Federal Court of Australia

Lottah Mining Pty Ltd (in liq) v Campbell-Wilson (Liquidator), in the matter of Forward Mining Limited (in liq) [2025] FCA 378

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 90-15 of Sch 2 of the Corporations Act 2001 (Cth) the Court orders that the first defendants are justified and would be acting reasonably in giving effect to the terms of the deed of settlement entered into between the first defendants, the second defendant, Christopher Darin and Graeme Beattie in their capacities as joint and several liquidators of the plaintiff, and the plaintiff, dated 28 March 2025.

2.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground referred to in s 37AG(1)(a) of the Federal Court of Australia Act (that the order is necessary to prevent prejudice to the proper administration of justice), Confidential Exhibit A-1 be kept confidential and prohibited from publication, except pursuant to an order of the Court, until 11 April 2027.

3.    The parties have liberty to apply to vary Order 2 above on three days’ notice.

4.    The first defendants’ costs of an incidental to this interlocutory process are costs in the winding up of the second defendant.

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 transcript

OWENS J:

1    The first defendants, who are joint and several liquidators of Forward Mining Ltd (in liq), seek orders and directions pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Corporations Act 2001 (Cth), that they would be justified and otherwise acting reasonably in entering into, and giving effect to, a settlement of the proceedings reached between the liquidators, Forward, and the plaintiff, Lottah Mining Pty Ltd (in liq).

2    Lottah claims, by its originating process filed on 8 May 2023, to be a creditor in the liquidation of Forward. The proceedings were commenced to challenge the rejection by the liquidators of the whole of Lottah's proof of debt.

3    The basis of Lottah's claim to be a creditor is the contention that Forward was liable to it, either in contract or restitution, for the amount of costs incurred by Lottah for the purpose of maintaining and developing exploration licences and an associated mine site in Tasmania.

4    Following lengthy negotiations between the parties, including an unsuccessful Court-ordered mediation, on 28 March 2025, the parties concluded a settlement agreement, pursuant to which they agreed to settle Lottah's claim on, critically, the following terms:

(a)    the proceedings are to be discontinued with no orders as to costs;

(b)    the liquidators will admit Lottah as a creditor in the liquidation of Forward in the sum of $7,000,000; and

(c)    the settlement is conditional upon the liquidators obtaining orders from the Court pursuant to s 90-15 of the Insolvency Practice Schedule to the effect that the liquidators are justified in entering into the above settlement agreement with Lottah.

5    The application is supported by two affidavits of Philip Campbell-Wilson, sworn on 8 April 2025 and 10 April 2025 respectively, a bundle of documents exhibited to the former affidavit and marked Exhibit PCW-1, a copy of an advice of senior counsel retained by Forward in relation to the reasonableness of the settlement terms and marked Confidential Exhibit A-1, an affidavit of Justin Gibb Bates sworn on 10 April 2025, and an email communication between the instructing solicitors of the liquidators and ASIC.

6    The liquidators sought an order under section 37AF of the Federal Court of Australia Act 1976 (Cth), on the grounds referred to in s 37AG(1)(a) (i.e., that the order is necessary to prevent prejudice to the proper administration of justice), that the publication of Confidential Exhibit A-1 be prohibited, except pursuant to an order of the Court, until 11 April 2030.

7    I was satisfied that an order should be made in relation to the confidential advice, but only until 11 April 2027, while reserving liberty to the parties to apply to extend that period if they so desire. The confidential nature of such an opinion, and its importance in the just disposition of applications such as the present, is self-evident. In circumstances where I was informed that the liquidation of Forward was expected to be concluded within about 12 to 18 months, however, I was not satisfied that it was necessary to limit publication for a period of five years. I was persuaded that a period of two years was appropriate.

BACKGROUND

8    As I have already indicated, in these proceedings, Lottah seeks to establish that Forward is liable to it for costs that Lottah incurred in relation to maintaining and developing:

(a)    mining exploration licences, which required expenditure to be incurred each year on drilling and mineral analysis, failing which the licence could be forfeited to the relevant regulator, Mineral Resources Tasmania; and

(b)    the Rogetta Mine site, being a leased area of land near Hampshire, Tasmania, to construct a mine and conduct mining and exploration operations.

9    It is not in dispute that Lottah did, in fact, incur the costs as claimed, although there is a dispute about whether all of the claimed costs were incurred for the two purposes just identified. Resolution of that dispute at trial would require, it was said, the consideration of many entries in a very lengthy schedule.

10    Perhaps, the real issue in the proceedings is whether, even if costs were incurred for those purposes, Forward was liable to reimburse or compensate Lottah for them.

11    The proceedings were commenced on 8 May 2023, and the parties have now filed all of the affidavit evidence upon which they propose to rely at a hearing, which is scheduled to commence on 28 April 2025 and run for five days.

