FEDERAL COURT OF AUSTRALIA Lean v Tumut River Orchard Management Ltd [2002] FCA 1419 CORPORATIONS LAW – application under s 500(2) of the Corporations Act for leave to commence proceedings against a company in liquidation – whether a serious or substantial question to be tried – whether applicant has satisfied onus of showing that it is more appropriate for the claims to proceed by action rather than by proof of debt procedure – part of relief sought by applicant in proposed proceedings only obtainable by litigation – whether the balance of convenience lies in granting leave – leave granted subject to conditions aimed to minimise interference with the orderly winding up of the company and the interests of unsecured creditors. Corporations Act 2001 (Cth), s 500(2) Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd (Federal Court of Australia, unreported, 6 November 1997) applied Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 11 ACLC 411 applied Ogilvie-Grant v East (1983) 1 ACLC 742 applied GRAEME TREVOR LEAN v TUMUT RIVER ORCHARD MANAGEMENT LIMITED (LIQUIDATORS APPOINTED) W3017 of 2002 CARR J 20 NOVEMBER 2002 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W3017 OF 2002 BETWEEN: GRAEME TREVOR LEAN Applicant AND: TUMUT RIVER ORCHARD MANAGEMENT LIMITED (LIQUIDATORS APPOINTED) (ACN 003 501 611) Respondent JUDGE: CARR J DATE OF ORDER: 20 NOVEMBER 2002 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant be granted leave, pursuant to s 500(2) of the Corporations Act 2001 (Cth), to commence proceedings against the respondent in respect of the claims described in the draft application and statement of claim annexed to the applicant's affidavit sworn and filed on 16 September 2002, subject to the following conditions: (a) such leave does not extend to taking any steps to enforce any monetary judgment which may be obtained in the proposed proceedings against the property of the respondent, without the further leave of the Court; (b) such leave is confined to commencement of the proposed proceedings by filing an application and statement of claim and prosecuting all claims other than the breach of contract claims in those proceedings to the point at which the issues of liability and relief other than damages have been decided. Should the docket judge, or any other judge responsible for the conduct of the proposed proceedings, consider that the issues in respect of those claims as between liability and relief other than damages on the one hand and damages on the other hand should not be split, the applicant may apply for further leave; (c) in relation to the proposed breach of contract claims, leave is confined to the commencement of proceedings (in the manner referred to above) which include those claims with liberty also to apply further in the event that any directions by the docket judge or other judge responsible for the conduct of those proceedings require the applicant to take further steps; (d) the applicant undertaking, in the form of a written undertaking to the Court to be filed with the proposed application, to pay one half of the costs which the Liquidators may incur in complying with their discovery obligations (if any) to the applicant in the proposed application, such costs to be agreed or taxed in default of agreement and paid at such time as the docket judge or other responsible judge considers appropriate. 2. Subject to any contrary order by the docket judge or other responsible judge in the proposed proceedings, the respondent be excused from filing any pleadings in that application (subject to obtaining legal advice that such a course is appropriate). 3. There be liberty to either party to apply in relation to these orders [including to seek a release from the undertaking referred to in paragraph 1(d) above], and also generally, on giving seven days written notice to the other. 4. The costs of the application be costs in the cause in the proposed application as between the applicant and the respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W3017 OF 2002 BETWEEN: GRAEME TREVOR LEAN Applicant AND: TUMUT RIVER ORCHARD MANAGEMENT LIMITED (LIQUIDATORS APPOINTED) (ACN 003 501 611) Respondent JUDGE: CARR J DATE: 20 NOVEMBER 2002 PLACE: PERTH REASONS FOR JUDGMENT INTRODUCTION 1 This is an application under s 500(2) of the Corporations Act 2001 (Cth) ("the Act") for leave to commence proceedings against the respondent. The respondent opposes the application. THE FACTS 2 The respondent was incorporated on 20 July 1998. At the material times it was the registered proprietor of land at Coonabarabran in New South Wales and Mundubbera in Queensland (it is still the proprietor of some land in Queensland) on which it carried on and managed orchards of peaches and nectarines for the purposes of investment schemes. Those activities were conducted pursuant to the terms of two investment deeds ("the Investment Deeds") and two prospectuses ("the Prospectuses") which had been issued under the terms of the Investment Deeds. 