FEDERAL COURT OF AUSTRALIA Meadow Springs Fairway Resort Ltd (In Liq) (ACN 084 358 592) v Balanced Securities Ltd (ACN 083 514 685) [2007] FCA 1443 CORPORATIONS – insolvency – voluntary winding up – dispute between creditors about entitlement to proceeds of settlement of litigation - liquidator's application for questions to be determined – parties affected by questions – competing claims and priorities to funds – need for expedition in determination of application – need for resolution of disputes between parties – whether substantive relief can be claimed in liquidator's application – whether appropriate – desirability of procedural flexibility – directions for filing of cross-claims in liquidator's application naming liquidator and other relevant parties as defendants – trial to be on agreed documents and facts so far as possible and limited oral evidence Corporations Act 2001 (Cth) s 511, s 479(3), s 1337B(1) Federal Court of Australia Act 1976 (Cth) s 23 Joint Stock Companies Winding Up Act 1848 (UK) Australian Securities Commission v Melbourne Asset Management Pty Ltd (Receiver and Manager Appointed) (1994) 49 FCR 334 cited Deane-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 cited Equity Funds of Australia (In Liq) (1977-78) CLC 40-303 cited Re GB Nathan & Co Pty Ltd (In liq) (1991) 24 NSWLR 674 cited Re JW Murphy and PC Allen (1996) 19 ACSR 569 cited Wallace and Young, Australian Company Law and Practice (Law Book Co, 1965) MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQ) (ACN 084 358 592) v BALANCED SECURITIES LTD (ACN 083 514 685), WESTRALIAN CAPITAL HOLDINGS PTY LTD (IN LIQ) (ACN 083 526 630), KNIGHTSBRIDGE MANAGED FUNDS (IN LIQ) (ACN 089 532 169) AND KNIGHTSBRIDGE FINANCE PTY LTD (IN LIQ) (ACN 008 716 872), HURLY INVESTMENTS PTY LTD (ACN 082 972 067) AND TIMOTHY JOSEPH CASEY AND IMF (AUSTRALIA) LTD (ACN 067 298 088) WAD 150 OF 2007 FRENCH J 13 SEPTEMBER 2007 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 150 OF 2007 BETWEEN: MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQ) (ACN 084 358 592) Plaintiff AND: BALANCED SECURITIES LTD (ACN 083 514 685) First Defendant WESTRALIAN CAPITAL HOLDINGS PTY LTD (IN LIQ) (ACN 083 526 630), KNIGHTSBRIDGE MANAGED FUNDS (IN LIQ) (ACN 089 532 169) AND KNIGHTSBRIDGE FINANCE PTY LTD (IN LIQ) (ACN 008 716 872) Second Defendants HURLY INVESTMENTS PTY LTD (ACN 082 972 067) AND TIMOTHY JOSEPH CASEY Third Defendants IMF (AUSTRALIA) LTD (ACN 067 298 088) Fourth Defendants JUDGE: FRENCH J DATE OF ORDER: 13 SEPTEMBER 2007 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The plaintiff's proposed statement of claim be filed and served as a statement of the facts giving rise to the questions which the plaintiff seeks to have determined pursuant to s 511 of the Corporations Act 2001 (Cth). 2. Each of the defendants has leave to file and serve a cross-claim seeking declaratory and other relief against the plaintiff and any other party to the proceeding and any other party, not already a party to the proceeding, whom it is necessary to join, provided that the matter in respect of which such relief is sought is within the scope of the controversy disclosed by the plaintiff's statement of claim. 3. The cross-claims are to be filed and served by 24 September 2007. 4. Defences to cross-claims are to be filed and served by 9 October 2007. 5. The trial of the application and the cross-claims will be set down on 29 October 2007. 6. The evidence at trial will comprise: (i) all agreements, notices and other documents referred to in the statement of claim; (ii) such other documents of which notice has been given by the parties seeking to rely upon them no later than 23 October 2007; (iii) oral evidence of which prior notice is given by way of outline of the proposed evidence of each witness to be called to be filed and served by 23 October 2007; (iv) a statement of agreed facts which shall include a chronology of transactions and events, including payments, based upon the history set out in the statement of claim. 7. Liberty to the plaintiff to apply within 7 days to join any other party as a defendant to the application whom it is necessary to join. 8. Liberty to apply generally. 