Federal Court of Australia

Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited (No 3) [2023] FCA 1329

ORDERS

THE COURT ORDERS THAT:

1.    The parties provide short minutes of order reflecting these reasons.

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 AND BACKGROUND

1    This is the third judgment I have delivered in relation to this proceeding: see Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited [2022] FCA 1243; (2022) 165 ACSR 550 and Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited (No 2) [2023] FCA 899. It assumes familiarity with, and adopts the definitions used in, my earlier judgments.

2    Indeed, this is the third judgment I have delivered in relation to a narrow issue, ancillary to the real issues in dispute, being the proper construction of the creditor indemnity in cl 8.1 of the DOCA.

3    By way of brief background, the orders made on the last occasion were accompanied by the following notation:

3.    The parties agree to reserve for further argument, if necessary, the following questions:

(a)    whether the Indemnity authorises VAH to demand, or requires MPG to make, periodic payments on account of the Indemnity of amounts that are said to be costs and expenses falling within the Indemnity; and

(b)    if period payments can be demanded up to a limit of $5 million, whether any such periodic payments are subject to supervision and assessment by the Court.

4    Perhaps unsurprisingly in the light of the history of this proceeding, further argument was necessary and before the Court today is a cross-claim for separate determination by which VAH seeks a declaration in the following terms:

Pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth), a declaration that the Creditor Indemnity in Schedule 5 to the deed of company arrangement dated 25 September 2020 authorises the Cross-claimant to demand, and requires the Cross-respondent to make, periodic payments on account of amounts that are Costs (as defined) within the Creditor Indemnity.

5    For the reasons that follow, I am not satisfied the declaratory relief sought is apt to resolve the residuum of issues and sub-issues surrounding the creditor indemnity. I have determined to adjourn the cross-claim and make orders putting a plan in motion to ensure all controversy relating to the creditor indemnity is fully resolved on a final basis. Having quelled the adjectival disputes, one hopes the parties can finally turn their minds to readying the underlying substantive dispute for hearing.

B    THE CONSTRUCTIONAL DISPUTE

6    Prior to the luncheon adjournment, having heard argument all morning, I raised with the parties certain preliminary views (which, I stressed, I had formed subject to hearing further argument): T52.11–53.9.

7    I explained that as I see it, the kernel of the construction argument is whether VAH is authorised to demand and require MPG to make periodic payments on account of amounts of “Costs” (as defined in the DOCA) pursuant to the creditor indemnity or whether VAH is instead required to wait until the conclusion of the proceeding before it can legitimately demand payment. This necessarily involves consideration of the proper construction of not only the creditor indemnity, but also the relevant provisions of the directors and officers insurance policy by which the fourth respondent, Liberty Mutual Insurance Company Australia, provided cover to VAH, including for defence costs, in the period 1 November 2019 to 1 November 2020 (policy).

8    Any consideration of these construction issues cannot be dealt with in a vacuum. An important part of the relevant context is that liability in relation to the payment of costs incurred as between a solicitor and a client is closely regulated. In particular, the Legal Profession Uniform Law (NSW) (Uniform Law) provides rights to “third party payers” (defined in s 171(1) as persons who have a legal obligation to pay all or any part of the costs for legal services provided to a client). Relevantly, pursuant to s 198(6) of the Uniform Law, a “non-associated third party payer” (defined in s 171(1)(c) as a third party who owes a legal obligation to a client or another person to pay all or any part of the costs for legal services provided to the client) is entitled to request the client’s solicitor provide sufficient information to allow the third party payer to consider making an application for a costs assessment. If such an application is made pursuant to s 198(1), then the cost assessment must take place without any money being required to be paid into court on account of legal costs, and the client’s solicitor must not commence proceedings to recover its costs until the costs assessment has been completed: s 198(7) of the Uniform Law.

9    At present, there is a live dispute as to the interrelationship between these statutory rights and the obligations of MPG pursuant to the creditor indemnity. The problem with the proposed declaration as it is currently framed is that its making or refusal does not resolve the relevant dispute between the parties in a complete way.