3 On 20 July 1998, Messrs Maxwell William Prentice and Vince Christopher Barilla were appointed as administrators of the respondent under Part 5.3A of the Corporations Law. On 20 October 1998, the respondent and Messrs Prentice and Barilla executed a Deed of Company Arrangement in accordance with s 444B of the Corporations Law. They became the administrators of that Deed. 4 On 28 April 1999, the respondent's creditors, at a meeting convened under s 445F of the Corporations Law, passed a resolution terminating the Deed of Company Arrangement and also resolved that the respondent be wound up. In those circumstances, the respondent was taken to have passed a special resolution under s 491 of the Corporations Law that it be wound up voluntarily and to have done so without a declaration of solvency having been made and lodged under s 494 – see s 446A(2). The respondent was also thereby taken to have nominated Messrs Prentice and Barilla to be the liquidators for the purposes of the winding up – see s 446A(4)(a)(ii). From now on I shall refer to Messrs Prentice and Barilla as "the Liquidators". 5 Section 500(2) of the Act provides that: "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." 6 The applicant, who is a certified practising accountant and a partner in a firm of business and insolvency consultants, has sworn an affidavit in support of the application. In it the applicant says that he intends to commence a representative proceeding in this Court under Part IVA of the Federal Court of Australia Act 1976 (Cth) against the respondent (as first respondent) and two other respondents on behalf of approximately 100 group members ("the proposed Group Members"). The proposed claims are in respect of conduct engaged in by the respondent which is alleged to have been misleading or deceptive and unconscionable contrary to the Trade Practices Act 1974 (Cth) and discrete but related claims of breach of contract on its part. There are further claims of misleading or deceptive conduct against an incorporated financial planner and investment adviser (the proposed third respondent), who is said to have acted on behalf of the respondent. The claims against the proposed second respondent are principally (but not exclusively) for declaratory relief. The applicant has annexed to his affidavit a copy of the proposed originating application and draft statement of claim. 7 An examination of those annexed documents shows that, in summary, the facts upon which the applicant proposes to rely are as follows. The applicant and the proposed Group Members entered into contractual arrangements with the respondent with a view to investing in two schemes (one in New South Wales and the other in Queensland – described as "the Projects") to produce and market peaches and nectarines. Those arrangements included: · a licence agreement ("the Licence Deed") under which the respondent granted a licence to an investor ("the Grower") to occupy a farming allotment; · a farming agreement ("the Farming Agreement") whereby the respondent undertook to cultivate and harvest the fruit trees; and · Investment Deeds entered into between the respondent and a trustee company on behalf of the Growers. 8 Some of the Growers took up the offer of a loan ("the Investor Loans") to meet their financial commitments under the Licence Deed and the Farming Agreement. The agreements in respect of those loans are known as "Investor Loan Agreements". 9 In the draft statement of claim it is pleaded that by a series of agreements, dated between 1 September 1997 and 3 August 2001, the rights of the respondent under the Investor Loan Agreements and Licence Deeds were eventually assigned to a finance company called HP Mercantile Pty Ltd ("HP Mercantile"). HP Mercantile is nominated as the second respondent in the proposed proceedings. 10 The applicant deposes in his affidavit to the fact that HP Mercantile is in the course of suing approximately 30 of the proposed Group Members in Local Court actions in New South Wales. The applicant's solicitor has sworn an affidavit to which is annexed a copy of a "Statement of Liquidated Claim" in one of those proceedings. It is intended as an example. That document recites the entry by the defendant Grower into a Farming Agreement with the respondent, the assignment, purportedly in accordance with the terms and conditions of the relevant Investment Deed, of the rights and obligations of the respondent to a company called Treetop Projects Ltd ("Treetop"). Next it is pleaded that Treetop became entitled to certain payments under the Farming Agreement and thereafter the plaintiff became entitled to that debt as assignee (through an intermediary company). HP Mercantile claims to be entitled, pursuant to the terms of the Investment Deed, to interest at the rate of 20% per annum on the amount of the debt which was assigned to it. 11 The applicant's solicitor also deposes to the fact that HP Mercantile has made without prejudice offers to settle its disputes with what I have described as the proposed Group Members and that those offers "concern the issue of both unpaid Harvesting and Marketing Costs and outstanding loans". 