Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Gerard Cassegrain & Co Pty Ltd (in liquidation) [2014] NSWSC 1292
• Hearing dates: 16 September 2014
• Decision date: 19 September 2014
• Jurisdiction: Equity Division - Corporations List
• Before: Black J

Decision

Orders made approving entry into funding agreement.

• Catchwords: CORPORATIONS - winding up - litigation funding agreement - orders sought under s 477(2B) Corporations Act 2001 (Cth) approving entry into litigation funding agreement - whether entry into the agreement is proper exercise of the liquidator's power - whether appropriate to give direction under s 479(3) Corporations Act protecting liquidator from claim of breach of duty in respect of the funding agreement - entry into retainer and costs agreement.
• Legislation Cited: - Corporations Act 2001 (Cth) ss 477(2B), 479(3)
• Cases Cited: - Pascoe; Re Matrix Ground Ltd (in liq) [2011] FCA 117; - Re Gerard Cassegrain & Co Pty Ltd (in liq) (Supreme Court (NSW), Black J, 8 November 2012, unrep); - Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257; - Re Gerard Cassegrain and Co Pty Ltd (in liq) [2013] NSWSC 1293
• Category: Interlocutory applications
• Parties: Christopher Mel Chamberlain in his capacity as liquidator of Gerard Cassegrain & Co Pty Ltd (in liquidation) (First Plaintiff); Gerard Cassegrain & Co Pty Ltd (in liquidation) (Second Plaintiff)
• Representation: Counsel: M Ashhurst SC (Plaintiffs); Solicitors: McCabes (Plaintiffs)
• File Number(s): 2012/344260

Judgment

Entry into a litigation funding agreement

1 By Interlocutory Process dated 11 September 2014, the plaintiffs, Mr Christopher Chamberlain ("Liquidator") in his capacity as liquidator of Gerard Cassegrain & Co Pty Ltd (in liquidation) ("Company") and the Company, seek an order under s 477(2B) of the Corporations Act 2001 (Cth) that the Liquidator have approval to enter into and cause the Company to enter into a litigation funding agreement in or substantially in the form of Confidential Exhibit "CC4" ("Funding Agreement") as amended in two respects to which I will refer below. The Liquidator also seeks a direction under s 479(3) of the Corporations Act that he would be justified in entering into an agreement in or substantially in the form of the Funding Agreement as amended.

2 The application is supported by the Liquidator's affidavit dated 28 August 2014 and relates to the entry into the Funding Agreement with a third party litigation funder in respect of a remitter and inquiry that is still to be held in proceedings 2008/281625 brought by Dennis Cassegrain and others as plaintiffs against the Company, Claude Cassegrain, Felicity Cassegrain and Anthony Sarks. The Liquidator's affidavit sets out the history of the extensive litigation involving the Company and members of the Cassegrain family Relevantly, certain proceedings, which were in the nature of derivative proceedings brought on the Company's behalf, were heard before Bergin CJ in Eq and judgment was given in favour of the Company against Claude Cassegrain, Felicity Cassegrain and Anthony Sarks in 2012. An appeal was subsequently brought from that judgment by Claude Cassegrain and Anthony Sarks, which was dismissed; an appeal was also brought by Felicity Cassegrain, which resulted in a remitter of the proceedings to Bergin CJ in Eq to determine whether to permit an amendment of the claim against Ms Cassegrain, which was allowed; and an appeal was also brought by the Company, which was dismissed. The Company's conduct of its appeal and the defence of the other appeals was funded by the litigation funder from which further funding is now sought for the remitter and the inquiry. An inquiry is now to be held in accordance with orders made by Bergin CJ Eq in those proceedings and the Company and others have filed evidence in that inquiry.

3 The Liquidator also leads evidence as to the Company's assets; as to proofs of debt lodged by Mr Claude Cassegrain, Ms Felicity Cassegrain, another body corporate, a firm of solicitors, the Deputy Commissioner of Taxation, Mr Dennis Cassegrain and a firm of accountants; and of his assessment of the recoverability of judgments which the Company has obtained against Mr Claude Cassegrain, Ms Felicity Cassegrain (although leave has been granted in respect of an appeal to the High Court by Ms Cassegrain in respect of one matter) and Mr Anthony Sarks. Notwithstanding the assets to which the Liquidator refers, his evidence is that the Company does not have funds available to it to pay its costs incurred to date and its further costs of the remitter to Bergin CJ in Eq and the inquiry.

