Fletcher v Fortress Credit Corporation (Australia) II Pty Limited
[2012] QSC 33
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- Unreported Judgment
- Fletcher v Fortress Credit Corporation (Australia) II Pty Limited[2012] QSC 33
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Fletcher v Fortress Credit Corporation (Australia) II Pty Limited[2012] QSC 33
Fletcher v Fortress Credit Corporation (Australia) II Pty Limited[2012] QSC 33
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED ON: | 27 February 2012 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 24 February 2012 |
JUDGE: | McMurdo J |
ORDER: | The proceedings are stayed until 28 May 2012 or earlier order. Each application is adjourned to 28 May 2012. |
CATCHWORDS: | EQUITY – EQUITABLE REMEDIES - INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – UNDERTAKING AS TO DAMAGES – GENERALLY – where the plaintiffs’ funding for the proceedings was at risk – whether the undertaking as to damages should be secured Corporations Act 2001 (Cth) Fletcher and Ors v Fortress Credit Corporation (Australia) II Pty Ltd [2011] QSC 30 (2011) 82 ACSR 352 Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89 |
COUNSEL: | S Brown SC and M Luchich for applicant B Coles QC and Ms J Taylor for respondent C Wilkins for additional liquidator |
SOLICITORS: | Hopgood Ganim & Baker & McKenzie for applicant Henry Davis York for respondent Thomsons Lawyers for additional liquidator |
[1] On 8 March 2011, I made orders preventing the defendant from dealing with assets up to an amount of $40 million until the trial of the proceedings. They were made upon the undertaking as to damages given by the first plaintiffs who are the liquidators of the second plaintiff.[1] The undertaking was supported by an agreement for the funding of these proceedings, made between the plaintiff company and Octaviar Administration Pty Ltd (in liquidation) (“OA”), which at that time had been approved under s 477(2B) of the Corporations Act 2001 (Cth). That agreement also indemnified the first plaintiffs against their liability under any order for costs in these proceedings. Given the substantial cash assets of OA, the funding agreement appeared to effectively protect the defendant from the risk that an order for costs in its favour would remain unsatisfied.
[2] Since those orders were made, there have been two important events. The first is that the Full Court of the Federal Court has set aside the order by which the funding agreement was approved and has remitted the matter to the primary judge for reconsideration.[2] The High Court has refused special leave to appeal against that judgment. A directions hearing in that proceeding in the Federal Court has been scheduled for next month.
[3] The second event is that on 8 December 2011, the Supreme Court of New South Wales appointed Mr D J Kerr as an additional liquidator of the plaintiff company for certain purposes. That appointment was made on the application of the present plaintiffs, it would appear, because of a perceived conflict of duty and duty, or perhaps duty and interest, from the first plaintiffs also being the liquidators of OA. Mr Kerr was appointed to represent the interests of the plaintiff company in pursuing any claims against the defendant as presently pleaded in these proceedings or arising from the events and circumstances surrounding those of the present matter. The order made provision for Mr Kerr to formally notify Mr Fletcher and Ms Barnet of his intention to take any steps such as taking over the representation of the plaintiff company in these proceedings. Mr Kerr has not yet given such notice. At the commencement of this hearing, Mr Kerr was represented by counsel, who said that Mr Kerr wished to take over the conduct of the proceedings and would do when he obtained funding. He made no submission on the present applications.
[4] At present therefore, the funding agreement made last year is without an approval under s 477(2B) and the prospects of an approval being granted, either for that agreement or another funding agreement for Mr Fletcher and Ms Barnet to prosecute these proceedings, is affected by the potential involvement of Mr Kerr as the special purpose liquidator. Possibly, these proceedings will be prosecuted, but more probably on the instructions of Mr Kerr.
[5] In these circumstances, the defendant has made three applications. The first is for the provision of security for costs. The second is for the terms of the interlocutory injunction to be varied so that it will be conditional upon the undertaking as to damages being secured. The third application, which does not result from the events to which I have referred, is to strike out part of the originating application. The defendant also foreshadowed an application to transfer these proceedings to the Supreme Court of New South Wales, so that they would be heard by the same court which appointed Mr Kerr. However, the application for that transfer was not argued in this hearing.
[6] The circumstances of Mr Kerr’s position suggest that the present proceedings should be stayed, for a relatively short period, so that it can be seen whether he will take over the proceedings with a funding agreement which would fortify an undertaking as to damages to be given by him and which would meet the risk to the defendant that an order for costs in its favour would be unpaid. If the proceedings were stayed for a period of a few months, the defendant’s position, apart from the potential impact of the interlocutory injunction, would not be prejudiced significantly. It is not suggested that such a delay in the prosecution of the case would affect its fair determination and the defendant would not incur significant costs while the proceedings were stayed. The position of the defendant during that period would be no different than if security for costs was now ordered, because the proceedings would then be stayed pending the provision of security before it could be demonstrated that the case should be dismissed for want of prosecution.
[7] But there is the question of the interlocutory injunction and the impact upon the worth of the liquidator’s undertaking as to damages from the removal of the approval of the funding agreement. If the proceedings were stayed for three months, do the circumstances warrant a variation to the terms of the injunction? The answer is affected by the extent of the risk that during that period the defendant or some other entity will suffer damage of such an extent that it could not be compensated by the first plaintiffs pursuant to their undertaking. But it is also affected by other considerations relevant to the balance of convenience, and in particular, the risk that assets presently available to satisfy a judgment against the defendant will become unavailable, if the first plaintiffs were unable or unwilling to provide that security.