12 In the draft statement of claim, the applicant alleges that in brochures published by the first respondent and in a document described as a "project summary" distributed on its behalf by the proposed third respondent at certain seminars, the respondent represented to the applicant and the proposed Group Members that they would not be personally liable for the Harvesting and Marketing Costs incurred in the Projects and that the Investor Loans were non-recourse loans. That is, that they were costs and loans which would only be repayable out of the proceeds of sale of the produce from the orchards. 13 The applicant alleges in the draft statement of claim that publication of the statements in the brochure and in the project summary constituted conduct which was misleading or deceptive and unconscionable contrary to the Trade Practices Act, because in fact the effect of the relevant agreements was the opposite of what was represented. At the hearing of this application Professor J O'Donovan, counsel for the applicant, said that he might not proceed with the unconscionable conduct allegation. 14 As a related, but distinct, claim the applicant proposes to sue the respondent for damages for breaches of the Farming Agreements. 15 The applicant swears that he believes the claims in the proposed proceeding have a solid foundation and give rise to a serious question to be tried. He points to the fact that in the proposed proceeding he will seek the following non-monetary relief, namely, declarations that: · the Group Members are not personally liable for the Harvesting and Marketing Costs; · the Investor Loans are non-recourse loans; · the Group Members have not committed an event of default within Clause 4.1 of the Farming Agreements to the extent that they have ceased carrying on what is described as " the Farm Business" on the land; and · that they are entitled to an equitable or statutory set-off against the respondent and its assignee HP Mercantile. 16 In opposition to the application, Mr Prentice has sworn an affidavit annexing copies of the relevant Investment Deeds and Prospectuses. Pro forma copies of the Investor Loan Agreements are scheduled to the Investment Deeds. 17 Mr Prentice states that, with the exception of the Queensland property, all of the respondent's real estate has been sold. He anticipates entering into a contract for the sale of the Queensland property fairly soon. When the Queensland property has been sold he anticipates that there will be total receipts of about $902,000. He has not yet called for formal proofs of debt, but is aware of total claims in excess of $19 million. This does not include potential claims by Growers of which there are approximately 2600. Only 29 Growers have lodged proofs of debt. Mr Prentice estimates that, on the basis of there being no more than $19 million of debts proved, the final dividend to unsecured creditors will be in the order of 0.05 cents in the dollar. 18 In response to a suggestion made in the applicant's outline of submissions that the Liquidators should obtain legal advice, and if so advised, admit liability to him and the proposed Group Members, Mr Prentice says in his affidavit that he could not do that without a full investigation of the allegations made. He says that he has in storage 142 boxes of documents pertaining to the affairs of the respondent and he understands that his solicitors in Sydney hold further relevant documents. To investigate fully the allegations pleaded in the proposed statement of claim would require a substantial commitment of resources. Although Mr Prentice concedes that he would need to make such an investigation in relation to proofs of debt, he says that that investigation would not require the preparation of affidavits and the presentation of a case in Court. Mr Prentice says further that the respondent has not made any claim against the Growers or given any notice of intention to do so. The respondent does not, to Mr Prentice's knowledge, hold any policy of insurance with respect to the matters which are the subject of the proposed application. Finally, Mr Prentice says that if all 2600 of the investors in the Projects were given leave to proceed against the respondent, a substantial part of its assets will be dissipated in legal fees for no benefit to the respondent or its creditors. my reasoning 19 The approach which a Court takes when deciding an application for leave of this type was most usefully summarised by Lee J in Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd (Federal Court of Australia, unreported, 6 November 1997). I shall refer to that case as "Ringfab". His Honour's summary (at pp 2-3) was as follows: "Section 500(2) of the Corporations Law requires the leave of the Court to be obtained before an action may be commenced against a company in liquidation. The purpose of such a provision is to prevent a company in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily: Fielding v Vagrand Pty Ltd (In Liquidation) (1993) 11 ACLC 172 at 174; Ogilvie Grant v East (1983) 1 ACLC 742 at 744; Maher v Taylor (1984) 8 ACLR 931 at 934; Re A J Benjamin Ltd (In Liquidation) (1969) 90 WN (Pt 1) (NSW) 107 at 110. In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate, in respect of a particular claim, to proceed by way of action: Fielding v Vagrand at 174; Ogilvie Grant v East at 744; Stewart v Intercity Distributors Limited (1960) NZLR 944 at 946. For leave to be granted, it must be shown that there is a serious or substantial question to be tried: