following the delivery of judgment in the matters referred to above (at [9]) the issue of power is sufficiently resolved or clarified to dispose of any question of power to make the CFO sought in this proceeding, in which case I will proceed to determine the application for the approval of the proposed opt-out notices. Alternatively, the parties may contend that there is some residual uncertainty, in which case it may be appropriate to refer a further question to the Full Court for consideration pursuant to s 25(6) of the FCA Act.

13    Mr Edwards SC, who appeared for the applicants, did not object to the Court deferring the question of power for further consideration and inviting submissions from the parties following the delivery of the two relevant outstanding judgments. In this regard, it may be utile to obtain further oral submissions on the matter. Accordingly, I do not propose to list the proceeding for further case management until those judgments have been handed down. In any event, this course will cohere with the timing that would be appropriate in the light of the two other matters before the Court today, to which I will now turn.

D    LEAVE TO PROCEED AND JOINDER

14    In June 2023, the applicants filed a further interlocutory application seeking, among other things, leave to proceed against Blue Sky pursuant to s 500(2) of the Corporations Act, and leave to join the insurers to the proceeding pursuant to FCR 9.05(1). I will deal first with the application to proceed against Blue Sky.

D.1    Leave to Proceed

15    Section 500(2) of the Corporations Act provides:

(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.

16    It is unnecessary to canvass in any detail the matters relevant to the Court’s discretion to grant leave to proceed against a company in voluntary liquidation under s 500(2) of the Corporations Act. They were summarised by Hammerschlag J in Global Partners Fund Limited v Babcock & Brown Limited (In Liquidation) [2010] NSWSC 270; (2010) 267 ALR 144 (at 179 [169]), where his Honour observed:

(a)     The purpose of the prohibition against commencing proceedings against a company in liquidation is to avoid a multiplicity of proceedings when the appropriate procedure is to lodge a verified proof of debt with the liquidator.

(b)     The onus is on the claimant to demonstrate why leave should be granted.

(c)     The plaintiff must satisfy the court that its claim has a solid foundation and gives rise to a serious dispute (sometimes termed a serious issue to be tried).

(d)     Factors relevant to the exercise of the discretion may include but are not limited to:

(i)     the degree of complexity of the legal and factual issues involved;

(ii)     the prospects that a proof of debt will be rejected; and

(iii)     the stage to which the proceedings, if already commenced may have progressed.

17    I have received evidence with respect to these discretionary factors, which is unnecessary to detail here. It is difficult to conjure any sensible argument as to why leave ought not be granted and, in any event, Mr Hutton SC appeared on behalf of Blue Sky today and did not articulate any real opposition to the application, save for matters concerning the terms upon which leave should be granted.

18    I was grateful for Mr Hutton’s appearance at relatively short notice, and, in order to allow Blue Sky to retain solicitors and obtain sufficient instructions, I will make orders granting leave to proceed against Blue Sky today, but reserve liberty for Blue Sky to seek additional terms upon which that leave is granted. This is not to encourage such a course being taken, but I am conscious that Mr Hutton appeared today without the benefit of solicitors or comprehensive instructions.

D.2    Joinder of the Insurers

19    On the last occasion, the applicants raised an issue as to whether the insurers should be joined to the proceeding pursuant to the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (State Act). That application was ultimately not pressed because it raised some complicated issues.

20    Following a reformulation of the application, the applicants now seek joinder of the insurers pursuant to FCR 9.05(1), which provides that:

(1)     A party may apply to the Court for an order that a person be joined as a party to the proceeding if the person:

(a)     ought to have been joined as a party to the proceeding; or

(b)     is a person:

(i)     whose cooperation might be required to enforce a judgment; or

(ii)     whose joinder is necessary to ensure that each issue in dispute in the proceeding is able to be heard and finally determined; or

(iii)     who should be joined as a party in order to enable determination of a related dispute and, as a result, avoid multiplicity of proceedings.

21    It is well established that FCR 9.05(1) is to be applied liberally and flexibly in a manner which facilitates the just resolution of the real issues in dispute as quickly, inexpensively and efficiently as possible: see Australian Consumer & Competition Commission v Launceston Superstore Pty Ltd [2013] FCA 297; (2013) ATPR 42–436 (at 43,232 [31]–[35] per Edmonds J). Certainly, in the context of class actions, the need to apply FCR 9.05(1) conformably with the overarching purpose in Pt VB of the FCA Act is reinforced by the flexibility afforded by the extensive case management powers in ss 33ZF and 37P(2) of the FCA Act.

22    The insurers do not now oppose being joined, and, in any event, I am satisfied it is otherwise appropriate to join the insurers. In Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd [2013] FCA 883, Jacobson J noted that where there is a controversy as to the liability of an insurer to the insured and the debate is one in which the third party has an interest, it is a proper exercise of the discretion under FCR 9.05(1) for the Court to permit joinder: see also Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; (2008) 166 FCR 398 (at 414 [73]–[74] per Heerey, Sackville and Siopis JJ); The Owners - Strata Plan 62658 v Mestrez Pty Ltd [2012] NSWSC 1259 (at [54] per Lindsay J).