9. Any person who becomes a party to these proceedings and/or to any cross-claim and who is not already a party to these proceedings, may apply for further directions on or before 1 October 2007. 10. Costs of the directions hearing to be reserved. 11. Each of the defendants is hereby granted leave (pursuant to s 471B of the Corporations Act) to file and serve their cross-claims against the plaintiff. 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 WAD 150 OF 2007 BETWEEN: MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQ) (ACN 084 358 592) Plaintiff AND: BALANCED SECURITIES LTD (ACN 083 514 685) First Defendant WESTRALIAN CAPITAL HOLDINGS PTY LTD (IN LIQ) (ACN 083 526 630), KNIGHTSBRIDGE MANAGED FUNDS (IN LIQ) (ACN 089 532 169) AND KNIGHTSBRIDGE FINANCE PTY LTD (IN LIQ) (ACN 008 716 872) Second Defendants HURLY INVESTMENTS PTY LTD (ACN 082 972 067) AND TIMOTHY JOSEPH CASEY Third Defendants IMF (AUSTRALIA) LTD (ACN 067 298 088) Fourth Defendant JUDGE: FRENCH J DATE: 13 SEPTEMBER 2007 PLACE: PERTH REASONS FOR JUDGMENT ON PROPOSED DIRECTIONS Introduction 1 These proceedings are brought, under s 511 of the Corporations Act 2001 (Cth) (the Act) by the liquidator of Meadow Springs Fairway Resort Ltd (In Liq) (Meadow Springs) in the name of that company as plaintiff. By the application he seeks declarations in relation to questions set out in a proposed "Statement of Claim". In that document various allegations of fact are made setting out a history of events followed by a number of questions arising out of those events, which the Court is asked to determine. The procedural question that arises is whether, in order to ensure a complete and expeditious disposition of disputes underlying the questions raised by the liquidator, affected parties should be permitted to file cross-claims in the liquidator's application. There is an element of urgency about the matter which involves disputes about entitlements and priorities in relation to a fund of some $6,400,000 presently held by the liquidator following settlement of a claim against valuers which was funded by IMF (Australia) Ltd (IMF), a litigation funder. The proposed statement of claim 2 The nature of the questions raised by the liquidator are best explained by reference to the proposed statement of claim. The plaintiff is Meadow Springs. It names as defendants companies with an interest in the questions posed. The first defendant (Balanced Securities Ltd) was formerly known as HG & R Finance Ltd (HG & R). Three companies in liquidation are named as the second defendant. They are Westralian Capital Holdings Pty Ltd (In Liq) (WCH), Knightsbridge Managed Funds Limited (In Liq) (KMF) and Knightsbridge Finance Pty Ltd (KFP) (collectively referred to in the proposed statement of claim as "the Knightsbridge Parties"). The third defendants are Hurly Investments Pty Ltd (Hurly Investments) and Timothy Joseph Casey (Casey). The fourth defendant isIMF. For easier reading the matters set out in the statement of claim are summarised in narrative form. 3 On 16 September 1998, Meadow Springs was incorporated to acquire Lot 22 at Oakmont Avenue, Meadow Springs in Western Australia, to construct 54 serviced apartments and related facilities, to sell the apartments using a prospectus based product and to distribute the net sales of the proceeds to its shareholders. The apartments and facilities were to face the Meadow Springs Golf Course on the property. 4 The company raised $4,850,000 from its shareholders pursuant to a prospectus lodged with the Australian Securities and Investments Commission (ASIC) on or about 24 March 1999 and supplemented from time to time. It applied to KFP to broker a loan of $6, 350,000. Subsequently, WCH agreed to advance that amount to Meadow Springs pursuant to a loan agreement dated 24 September 1999. The loan agreement was secured by a first registered mortgage over the Oakmont Avenue property in favour of WCH and a fixed and floating charge over Meadow Springs' assets. No money was advanced pursuant to the WCH loan agreement until March 2000. 