Oceanic Life Ltd v Insurance & Retirement Planning Services Pty Ltd (In Liquidation) (1993) 11 ACLC 1157 at 1159; Olgilvie Grant v East at 744; and a real dispute between the parties: Fielding v Vagrand at 175; Zempilas v J N Taylor Holdings Ltd (In Provisional Liquidation) (No 4) (1991) 9 ACLC 297 at 298; Capita Financial Group Ltd v Rothwells Ltd (No 2) (1989) 7 ACLC 634 at 637. Leave will not be granted where the applicant does not have a genuine claim or where the claim would be futile. ... … The orderly winding up of Nericon [the relevant company in liquidation] and the interests of Nericon's existing unsecured creditors must also be taken into account: Oceanic Life Ltd v Insurance and Retirement Planning Services Pty at 1159. In a situation such as the present, where the liquidator has no funds to conduct a defence and there is little prospect of funds becoming available and the company is not insured against the damages sought, there is strong reason for refusing leave: Maher v Taylor at 934; Re A J Benjamin at 109-110. Furthermore, claims against Nericon cannot be sustained unless CALM succeeds in its claims against the first and second respondents. With respect to the declaratory and injunctive relief, it is a factor in favour of granting leave that the relief cannot be obtained otherwise than by a successful application to the Court: Vagrand Pty Ltd (In Liquidation) v Fielding (1993) 11 ACLC 411 at 414; Fielding v Vagrand at 177; Wyley v Exhall Coal Mining Co Ltd (1864) 33 Beav 538." 20 Ms P E Cahill, counsel for the respondent, as part of her submissions that the applicant had not shown that there was a serious question to be tried took me to various paragraphs in the statement of claim. In relation to the claims based on s 52 of the Trade Practices Act, I was taken to paragraph 63 of the statement of claim by which it is intended to plead the loss or damage incurred by the Group Members as a result of the first respondent's misleading or deceptive conduct. There are four paragraphs which describe various headings of loss. I do not propose to go through each of the paragraphs which were the subject of submissions, but I will select two. The first sub-paragraph referred to loss or damage incurred "by incurring liabilities under the Agreements". Ms Cahill's complaint, on behalf of the respondent, was that these liabilities "have not been identified". In my view, for the purposes of the present application there is no substance in that submission. If the context of the submission were either an application to strike out the pleading or for an order for further and better particulars in the course of the proposed application, that would be another matter. In my view, there is sufficient material in the evidence before the Court at this stage to raise a serious question to be tried that the Group Members have incurred loss or damage by incurring liabilities under the various agreements. 21 Next complaint is made about paragraph 63(d) which pleads loss or damage: "(d) as a result of the possible termination of the Farming Agreement and an accelerated liability to repay the Principal Sum and interest under the Agreements." 22 In respect of this sub-paragraph Ms Cahill submitted that there was no evidence in the affidavits, and nor was it pleaded, that there had been any breach of the Farming Agreement. There was no evidence as to how an accelerated liability might arise, or that it was non-recourse. There was nothing to show, so it was put, that any steps had been taken to terminate the Farming Agreement. Nor was there any evidence of any intention to enforce liabilities by calling in loans. 23 Once again, these complaints are, in my view, not directed to whether it has been demonstrated that there is a serious question to be tried. In paragraph 49 of the draft statement of claim there is a plea that HP Mercantile has, by a series of assignments, become the assignee of the respondent's rights under (among other instruments) "the Agreements". "The Agreements" are defined in the draft statement of claim as meaning all the agreements to which I have referred in paragraphs 7 and 8 above. There is reference in paragraph 63(c) of the draft statement of claim to loss or damage arising from demands made by HP Mercantile for payment of the Harvesting and Marketing Costs. 24 The sample of the Local Court claim attached to the second of the applicant's solicitor's affidavits shows, in my view sufficiently for present purposes, that HP Mercantile is suing to recover as assignee of debts which have their source in a claim for payment of Harvesting and Marketing Costs said to have been earned under one of the Farming Agreements. 25 The respondent submitted that the Group Members had not shown that they had incurred any liability in respect of the repayment of loan money, that they had not shown that any liabilities which they may have incurred under the various agreements are being, or will be, enforced against them, that the respondent has not made any claims upon the Group Members under those agreements and that the Group Members have not shown that there is any intention to terminate the Farming Agreements. 