[8] As to the risk of a loss to the defendant, I said in my reasons for granting the injunction that the evidence as to any loss or damage which would be suffered by the respondent by the granting of those orders was scant. That remains the case. There was then evidence, which is still relied upon by the defendant, as to rates of return which had been derived by investments in the so-called DSOF Funds. In last year’s hearing, no witness attempted to demonstrate the likely difference between the income which would be derived from the assets as restrained and that which would be derived from investment of the funds. The defendant has now attempted to adduce some evidence in the nature of that comparison, although in the form of an affidavit from its solicitor, who swears that he is informed by Mr Kelleher of the defendant that absent the injunction, the funds would be paid to the DSOF Funds, at a rate of return which was said to be “presently” in excess of 25 per cent per annum, rather than being invested in an Australian bank at a rate of 5.26 per cent. Nevertheless, the evidence still fails to prove the likely impact upon the defendant, because it is not the defendant which would invest those funds, as I explained in my previous judgment. I am asked to infer that there would be a loss by another entity or entities, by not having these moneys to invest in the DSOF Funds. But that would involve a different comparison from the one contained in the solicitor’s affidavit.
[9] Further, the weight of this evidence is very much diminished by several matters. One is that the evidence is not given by a relevant officer of the defendant. Another is that there is some tension between this evidence and that which is in an affidavit from the same solicitor[3] (also upon information from Mr Kelleher) that the respondent’s “ordinary business practice for use of surplus cash” is to apply it in “payment of the respondent’s only creditor, National Australia Bank Limited … in respect of an unsecured revolving credit facility provided by NAB to the respondent; and/or … returns of cash to the DSOF Funds’ bank accounts in New York”. Thirdly and most importantly, more up to date information as to rates of return from the DSOF Funds indicates a much lower income to be derived than something “in excess of 25%”.
[10] The defendant’s evidence referred to gross and net returns for three month and nine month periods ending 30 September 2010. For those three months, there were net returns from the two funds of 6.7 per cent and 8.4 per cent and for those nine months, net returns of 18.7 per cent and 20 per cent. The reference to returns of “in excess of 25%” was apparently based upon the reported gross returns from those funds. But the returns from the funds for the three months and nine months ended 30 September 2011 give quite a different impression. For the nine months ended on that date, the respective net returns were 6.4 per cent and 9.1 per cent and for the three months ending on that day, there was a net loss on one fund of 0.8 per cent and a net return on the other fund of 0.2 per cent. This more up to date evidence was not tendered by the defendant, but was instead exhibited to an affidavit by the plaintiffs’ solicitor. Of course, this information was not available when the most recent of the defendant’s affidavits was sworn, which was in August 2011.
[11] The defendant’s evidence does not address the more up to date information as to the DSOF Funds. There is no evidence, for example, that the returns to September 2011 were unusually low and are expected to return to the 2010 levels. Of course, there is inevitably a degree of uncertainty in an assessment of this kind. But the more current information substantially detracts from whatever weight would otherwise have been given to the comparison within the solicitor’s affidavit. The prospect of some loss to some entity from the freezing order over the next three months cannot be dismissed entirely. But this is a matter which only the defendant could address in detail, which the defendant has chosen not to do.
[12] This being the state of the evidence, it is necessary to consider whether there is such a risk of an uncompensated loss that there should be some condition imposed which requires the undertaking as to damages to be secured. As was rightly conceded by the defendant, any security should apply only in relation to losses suffered from this point, rather than from when the order was made last year.
[13] The defendant relies upon the evidence of the results of searches of any real property held by either of the liquidators in Queensland and New South Wales. It is sufficient to say that there is no basis in that evidence for believing that either of the plaintiffs has any substantial real property in his or her name. The evidence about their personal financial positions, again, could be described as scant. The fact that each is a practising professional person who is likely to be deriving a substantial income cannot be ignored. For example, it is unlikely that an award of damages, pursuant to the undertaking, of the order of, say, $250,000, would not be satisfied. But even a likely loss of that order over the next three months is far from demonstrated.
[14] As I have said, the application to vary the terms of the freezing order requires a consideration of all of the circumstances which are relevant to the balance of convenience. The interests of creditors of the plaintiff company must also be considered. But overall the question is largely affected by the strength or otherwise of the defendant’s case that even over the next three months, the defendant or another party is likely to suffer such a loss and to an extent that it could not be compensated by the first plaintiffs. With the view I hold of the strength of that case, I am not persuaded that the balance of convenience warrants a variation of the freezing orders at this point in time.
[15] There remains the application to strike out paragraph 9 of the originating application, which seeks an order in these terms:
“9.An order pursuant to s 588FF(3) of the Corporations Act 2001 (Cth) extending the time within which any further or other proceedings or claims may be brought against Fortress pursuant to the provisions of part 5.7B of the Corporations Act 2001 (Cth).”
The defendant correctly submits that there is nothing in the statement of claim which pleads any facts which are relevant to that relief and nor is there any affidavit material to support it. The nature of “any further or other proceedings or claims” has not been identified. As matters presently appear, there would seem to be no prospect of relief being granted in these terms and there is no apparent explanation for this claim. However, if the proceedings are stayed for three months, there is no demonstrated prejudice to the defendant from its remaining within the originating application. If Mr Kerr is to take over the prosecution of the case, he can seek to maintain it or abandon it.
[16] The outcome is that each application will be adjourned for three months, that is until 28 May 2012. It will be ordered that until 28 May 2012 or further earlier order, the proceedings will be stayed. I will hear the parties as to costs.