5 Hurly Investments and Casey agreed to advance $1,000,000 under a loan agreement dated 24 September 1999. That was secured by a second registered mortgage over the property in their favour and a fixed and floating charge over the assets and undertakings of Meadow Springs. The priorities as between WCH, Hurly Investments and Casey were regulated by a deed of priority dated 24 September 1999 (the First Deed of Priority). It is said that both the equity and debt funding were obtained following and by reason of valuations of the proposed development by Colliers International Consultancy & Valuation Pty Ltd (Colliers). Construction of the development began in or about August 1999. Meadow Springs expended all of the equity and debt funding acquiring the property and constructing the proposed development. 6 Hurly Investments and Casey advanced their $1,000,000 to Meadow Springs on 1 October 1999. The Knightsbridge Parties raised $3,350,000 of the $6,350,000 which they had agreed to advance through WCH. They raised the funds from private investors initially under an unregistered managed investment scheme and subsequently a registered managed investment scheme. The managed investment scheme (the KFM Scheme) covered monies raised between 3 April 2000 to September 2000. That was done pursuant to the KFM Scheme Prospectus, the first part of which was dated 21 December 1999 and was common to all proposed loans by or brokered by the Knightsbridge Parties. A second part dated 3 April 2000 was specific to the WCH loan agreement and recited its terms. 7 From time to time, between March 2000 and November 2000, Meadow Springs submitted written requests to KFP to draw down advances under the WCH loan agreement. KFP then made advances from its trust account to Meadow Springs and/or directly to its creditors. The advances totalled $3,504,723.55 and were made during the period 3 March 2000 to 28 November 2000. 8 On or about 28 March 2000 WCH transferred the WCH mortgage to KMF and a company called Penlas Pty Ltd (Penlas). The mortgage was transferred to KMF as to 6,260 shares out of 6,350 and to Penlas as to 90 shares out of 6,350. The charge was not assigned to KMF or Penlas or any other person. 9 By 3 April 2000 WCH by KFP, and alternatively another Knightsbridge Party, and alternatively by private investors, had advanced $1,708,027 of the money sourced from private investors to Meadow Springs and/or directly to its creditors. After 3 April 2000 either KMF or KFP advanced the balance which WCH had agreed to lend. 10 In May 2000 a declaration of trust was made by KMF for the benefit of private investors who had, or claimed to have, advanced money which KFP had advanced from its trust account to Meadow Springs and/or its creditors including money advanced prior to 3 April 2000 (the First Declaration of Trust). By that declaration of trust KMF agreed to hold on trust the shares of the KFM Scheme investors in the WCH mortgage. The trust did not extend to the charge. KMF acknowledged that it had advanced no moneys in relation to the amount which WCH had agreed to advance to Meadow Springs. 2,268 out of 6,350 shares in the WCH mortgage were expressed to be subject to the First Declaration of Trust. No mention was made of any beneficial entitlement to the remaining shares in that mortgage. A Second Declaration of Trust was made on 15 August 2000 for the benefit of the investors in the KFM Scheme. On 24 August 2000, Penlas transferred its interest in the WCH mortgage to KMF. On 4 September 2000 a Third Declaration of Trust was made on behalf of KFM Scheme investors. 11 The statement of claim then turns to advances by HG & R, now known as Balanced Securities. It will be referred to as Balanced Securities hereafter. On or about 24 May 2000 Balanced Securities agreed to advance to Meadow Securities $3,000,000 of the $6,350,000 previously agreed to be advanced to Meadow Springs under the WCH loan agreement. KMF agreed to advance a further $125,000. Particulars of the loan agreement between Balanced Securities, KMF and Meadow Springs dated 24 May 2000 are set out. Balanced Securities and Meadow Springs entered into a separate facility agreement dated 24 May 2000. A third registered mortgage over the property in favour of Balanced Securities dated 24 May 2000 secured Meadow Springs' obligations under the WCH loan agreement, the Balanced Securities loan agreement and the Balanced Securities facility agreement. A fixed and floating charge over the assets and undertakings of Meadow Springs in favour of Balanced Securities dated 24 May 2000 secured payment of money for which Meadow Springs might be indebted to Balanced Securities. 