26 The respondent referred to certain paragraphs in Mr Prentice's affidavit to the effect that so far as he has been able to ascertain, none of the principal sums under any of the Investor Loan Agreements were ever drawn down (paragraph 11). This seems somewhat inconsistent with the averment in paragraph 10 of his affidavit that "Approximately 98% of the Growers funded their investment in this way". "In this way" was a reference to funding investments by finance made available by the respondent pursuant to the Investor Loan Agreements. Furthermore, as Professor O'Donovan submitted in reply, the loan repayment obligations may have arisen not by the money being handed to the Growers, but by being applied by the respondent for their benefit in relation to the Projects. From paragraph 12 of Mr Prentice's affidavit it would appear that there have been payments made by the Growers under the terms of the Investor Loan Agreements. The respondent also relies on Mr Prentice's evidence that the respondent has not made any claim against the Growers or given any notice of intention to make any claim. 27 I reject those submissions. I think that it is appropriate to treat the applicant's affidavit as being "an affidavit of merits" (see Vagrand at 414) in relation to the proposed application and draft statement of claim. In the draft statement of claim, after the plea of misleading or deceptive conduct, there appear the following paragraphs: "62. Acting in reliance on the express and implied representations and, in the alternative, the future representations, the Group Members: (a) completed the form of application and the application for investor loan included in the Prospectus; (b) authorised the Representative to enter into the Investment Deed, the Licence Deed and the Farming Agreement as their agent; and (c) invested money in the Project. 63. As a result of the First Respondent's express and implied representations and, in the alternative, future representations, the Group Members have incurred or may incur loss or damage: (a) by incurring liabilities under the Agreements; (b) by incurring legal expenses in obtaining advice about their rights and obligations under the Agreements; (c) as a result of the demands made by the First Respondent or the Second Respondent for payment of the Harvesting and Marketing Costs; and (d) as a result of the possible termination of the Farming Agreement and an accelerated liability to repay the Principal Sum and interest under the Agreements." 28 So far as sufficiency of the pleadings is concerned, I have regard first to the draft originating application, paragraph 2 of which describes the Group Members as being all of the persons who signed the form of application in the Prospectus and who, amongst other things, applied for an Investor Loan and who have suffered or may suffer loss or damage referred to in paragraph 64 of the statement of claim (that is an obvious reference to paragraph 63). There are similar descriptions of the Group Members in paragraph 3 of the draft statement of claim, but seven Group Members are also identified by name. It is worth remembering that relief may be obtained under s 87 of the Trade Practices Act if it appears to the Court that a party is likely to suffer loss or damage by the relevant conduct. 29 Ms Cahill submitted that there was no serious question to be tried as to whether the Group Members had any liabilities under the Investor Loan Agreements. There was, so she submitted, no evidence of any threatened claim for repayment of loan moneys (as contrasted with the claims arising out of Harvesting and Marketing Costs). The respondent did not want its resources depleted in litigation on what counsel described as a hypothetical and ultimately useless point. 30 Then I was taken to the terms of the Farming Agreements and, in relation to each Project, a document described as a "Second Farming Agreement". It was put, on behalf of the respondent, that it was apparent from perusing those Agreements that only those Group Members who invested before 1995 might have a personal liability because the Second Farming Agreement, so it was submitted, precluded such personal liability. 31 In reply Professor J O'Donovan drew my attention to paragraphs 29 of the Farming Agreement and paragraph 28 of the Second Farming Agreement, which provided that each of those Agreements was subject in all respects to the terms and conditions of the Investment Deed and that, in the event of any inconsistency, the terms and conditions of the Investment Deed should prevail until the date of termination. Counsel submitted that if there were any inconsistency then the terms of the original Investment Deed were to prevail. 32 This is not the place in which to resolve that point of construction. It is a matter for the trial judge in the proposed application. It is sufficient for me at this stage to form the view (as I have) that a serious question arises as to whether the various amending deeds have the effect of protecting later subscribers in the manner in which the first respondent claims. 