4 The Liquidator notes that the Court had previously approved his entry into a funding agreement in respect of the appeals brought from the judgment of Bergin CJ in Eq and he has now sought additional funding from the same litigation funder in respect of the remitter and the inquiry. The proposed litigation funding agreement has been tendered as Confidential Exhibit "CC4". The Liquidator has advised that two clauses are to be amended to clarify the relationship between the previous funding agreement and the proposed Funding Agreement. First, cl 2.1 will be amended by adding the words "In addition to the Prior Funding" at the commencement of the clause to make clear that the funding provided under the proposed Funding Agreement is additional to that previously provided. Clause 2.7 is also to be inserted to provide, consistent with Recital D, that the parties acknowledge and agree that the agreement supersedes and replaces the Prior Funding Agreement (as defined), other than for the preservation of an indemnity to the Liquidator under the Prior Funding Agreement. That amendment makes clear that the amount payable to the funder under the proposed Funding Agreement, on a successful outcome of the proceedings, is instead of, and not in addition to, the amount specified in the Prior Funding Agreement. The Liquidator's evidence is that the litigation funder's offer will indemnify him in respect of adverse costs orders in respect of the proceedings and he gives evidence, based on lengthy experience as a liquidator, that the terms proposed by the litigation funder are reasonable and acceptable and he considers it is in the Company's best interests to enter into the proposed Funding Agreement for reasons he identifies.

5 The Liquidator's evidence is that he seeks approval of the proposed Funding Agreement under s 477(2B) of the Corporations Act because the terms and performance of the proposed Funding Agreement will extend for a period longer than three months, and that he has not sought creditor approval where creditors include opposing parties in the proceedings and persons with present or prior commercial associations with them. The Liquidator has, appropriately, given notice to creditors of the application, although drawing their attention to the principle, recognised in the case law, that individual creditors do not have a right to be heard in an application of this nature.

6 The principles applicable to approval of funding agreements are well-established, and I have previously summarised them in respect of similar applications in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 and in again in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 1293 where I observed (at 127) that:

"It is well established that the Court is not concerned, in an application of this kind, with matters of commercial judgment but only to satisfy itself that the entry into the agreement is a proper exercise of power and not ill advised or improper on the Liquidator's part, Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405; Re Gerard Cassegrain & Co Pty Ltd (in liq) above at [11]. Relevant factors were identified by Austin J in Re Leigh; AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315, and it is not necessary that I repeat them here. The factors which his Honour identified were in turn referred to by the Full Court of the Federal Court in Fortress Credit Corporation (Aust) II Pty Ltd v Fletcher [2011] FCAFC 89 at [24]; (2011) 85 ACSR 38; by Jacobson J in Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 117 at [14] and in Re Gerard Cassegrain & Co Pty Ltd (in liq) above at [12]. As Jacobson J noted in Pascoe; Re Matrix Group Ltd (in liq) above, the question for the Court is whether the Liquidator's judgment has been infected by a lack of good faith or error of law or principle, or whether there are real or substantial grounds for doubting the prudence of his conduct in seeking to enter into the funding agreement."

7 I am satisfied that it is in the interests of creditors, other than the opposing parties in the remitter and the inquiry, to grant the relevant approval, so far as it will allow the Company to seek to obtain the financial benefit of the existing judgment in its favour. There is nothing to suggest any possible oppression in the conduct of the inquiry. The Funding Agreement contemplates a premium for the litigation funder which appears to be consistent with the range of funding premiums commonly seen in complex commercial litigation, and has been amended in a manner that reflects the need for additional funding at this point. The recitals to that agreement make clear that it replaces the earlier funding agreement, so that the funder's recovery is not cumulative, and the agreement has been amended also to make that clear in the operative provisions.

8 Having regard to these matters, it seems to me that the Court should, on the material before it, not conclude that the Liquidator's judgment that it is in the Company's interest to enter that agreement has involved any lack of good faith or error of law the principle and should not conclude that there is any lack of prudence in entry into the proposed Funding Agreement or causing the Company to do so. Accordingly, I will grant the approval that is sought under s 477(2B) of the Corporations Act for entry into the Funding Agreement.

9 The Liquidator also seeks a direction under s 479(3) of the Corporations Act that he would be justified in entering into the Funding Agreement, and I note that a direction of that kind was given in Pascoe; Re Matrix Ground Ltd (in liq) [2011] FCA 117 and also in Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [18] where I reviewed the authorities as to the circumstances in which such directions would and would not be given. It is not necessary for me to repeat the review of those authorities. I indicated why such a direction was appropriate in respect of the entry into the funding agreement for the appeals, in Re Gerard Cassegrain and Co Pty Ltd (in liq) [2013] NSWSC 1293 at [17], as follows:

"In this case, it seems to me that such a direction is appropriate where the proceedings which led to the appeals were plainly complex; creditors of the Company include persons who are party to the appeal; the Liquidator has been faced with questions raised by [the former solicitors for Claude Cassegrain and others] in the letter to which I referred; and there are plainly persons who may have an interest in challenging the propriety of the entry into the Funding Agreement. I note that such direction is, of course, subject to the adequacy of the information put before the Court, ... Subject to the adequacy of that information, the direction which I consider should be given will allow the Liquidator protection in respect of the entry into the Funding Agreement."