12    The most complete articulation of Lottah's claims is found in points of claim that were filed on 15 March 2024.

13    The primary basis upon which the requested relief is claimed is an action for damages for breach of an oral (based upon conversations between directors of the two companies) or implied (based upon a course of dealings) contract. The essential terms of the agreement are said to be that:

(a)    Lottah would be a management, service and employment entity separate to Forward's function as an asset-holding entity;

(b)    Lottah would be a vehicle to obtain funding, to be applied to meet expenses incurred in providing services to establish mining infrastructure at the Rogetta Mine site for the benefit of Forward;

(c)    Forward would borrow money from Lottah from time to time;

(d)    Forward would repay amounts to Lottah that Lottah paid to it, or paid on its behalf, or for goods and services supplied by Lottah, either:

(i)    when Forward's operations became profitable, in which case, Forward would be required to repay those amounts, plus interest at a rate of 10% per annum, plus a 10% share of profit; or

(ii)    when an insolvency event occurred such as Forward going into administration or liquidation;

(e)    Lottah would borrow funds to enable it to then provide the services and funding to Forward.

14    An alternative claim in restitution is also advanced, to the effect that expenses incurred by Lottah were at the request of Forward, and it would be unjust for Forward to retain the benefit of the expenditure without making restitution or paying a reasonable sum by way of quantum meruit.

15    Whether the claim in restitution could succeed, or to what extent, is thought to depend, in part, upon whether Lottah and Forward had the same shareholders over the relevant period. That was because, as I understood the submission, for periods when their shareholders were common, the payment of money by Lottah was for the benefit of the ultimate shareholders, who were conducting the mining venture through a two-company structure, rather than Forward. At the very least, it was said that while that common ownership structure remained in place, it would not be unjust for Forward to retain the benefit of that expenditure.

16    The task of identifying the shareholders in Forward at different times is attended with some difficulty, by reason of deficiencies in the registers maintained by the company, and some complexity in the dealings between different entities in relation to the company’s shares. There are also issues about the existence and terms of any agreements between various shareholders in relation to the operation of the company.

17    The parties attended a Court-ordered mediation on 1 November 2023 (which was unsuccessful), and then an informal settlement conference on 7 March 2025 (which was ultimately successful).

18    The amount claimed by Lottah in the proceedings is $17,636,612.84, and the amount of the liability accepted under the settlement agreement is $7,000,000. The proposed settlement amount is thus about 40 per cent of the amount claimed (with costs falling where they lie).

THE COURT’S POWER

19    As Yates J has observed (in Goyal, Re Cape Technologies Pty Ltd (administrators appointed) [2021] FCA 1654 at [19]):

There is no doubt that the power under s 90-15 of the Insolvency Practice Schedule (Corporations) extends to the giving of judicial advice and direction. However, this power is not appropriately exercised where the Court is being asked to do no more than sanction the making and implementation of a business or commercial decision in respect of which no particular legal issue is raised or in respect of which there is no potential to bring into question the propriety or reasonableness of the decision.

20    The following passage from the reasons of Brereton J in Re One.Tel Limited [2014] NSWSC 457 is also instructive:

[32] …The jurisdiction is analogous to the judicial advice jurisdiction under (NSW) Trustee Act, s 63. The effect of a direction under s 511 is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty…

[33] While the ability of a liquidator to approach the Court for directions is intended to facilitate the liquidator’s functions and should be interpreted widely to give effect to that intention [Re One-Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83], it is insufficient to justify giving such directions that the liquidator wants reassurance about a commercial decision; some such issue as a question of law or procedure, of power, propriety or reasonableness, is required to justify approaching the court for directions, as was explained by Goldberg J (in the context of a voluntary administrator’s application for directions under s 447D) in Re Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433, [65]:

The prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance.

[34] In Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115, Young J said (at 117) that the cases in which directions might properly be given fell into four categories, namely guidance on matters of law, guidance on questions of legal procedure, whether a liquidator should postpone a sale in order to achieve a better price, and where there are two competing offers for assets and a liquidator wishes to gain court directions in order to avoid a subsequent allegation that he or she has acted improperly in choosing one over the other. However, these categories are not exhaustive, and as Giles J said in Re Spedley Securities (at 85), immediately after noting that a Court will not make a liquidator’s commercial decision for him, “It is nonetheless common for a liquidator to seek directions as to whether he is justified in entering into a particular compromise”.