33 Ms Cahill said that "at best" the evidence was that only 30 Group Members were at risk of being sued. There was no means of discovering whether the balance of the Group Members had any real issue as to their personal liability for Harvesting and Marketing Costs. That may well be true, but in my opinion, a clearer picture as to the composition of the Group will emerge as the representative proceeding takes its course. If there are no more than 30 such Group Members, then any expenditure on the respondent's part will be confined to those claims. 34 Next the respondent complained that there was no evidence as to what had been happening in respect of the Local Court proceedings in New South Wales and what would be the likely course of those proceedings. In my opinion, in an application of this type, that sort of evidence is not needed. It is sufficient, to demonstrate a serious question to be tried, that there are in train some 30 Local Court proceedings in New South Wales in which HP Mercantile is seeking to recover debts which have their origin in the incurring by the proposed Group Members of Harvesting and Marketing Costs. It is not necessary for an applicant for leave to prove all the elements of the proposed claim: see Vagrand at 414. 35 In my view, the applicant has shown that the proposed claims in respect of the alleged misleading or deceptive and (perhaps to a lesser extent) unconscionable conduct on the respondent's part have a solid foundation and give rise to a serious dispute, which is much the same as saying that there is a serious question to be tried: see Vagrand at 417. Vagrand was a unanimous decision of a Full Court of this Court. 36 The respondent contended that the applicant had not demonstrated a serious question to be tried in respect of the breach of contract claims, because no attempt has been made to identify specifically any alleged breaches of contract arising during the course of the respondent's management of the orchards prior to 1998. The respondent relies on evidence that it ceased to be the manager of the Projects in 1998 pursuant to a deed of appointment, dated 30 June 1998, of a new manager. 37 In response to this, the applicant has filed an affidavit sworn by his solicitor to which is annexed what is said to be an expert's report. The expert's report includes some observations in relation to the two Projects. It appears to compare what was promised in the relevant Prospectuses and what the writer of the report observed on inspection of the properties. It also, to some extent, underpins the allegations of breach of contract made in paragraphs 66-71 of the proposed statement of claim. It is true that those allegations are not confined at this stage to the period prior to 30 June 1998. But the nature of some of the obligations said to have been breached by the respondent, and particularised in paragraphs 66 and 68 of the draft statement of claim, suggests breaches at an early stage of the Project – e.g. failure to plant the required number of trees and not designing or adequately designing the field layout and pegging of the rows of the trees. In my view, there is sufficient material in those paragraphs when read with the expert's report to raise a serious question to be tried about whether the respondent breached the Farming Agreements during the period before 30 June 1998. There may also be issues as to the extent to which the respondent has been released from its contractual obligations with effect from 30 June 1998. 38 The respondent submitted that the "appropriate compensation" for any losses arising from the alleged misleading or unconscionable conduct or breach of contract was in the form of damages and not the declaratory relief articulated in the proposed statement of claim. The respondent contended that no declaratory relief of that type would be available as a "right of set-off" against the respondent or HP Mercantile. 39 The final resolution of those issues would, of course, be a matter for the trial judge hearing the proposed application. 40 At this stage I see no reason why the applicant should be confined to a remedy in damages alone. The practical realities of the situation are that some at least of the proposed Group Members (in about 30 Local Court actions) are being pursued by HP Mercantile as assignee of the respondent's contractual entitlements. Any award of damages to the applicant against the first respondent would, on the evidence before me, eventually result in a payment by way of dividend of something less than 0.05 cents in the dollar. I infer from that evidence that the applicant is unlikely to be interested in pursuing his damages claims against the respondent in the hope of obtaining a substantial dividend. In fact Professor O'Donovan explained, during argument, that the applicant's real interest was to set off these damages claims against the claims being made by HP Mercantile. 41 Ms Cahill then took me to the relief sought by the applicant and the Group Members as reflected in paragraph 87 of the draft statement of claim. First she submitted that, based on the authority of Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 a court would not order declaratory relief which would have the effect of re-writing the relevant contract. In my view, Marks is not authority for that proposition. The width and extent of the remedies available under s 87 of the Trade Practices Act have not been finally determined. I think that it is clearly arguable that if the applicant is able to demonstrate misleading or deceptive conduct on the part of the respondent, he may be able to persuade a court to grant declaratory relief to the effect that the Group Members are not personally liable for the Harvesting and Marketing Costs. 