10    The issue is not only whether an indemnity should be provided on a periodic basis, but there are related issues as to what flows from a demand made pursuant to the creditor indemnity. These include whether the obligation to pay is limited by, as MPG says, a condition, implied by statute or the common law, that the only costs recoverable are those properly characterised as being reasonable; they also include how any such assessment is to take place, and the legal rights and obligations of VAH and MPG pending any such assessment.

C    THE COURSE TO BE TAKEN

11    In the end, the overarching purpose in Pt VB of the Federal Court of Australia Act 1976 (Cth) (FCA Act) requires me to deal with all aspects of the existing dispute justly, according to law and as quickly, inexpensively and efficiently as possible. The overarching purpose is best facilitated by identifying and determining with celerity all remaining indemnity issues and I expressed the view the parties should go back to the drawing board.

12    This is opposed by MPG. MPG contends a declaration of the kind presently sought would involve an impermissible exercise of judicial power because it is hypothetical: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 (at 581–582 per Mason CJ, Dawson, Toohey and Gaudron JJ); Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 (at 356 [48]–[49] per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ). It is also said the present declaration sought would be inutile and I should refuse to make it as a matter of discretion. I have neither heard nor considered these arguments in full; however, there is little point dismissing the presently formulated cross-claim if disputation will be perpetuated as a consequence. If I was to make an order for dismissal, I would need to be persuaded a declaration or declarations could not be formulated to resolve all the disputes concerning the creditor indemnity identified above in a way which would amount to a licit exercise of judicial power.

13    In a sense, part of the argument advanced by MPG resembles that advanced before the former Chief Justice of this Court in National Australia Bank Ltd v Nautilus Insurance Pte Ltd (No 2) [2019] FCA 1543; (2019) 377 ALR 627. There, it was submitted that summary disposal was appropriate because the only proper exercise of the Court’s discretion would be to refuse to make the declaration sought.

14    In that judgment (at 657–664 [127]–[147]), Allsop CJ comprehensively addressed how one approaches the proper discretionary exercise of declaratory relief in this Court. Indeed, as I remarked in National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 3) [2019] FCA 2139 (at [53]), I agree with the Chief Justice’s observations and would add that the dictates of Pt VB of the FCA Act are also fundamental to the discretion to grant declaratory relief.

D    NEXT STEPS

15    Importantly, in the light of the comments I made prior to the luncheon adjournment, VAH has foreshadowed making a demand for past costs. MPG is likely to respond to a demand in two ways.

16    First, it might be expected to assert that demands for periodic payments are unable to be made, calling in aid the arguments developed in written and oral submissions. Secondly, even if a periodic demand is licit, MPG could be expected to: (1) seek an assessment of those costs pursuant to s 198(1) of the Uniform Law; (2) request information to determine whether or not to seek a costs assessment pursuant to s 198(6) of the Uniform Law; or (3) pursue some other argument that the costs the subject of the demand are outside the terms of the creditor indemnity.

17    Once there has been, in effect, a joinder of issue in relation to any such arguments and VAH has had an opportunity to consider and respond to them, it seems to me all issues as to the creditor indemnity will have crystallised (to the extent this is possible). At that point, I would be disposed to grant leave to VAH to file an amended notice of cross-claim.

18    Further or alternatively, it would be open to MPG to seek any countervailing declaratory or other relief it considers appropriate in the light of any demand served upon it.

19    By this series of anticipated events, the Court will be in a position to hear argument as to whether it can and should make differently formulated and more complete declarations by reference to concrete facts.

20    Ultimately, of course, it may be that it is inappropriate to make any declaration. At present, however, I am far from satisfied it would not be possible to fashion declarations to resolve these collateral disputes, so the parties, at long last, can move towards resolving the substantive issues in this litigation.

Associate:

Dated:    1 November 2023

SCHEDULE OF PARTIES