[35] Thus, while the Court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision, or where no legal issue is raised and there is no attack on the propriety or reasonableness of the liquidator’s decision, it may do so in the context of a proposed compromise…, and/or where the decision is likely to be contentious… But the fact that a direction under s 511 - unlike an approval under s 477(2A) or (2B) — exonerates the liquidator from personal liability, means that a closer examination of the liquidator’s decision is required than under s 477. In short, the court should not make a direction the effect of which is to exonerate the liquidator from personal liability in respect of a commercial judgment that the liquidator is concerned may prove contentious, unless satisfied that the liquidator’s decision is, in all the circumstances, a proper one.

…

[55] As with judicial advice to trustees, the court is usually conservative in the advice it gives to liquidators under s 479(3) and s 511, and such advice is conventionally expressed in terms that “the liquidator would be justified” in adopting a particular course of action. The jurisdiction to give such directions is concerned with affording protection to the liquidator in connection with proposed future action, not with ratifying action that the liquidator has already taken. This view of the jurisdiction is supported by the following observations of McLelland J, as he then was, in Re GB Nathan & Co Pty Ltd (1991) 5 ACSR 673, (at 678):

… the only proper subject of a liquidator’s application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or propitiatory form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the directions.

21    Here the liquidators are seeking protection from liability for breach of duty or unreasonable behaviour (on the proviso that they have made full disclosure to the Court): Re Daniel Efrat Consulting Services Pty Ltd (in liq) (1999) 91 FCR 154; [1999] FCA 412 at [13]; Re Ansett Australia Ltd [2001] FCA 1439 at [59] to [62]; Re Dungowan Manly Pty Ltd (in liq) [2017] NSWSC 1771 at [3]; and Re KSK Holdings (Australia) Pty Ltd (in liq) [2019] NSWSC 1463 at [21].

22    There is no evidence that there has been any attack made on the propriety or reasonableness of the liquidators’ decision to enter into the settlement agreement, nor is there any indication that any such attack is in prospect: cf. Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones, Weaver and Stewart (in their capacity as liquidators of Great Southern Managers Australia Ltd (in liq)) [2014] WASC 312 at [61]. Indeed, on 2 April 2025, a letter was sent to Forward's creditors informing them of this application. The letter requested that any creditor who may object notify the liquidators of that objection. No such notice was given.

23    Nevertheless, even without such a factor, a decision to compromise litigation on particular terms is one that is likely to be properly the subject of an application for judicial advice, involving, as it does, more than a pure commercial decision, and extending to an evaluation of questions of law and the reasonableness of the terms of the compromise in light of those legal issues. As the Victorian Court of Appeal observed in Re McDermott and Potts (in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq))[2019] VSCA 23 at [65]:

Courts recognise that they are generally unqualified and ill-equipped to make or approve of business and commercial decisions. Thus, courts are loath to interfere with the commercial judgment of liquidators on matters within their powers, and will not give directions to liquidators on such matters where no issue arises in relation to a legal matter or in relation to the propriety or reasonableness of the decision. This does not inhibit courts from giving directions to liquidators in relation to the compromise of legal proceedings. The compromise of legal proceedings invariably raises legal issues, although it also usually requires the exercise of commercial judgment. As will be seen, liquidators often seek directions concerning the compromise of legal proceedings, and the courts give such directions when persuaded it is appropriate to do so.

24    I note that Re McDermott and Potts was a case concerning s 511 of the Corporations Act, but as the West Australian Supreme Court observed in Re Red Lancer Pty Ltd (in liq); Ex parte Bumbak [2019] WASC 450 at [43], the passage just quoted remains relevant to applications under s 90-15 of the Insolvency Practice Schedule.

25    Similarly, in Re A.C.N. 004 410 833 Ltd (formerly Arrium Ltd) (in liq) [2021] NSWSC 799 at [14], Black J observed that directions pursuant to s 90-15 of the Insolvency Practice Schedule may be given in respect of litigation:

where there is an element of potential controversy in respect of the compromise; where a settlement has a substantial element of compromise about it; or where it involves not only the exercise of a commercial judgment by the liquidator, but also the exercise of a legal judgment involving the assessment of merits of the settlement against the prospects of success in the proceeding…

26    See also, for example, Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350 at [95]; Australian Securities and Investments Commission v Letten (No 24) [2014] FCA 1322 at [14]; and Eagle, in the matter of Australian Institute of Professional Education Pty Ltd (in liquidation) [2023] FCA 941 at [32].

27    In this case, even in the absence of any demonstrated prospect of dispute or controversy with the creditors or others, I am satisfied that a question of legal judgment is involved in the assessment of the merits of the settlement against the prospects of success in the proceeding.

28    Against that background and those principles, I will shortly turn to consider the merits of this application.

29    Before I do, there is, however, one matter I need to address.

30    At the commencement of the hearing, Mr Rose, counsel appearing for the liquidators, quite properly drew my attention to the fact that notice of this application had not been given to the Australian Securities and Investments Commission. Such notice is required by reason of the operation of r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth). That is because s 90-15(2)(b) of the Insolvency Practice Schedule relevantly provides that the Court may exercise the power under s 90-15(1) on application under s 90-20, and s 90-20 is a provision identified in Item 12 of the table in r 2.8(3). It follows that ASIC was required to be given notice "a reasonable time before the hearing of the application".