42 The respondent submitted that there was no utility in the proposed declaratory relief to the effect that the Investor Loans are non-recourse loans. As I have mentioned above, the utility or otherwise of obtaining such a declaration will emerge as the proposed representative application proceeds. 43 Then there were submissions about whether there could be relief against HP Mercantile. An argument was advanced on behalf of the respondent that HP Mercantile was not the original assignee from the respondent, and that this would weigh against the grant of the relief sought. Once again, I think that it is sufficient to show that there is a serious question to be tried, namely, whether one effect of the respondent's misleading or deceptive conduct (if proved) is that HP Mercantile takes whatever rights have been assigned to it subject to any remedies which may be available under the various sections of the Trade Practices Act, including s 87. 44 In my view, on the basis of a serious question to be tried, it seems quite appropriate that the Group Members should be able to ask for declarations and other orders under s 87 of the Trade Practices Act which would have the effect of relieving themselves from those obligations which HP Mercantile is apparently seeking to enforce. 45 I shall not attempt to summarise the remainder of the respondent's objections. Rather, I shall refer to the matters to which I have had regard in deciding whether leave should be granted. 46 I take into account that the declaratory orders and orders varying what would otherwise be the applicant's contractual obligations, constitute relief which the applicant would not be able to obtain otherwise than by a successful application to the Court. That is a significant factor in favour of leave – see Vagrand again at 414. 47 I think that the fact that the proposed proceedings have not yet been commenced is a neutral factor in the circumstances of this matter. However, I infer from the form and detail of the draft application and statement of claim that a considerable amount of preparatory work has been carried out. 48 My assessment is that if the applicant and the proposed Group Members were confined to lodging proofs of debt and such proofs were rejected then there would be a strong likelihood of an appeal against such rejection, if only to establish and maintain rights of set-off against the claims from HP Mercantile. I take into account also that the proposed proceedings are complex in nature. They involve fairly complex issues of fact and law. I was told from the bar table that the total claims for Harvesting and Marketing Costs are in the vicinity of $3.4 million. In my view, these factors weigh in favour of leave being granted. 49 I take note of the possibility that there may be a multitude of similar actions by the balance of approximately 2600 Growers. But the liquidation commenced well over three years ago and only 29 Growers have lodged proofs of debt. I acknowledge that proofs of debt have not been called for, and other Growers may become interested in suing. But to the extent that they are not among the proposed Group Members, those persons would have to apply for leave to proceed and the situation could be reviewed if and when such applications are made. 50 I note that the respondent is not insured for the damages sought by the Group Members, but as I have mentioned above my impression is that the applicant's proposed claim for damages against the respondent (and a consequent dividend) is of secondary interest to him and the proposed Group Members. However, I take into account that any legal costs to be incurred by the respondent will not be borne by an insurer. These are factors weighing against the grant of leave. 51 Subject to the imposition of certain conditions, to which I return below, I consider that the applicant has demonstrated that the balance of convenience (that is the risk of injustice to one or other of the parties) lies in allowing the applicant to proceed by way of the proposed application rather than requiring him to be left to pursue his claim by lodging a proof of debt with the Liquidators, and then appealing if the proof is rejected. In other words, I consider that the applicant has demonstrated good reason for departure from that procedure – see Ogilvie-Grant v East (1983) 1 ACLC 742 at 744. 52 I am concerned to keep to a minimum any diminution of the assets of the respondent available for distribution to other unsecured creditors and any delay and prejudice to the orderly winding up of the respondent. 