It seems to me that a corresponding direction is justified in respect of the entry into the further Funding Agreement for the remitter and the appeal for the same reason.

Retainer of solicitors

10 The Liquidator and the Company also seek orders under s 477(2B) of the Corporations Act approving nunc pro tunc the Liquidator's entering into and causing the Company to enter into a costs agreement with a firm of solicitors dated 1 August 2014 retaining the solicitors to act and continue to act as solicitors for the Liquidator and the Company in relation to the remitter and the inquiry. The Court has previously approved the retainer of those solicitors in respect of other matters but a separate approval of the retainer is sought so far as the remitter and the inquiry are separate matters to earlier matters.

11 That motion is also supported by the Liquidator's affidavit, which recognises that the solicitors previously acted for Denis Cassegrain in the statutory derivative action before Barrett J (as his Honour then was) and before Bergin CJ in Eq and also for Denis Cassegrain in respect of aspects of the appeal. I have previously addressed that issue in an earlier judgment (Re Gerard Cassegrain & Co Pty Ltd (in liq) (Supreme Court (NSW), Black J, 8 November 2012, unrep)) in respect of approval for their retainer in earlier matters under s 477(2B) of the Corporations Act and I there observed that:

"I have had regard to, and Mr Ashhurst who appears for the liquidator has addressed, the possible significance of the solicitors' previous retainer by Denis Cassegrain and others to act on the Company's behalf in each of the statutory derivative actions. I am comfortably satisfied that I should not decline to approve the costs agreement for that reason. First, as I previously noted, this is in truth a case where the Company's solicitors are continuing to act for it where the Company is now in liquidation. Even if that were not the case, the effect of requiring the liquidator to incur additional costs and additional risks from retaining a solicitor who is unfamiliar with the background to these complex proceedings ... would be disadvantageous to the Company and its creditors and would outweigh any advantage attained from such a retainer. I am reinforced in that view by the fact that the liquidator is an officer of the court and I can properly assume that he will be alert to his responsibilities in respect of the conduct of the appeals. It is also open to the liquidator, or indeed the interests associated with Denis Cassegrain, to obtain independent advice if any issue arises where such advice is appropriate."

I consider that, for the reasons I there indicated, this matter does not preclude the solicitors' continued retainer. The Liquidator also points out, obviously correctly, that the solicitors have background knowledge of the factual matrix and lengthy history of the proceedings.

12 The Liquidator signed a costs agreement with the solicitors by letter dated 1 August 2014; he gives evidence of his experience as a liquidator in engaging solicitors for actual and prospective litigation; and indicates satisfaction as to the rates to be charged by the solicitors. There is nothing on the face of the engagement letter to suggest that those rates are in any way out of the usual range which would be charged by solicitors, particularly in respect of matters of this complexity.

13 There is, on the evidence before me, no reason to think that the entry into the retainer and costs agreement is not a proper exercise of the Liquidator's powers. The Court's role, as I have noted above, is not to second guess the liquidator's judgment as to that matter and there would be no reason to doubt that judgment on the evidence before me. There is nothing to suggest that the Liquidator's entry into this agreement is not a proper exercise of his powers or is ill-advised or in any way inappropriate. Accordingly, I will grant the approval that is sought under s 477(2B) of the Corporations Act for entry into the retainer and costs agreement. I will make a corresponding direction in respect of the entry into the retainer and costs agreement for the same reasons that I made such a direction in respect of the entry into the funding agreement.

14 The Liquidator also seeks confidentiality orders in respect of several documents tendered as exhibits to his affidavit. The Court's power to make such orders is well-established and I am satisfied that I should make such orders.

15 In these circumstances, I make orders in accordance with the short minutes of order initialled by me and placed in the file, but amending order 2 by inserting the following after the phrase "28 August 2014" in line 5, and prior to the defined term "(Funding Agreement"):

"as amended by

(1) adding the words "In addition to the Prior Funding" at the commencement of clause 2.1 and

(2) inserting clause 2.7: "The parties to this Agreement acknowledge and agree that this Agreement shall supersede and replace the Prior Funding Agreement, save that the indemnity provided by LSS in respect of any order for Costs made in the Proceedings that appears in clause 5.1 of the Prior Funding Agreement shall be preserved."

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Decision last updated: 07 October 2014