23    In CGU Insurance Limited v Blakeley [2016] HCA 2; (2016) 259 CLR 339, Nettle J (at 368–373 [87]–[102]) discussed the way in which federal jurisdiction operates in this context so as to allow an applicant to obtain a binding declaration of right relating to the obligation of an insurer to indemnify an insured, which can be characterised as being within the same justiciable controversy, and thus determined in the one proceeding. As Nettle J noted (at 373 [101]–[102]), the purpose of joinder here is to allow a claim for declaratory relief (including in respect of a “theoretical” but not a hypothetical issue) to be determined concurrently and on the basis of the same evidence as the applicant’s claims against the insured. Justice Nettle went on to explain (at 376 [108]) that:

[t]he relief which the joined party gets is the relief to which a willing plaintiff would be entitled. The judgment is entered for the joined party as much as for the actual plaintiff. It does not matter that, but for the joinder, the controversy between the joined party and the existing defendant would have remained uncrystallised. The purpose of the exercise is, in effect, to ensure that the controversy is crystallised and dealt with at the same time as the other issues pertaining to the plaintiff’s ability to recover from the original defendant …

(Citations omitted).

24    In the light of the above, my present inclination is for the insurers to be relieved of the obligation to file defences until after the initial trial, if there remains any dispute as to their position following the delivery of judgment. For those experienced in class action litigation, one of the realities is that if the matter is not resolved, it will be necessary to deal with a succession of trials: the first, of course, being the initial trial, which will involve the determination of the applicant’s claim together with any common questions.

25    The resolution of that aspect of the controversy will crystallise any issues of liability which, in turn, will indicate whether there remains any ongoing dispute as between the insured and the insurers and, if so, whether it can be the subject of joinder and determination at a subsequent case management hearing. I have not formed any final view as to whether that is the appropriate course to take in the circumstances of this case, which may be the subject of further submissions. With that said, it is reflective of my preliminary views, particularly in the light of my concern to minimise the already substantial impost on any available insurance proceedings.

E    SECURITY FOR COSTS

26    The final issue concerns security for costs.

27    Ahead of the case management hearing today, each of the respondents helpfully provided a schedule of their proposed costs to assist in facilitating the determination of each application for security in a pragmatic, cost-effective and sensible manner. I have determined, however, that the appropriate course is to deal only with the issue of security on a limited basis until I am apprised of the extent and nature of the joinder of issue.

28    Broadly speaking, this is for two reasons.

29    First, all of the estimates of security contemplate that significant amounts of money will be expended in relation to discovery, and expert and lay evidence. An important aspect of this case concerns the engagement of the fourth respondent, Ernst & Young (EY), in relation to the audit of a series of Blue Sky financial reports (namely, the “BLA FY2016 Report”; the “BLA HY2017 Report”; the “BLA FY2017 Report”; the “BLA HY2018 Report”; and the “BLA FY2018 Report”). It is alleged, among other things, that the relevant audit partner and EY employees engaged in contravening conduct and made misrepresentations in relation to the planning, performing, preparing and producing of various audit opinions. Invariably, when such a case is mounted, close attention will be given to the application of various accounting standards and the work done by the auditors. Questions will arise as to how such a case may be conducted consistently with the dictates of Pt VB of the FCA Act.

30    Although I have reached no firm view in this regard, it is not apparent to me why discovery cannot be proportionate and appropriately confined. For example, discovery may be targeted by requiring the provision of the electronic audit files of the various audit engagements, together with any associated communications between the auditors (to the extent they are not already on the audit file). Similarly, with respect to the provision of opinion evidence, it may be appropriate to appoint a suitably qualified referee (or referees) to inquire into and report upon aspects of the conduct of the audit or, alternatively, the application of various accounting standards.

31    I mention these matters now because there is presently some uncertainty in this regard as to the precise interlocutory steps that need to be taken to progress the proceeding to trial. Following the close of pleadings and a further case management hearing at that time, I will be in a much better position to assess what might broadly be described as the architecture of the case.

32    The second reason why I have deferred consideration of security for the whole of the proceeding is that presently, the second and third respondents, Messrs Kain and Shand respectively, are separately represented. Mr Kain was the chairman of Blue Sky until November 2018, a director until February 2019, and a member of the audit committee. Mr Shand was the chief operating officer, director and managing director until April 2018.

33    There may be good reasons for Messrs Kain and Shand to have separate legal representation, but no evidence has yet been directed to the question of whether it is necessary for there to be separate representation. It is fundamental, of course, that the Court would not normally allow more than one set of costs to be awarded to successful litigants where there was no real conflict of interest between them in the presentation of their cases. If there was no evidence of conflict, that circumstance would be relevant to the question of the appropriate grant of security and, indeed, might also be relevant to questions as to: whether or not there ought to be separate representation; how separate solicitors should conduct the case; and whether different counsel should be briefed. These questions are not necessarily co-extensive.