53 The applicant suggests that one condition should be that, without further leave, the applicant be precluded from taking any action to enforce any monetary judgment obtained against the respondent without further leave of the Court. That is, in my view, almost a standard condition in matters such as these. My concern is to mould other conditions. In Ringfab, Lee J made a direction that the relevant company would not be required to file a defence or participate in those proceedings. That was a convenient order in that case, because his Honour would appear to have been the docket judge in respect of the proceedings which were already in train. However, I think that in the present matter a condition can be fashioned to like effect which would be expressed as being subject to any order of the judge responsible for the application. 54 The applicant suggested that the Court could give directions requiring him to assist the Liquidators to assess the merits of his claims. However, the response when I enquired what directions the applicant had in mind was such that I think any co-operation would be more appropriately left to the parties rather than become the subject of formal directions. 55 Professor O'Donovan said that the applicant's claims for damages were much more contentious than the other claims and difficult to quantify. 56 At this stage, I think that the leave should be confined to commencement of proceedings and prosecuting all claims other than the breach of contract claims to the point at which the issues of liability and relief other than damages have been decided. There should be liberty to apply if the docket judge or other judge responsible for those proceedings considers that the issues of liability and relief other than damages on the one hand and damages on the other hand in respect of those claims should not be split. 57 In relation to the breach of contract claims, the leave should be confined to the institution of proceedings by filing the application and the statement of claim. But, again if the docket judge or other judge responsible for the conduct of the proposed proceedings requires the applicant to take any further steps, there will be liberty to apply. 58 There remains the matter of discovery. In a practical sense (given such a low likely dividend to unsecured creditors) the applicant wishes to proceed against the respondent in order to obtain the relief under the Trade Practices Act and rights of set-off against the claims by HP Mercantile to which I have referred above. The presence of the respondent as a party to the proposed proceedings is thus, to a significant extent, formal. 59 If the respondent were not a party to the proposed proceedings, but were served with a subpoena to produce documents, it would be entitled, under the Federal Court Rules, to apply for reimbursement of its expenses in complying with that subpoena. Those expenses would include obtaining legal advice, examining the documents against the description of the documents in the subpoena and assembling the documents for production to the Court. 60 The respondent submitted that if leave were granted to the applicant, there should be a further condition imposed to the effect that Group Members would be liable to pay all of the costs arising from the joinder of the respondent to the proposed proceedings "in any event", which I took to mean regardless of the result of those proceedings. 61 In Vagrand, a suggestion that a condition be imposed upon the applicants for leave, to the effect that they pay the Liquidators' costs of the principal proceedings regardless of the outcome, was met with short shrift by the Full Court. I can see no justification for imposing such a condition. If in the proposed proceedings it is shown that the first respondent engaged in misleading or deceptive conduct, it would, in my view, be grossly unfair to shoulder, in advance, the Group Members with liability for the respondent's costs in defending those proceedings. However, the condition which I am considering in this matter is significantly different to that sort of condition. The question is whether the applicant should be obliged to fund all or part of the Liquidators' costs in complying with any discovery order. 62 I take into account the fact that the Liquidators would be obliged, to some extent, to incur the cost of inspecting the documents when deciding whether to admit any proofs of debt submitted by the Growers. But the costs of discovery are likely to be much higher. 63 All in all, I consider that it would be equitable for a condition to be imposed to the effect that the applicant undertakes to pay one half of any costs which the Liquidators may incur in complying with their discovery obligations to the applicant in the proposed application, such costs to be agreed or taxed in default of agreement and paid at such time as the docket judge considers appropriate. I think that such an undertaking will have the result of focussing the applicant's discovery demands and thus limit discovery costs. It will be for the trial judge to decide whether those costs can be recovered by the applicant from any other respondent. Conclusion 64 For the foregoing reasons there will be orders in terms of those foreshadowed above. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate: Dated: 20 November 2002 Counsel for the Applicant: Professor J O'Donovan Solicitor for the Applicant: Messrs Gadens Lawyers Counsel for the Respondent: Ms P E Cahill Solicitor for the Respondent: Messrs Jackson McDonald Date of Hearing: 15 November 2002 Date of Judgment: 20 November 2002