31    Although r 2.8(3) provides that the court may "otherwise order", and while in my opinion this would have been an appropriate case in which to dispense with that requirement, I considered that the preferable approach was to: (a) direct the liquidators to provide notice to ASIC immediately; (b) proceed to hear argument from the parties; (c) at the conclusion of argument, adjourn the matter part-heard to 2.15 pm on 11 April 2025; (d) at the resumed hearing, either proceed to determine the application if ASIC did not appear or, if they did, hear any submissions that ASIC may wish to make, including any application for an adjournment. I was satisfied, in the circumstances of this case, that 24 hours’ notice to ASIC was a reasonable time to allow ASIC to determine, at the very least, whether they wished to ask for more time to consider their position.

32    When the hearing resumed at 2.15 pm on 11 April 2025, an affidavit was read providing that notice was given to ASIC by email at 1.39 pm on 10 April 2025. No response to that notice had been received by the time the hearing resumed. Furthermore, a further communication was sent from the solicitors instructing the liquidators shortly before the hearing commenced, notifying ASIC of the resumption of the hearing. With no appearance by or other communication from ASIC, I proceeded to deliver this judgment.

CONSIDERATION

33    The evidence of Mr Campbell-Wilson demonstrates clearly that the liquidators have actively defended the proceedings brought by Lottah. They have retained experienced solicitors and counsel to advise them and act on their behalf. They have filed points of defence, filed evidence in support of that defence, and have otherwise participated in the Court's case management of the proceedings, and various interlocutory processes. They have attended a Court-ordered mediation, albeit unsuccessfully. They have, in other words, taken care to advance Forward's interest in the litigation in an appropriate manner. The first defendants submitted, and I accept, that the proceedings have been (and would continue to be) "hard fought".

34    Mr Campbell-Wilson gave evidence that in his experience, as is in any event incontestable, the outcome of litigation is uncertain. He identified, in particular, the following circumstances as adding to the uncertainty in the present case:

(a)    The records of Forward as to the identity and composition of its shareholders at relevant times are incomplete. That was relevant to the question of whether it would be unjust for Forward to retain the benefit of payments made by Lottah, for the reasons I have already described.

(b)    The accounting records did not identify, or otherwise allow firm conclusions to be drawn about, the basis upon which Lottah had advanced funds to or for the benefit of Forward (that is, as equity or debt). That was obviously relevant to the question whether Lottah was a creditor of Forward.

35    To those considerations may be added a great many others, including:

(a)    the well-known uncertainty relating to the assessment of witness credit and reliability, a matter of particular relevance given the fact that Lottah's claim in contract was based on conversations and dealings;

(b)    the generally incomplete or uncertain nature of the documentary records available to the parties in the case, with attendant risks as to the findings of fact that may be made, or inferences that may be drawn;

(c)    the need to identify the purpose of a large number of discrete items of expenditure, with the significant uncertainty as to the result, individually, and thus also in the aggregate; and

(d)    the potential for issues of law to be contestable, and matters about which reasonable minds may differ.

36    The liquidators have acted prudently in obtaining the advice of senior counsel as to the reasonableness of the settlement agreement. That advice is a careful and considered analysis of the facts and law relevant to the claim. It appropriately acknowledges the strengths and weaknesses of Forward's case, and the uncertainties in relation thereto. It goes well beyond a global assessment of prospects, and examines the likely outcome on different issues in a granular way.

37    The liquidators have also had regard to the substantial future costs that would be incurred if they continued to litigate the proceedings (estimated to be between $200,000 and $250,000 for the trial alone) and to the possibility that, even if they were successful, the matter could be appealed. Mr Campbell-Wilson observes that the costs that would be incurred in progressing the matter to a final judgment have the potential to diminish the funds available to Forward creditors by approximately 7%.

38    The liquidators have formed a view, taking into account all of those considerations, that the settlement is fair and reasonable, and in the interests of the creditors of Forward.

39    Overall, I am satisfied that the liquidators would be justified in compromising the proceedings on the terms set out in the settlement deed. Doing so will avoid the uncertainty and risk associated with continuing that litigation. The liquidators have weighed the competing considerations, including the prospects of achieving a better outcome, and have had regard to the detailed reasoning set out in the confidential advice of senior counsel. Having regard to all of that evidence, and the thorough and careful nature of the consideration given to the matter by the liquidators, I am persuaded that the directions should be given in the terms sought.

Associate:

Dated:    17 April 2025