34    Accordingly, I have approached the question of security today by hearing from each of the parties. I was directed to principles summarised by Macaulay J in Andrianakis v Uber Technologies (Ruling No 1) [2019] VSC 850, where his Honour observed (at [214]):

In determining the quantum of security, the Court is to apply the following principles:

(a)     The Court is to order an amount which it thinks is ‘just and reasonable’ having regard to all of the circumstances of the case.

(b)     The purpose of security for costs is not to provide a defendant with full protection for the estimated costs of the party seeking security

(c)    The Court is to adopt a ‘broad brush’ approach to the determination of the amount of security to be ordered. The task of the Court is not to undertake precise mathematical calculations.

(d)    That said, the broad brush approach does not involve an abstract process; it must have an evidentiary basis.

(e)    The Court is not bound to give security in the amount sought and is not bound by the estimates of the parties.

(f)    In making its assessment of the appropriate quantum, the Court may scrutinise individual items but not to the extent of minute examination, akin to a taxation.

(g)    The amount ultimately fixed by the Court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide security.

(h)    Insufficiency in the evidence substantiating a claim for security may be reason for the Court to look critically at the estimate provided and may be reason for the Court to apply a heavier percentage discount to the amount sought.

35    With respect, in broad terms, I agree that the above observations are apt to inform the determination of applications of this type. But there is a need to avoid the strict application of these principles and to keep an overriding focus on the minimisation of delay and wasteful or superfluous costs in such applications. At least historically, this has been a problem in large class actions and has resulted in vast reams of paper being filed (including lengthy expert reports) to deal with what should be no more than an adjectival application. In the light of experience gleaned from case management of representative proceedings, and in determining settlement approval applications, judges experienced in large class actions have a sense of how much these cases should cost in broad terms.

36    I will deal first with Messrs Kain and Shand. In relation to Mr Kain, an amount of approximately $478,000 is sought for security until the conclusion of the pleading stage of the proceeding, whereas an amount of approximately $1,000,000 is sought in relation to Mr Shand.

37    I propose to grant security to Messrs Kain and Shand in an amount of $150,000 each.

38    This figure seems to me to be proportionate to the likely work that is necessary to be done in order to prepare a defence. I do not consider that it is appropriate in the exercise of my discretion to allow, in the case of Mr Shand, a significant amount of money to be expended for the purpose of engaging a “dirty expert” to canvass and respond in detail to the accounting standards questions raised in the pleadings for reasons that, by now, should be obvious.

39    I will not attempt to give a patina of intellectual rigour to fastening upon this figure. It is no more than an intuitive estimate of what I consider to be a fair amount in all the circumstances of the case. To the extent there is some underestimation because of some matter I have neglected to take into account, then this can be raised in the context of an application for security being made as to the balance of the proceedings.

40    In relation to EY, however, I recognise that the pleading task is of a different magnitude.

41    An amount of approximately $600,000 was sought for this stage of the proceeding out of a total figure of approximately $5,200,000 for the whole of the proceeding. Assuming the case proceeds in the orthodox way, that global or total figure, for a case of this type, is not intuitively surprising.

42    With that said, it may be that with active case management and a refinement of the interlocutory steps this total figure may come down somewhat. At this interim stage, however, $600,000 is a figure far in excess of what I would consider to be an appropriate amount of security simply to allow the pleading to be filed and for the steps taken in the litigation to date.

43    Adopting a broad brush approach, I propose to allow EY security in an amount of $300,000, which I consider accords with the amount I have allowed for the erstwhile directors of Blue Sky. Again, if I have underestimated an aspect of the case, then this may be taken into account when I return to the question of security at the next case management hearing.

F    CONCLUSION

44    Accordingly, I will make orders facilitating the course outlined above.

Associate:

Dated:    26 June 2023

SCHEDULE OF PARTIES

No: NSD665/2022

Federal Court of Australia

District Registry: New South Wales

Division: General

Applicants:

Second Applicant:            DAVID FURNISS

Respondents:

Second Respondent:             JOHN BRUCE KAIN

Third Respondent:             ROBERT WARNER SHAND

Fourth Respondent:             ERNST & YOUNG (A FIRM) ABN 75 288 172 749

Fifth Respondent:    CHUBB INSURANCE AUSTRALIA LIMITED ACN 001 642 020

Sixth Respondent:    DUAL AUSTRALIA PTY LTD ACN 107 553 257 ON BEHALF OF CERTAIN UNDERWRITERS AT LLOYD’S BEING:

Seventh Respondent:    ZURICH AUSTRALIAN INSURANCE LIMITED ACN 000 296 640

Eighth Respondent:            XL INSURANCE COMPANY SE ARBN 083 570 441