12 KFP brokered a further advance of $125,000 to Meadow Springs by KMF. That was secured by a fourth registered mortgage over the property in favour of KMF. 13 The respective priorities of Balanced Securities, KMF, Penlas, Hurly Investments and Casey were regulated by a deed of priority between them dated 24 May 2000. This is referred to in the statement of claim as the "Second Deed of Priority". The loan agreement, facility agreement, mortgage and charge were all stamped collateral to the WCH loan agreement. This meant that no stamp duty was paid on the Balanced Securities' transaction documents in addition to the stamp duty previously paid on the WCH loan agreement. The Balanced Securities facility agreement was not collateral to the WCH loan agreement. There were a number of material differences between the two, including the interest payable so that the Balanced Securities agreement did not secure part of the same money as the WCH loan agreement. 14 From 24 May 2000 to 1 September 2000 Balanced Securities advanced money to Meadow Springs and, at the direction of Meadow Springs, to creditors of Meadow Springs. The total sums advanced came to $3,000,000.01. 15 Construction of the proposed development was completed in or about August 2000. The Meadow Springs Fairway Resort opened for trading in August 2000. It traded poorly. Meadow Springs could not sell any of the apartments. As a result it was placed in voluntary administration in February 2001. 16 In or about February 2001 KFP lodged with the administrators of Meadow Springs a "Particulars of Debt or Claim" claiming $3,508,388 plus accruing interest "as mortgage manager for and on behalf of the first mortgagees". Some of the KFM Scheme investors also lodged their own claims. 17 On 8 March 2001 Hurly Investments and Casey served a notice of demand on Meadow Springs seeking immediate payment of the amount owing to them. On 22 March 2001 Balanced Securities served a notice of default on Meadow Springs under its facility agreement and mortgage but not under the WCH loan agreement or the Balanced Securities charge. On or about 27 September 2001 it served another notice of default under the facility agreement and the mortgage, but again not under the WCH loan agreement or the Balanced Securities charge. 18 On or about 13 December 2001, the Supreme Court of Western Australia held that the advance to Meadow Springs formed part of the KFM Scheme. It appointed Mr Giovanni Carrello to wind up the Scheme. In or about January 2002 Meadow Springs was placed in liquidation and Mr Brian McMaster was appointed as liquidator. 19 The statement of claim sets out events which are said to have followed the liquidation. In or about February 2002 Mr Carrello received an offer from Lifestyle Leisure Villages Pty Ltd (LLV) to purchase the resort. On or about 20 March 2002 acting in his capacity as the person appointed to wind up the KFM Scheme, he gave Meadow Springs notice that he had entered into possession of the property. WCH also gave Meadow Springs notice that by its agent, Carrello, it had taken possession of fixtures, chattels and books of account relating to Meadow Springs' business pursuant to the WCH charge. WCH did not take possession of Meadow Springs' causes of action against Colliers. 20 In the meantime KMF had served a notice of demand under the WCH mortgage on Meadow Springs. The notice was dated 26 February 2002 and demanded payment of $3,349,000 which had been advanced on 3 March 2000 by WCH. 21 On 23 April 2002 KMF, as vendor of the mortgaged property exercising the power of sale under the WCH mortgage, and WCH, as vendor of the charged property exercising the power of sale under its charge, sold the resort to LLV for $7,000,000. There was an extended settlement with deferred payment of the purchase price on terms. Provision was made in the contract to apportion the purchase price between the mortgaged and charged properties. The apportionment was to be shown in the schedule but no schedule was included. 22 Mr Carrello distributed payments of principal and interest received from LLV to the KFM Scheme investors and Balanced Securities. Distributions to the KFM Scheme investors between 3 August 2002 and 31 August 2004 totalled $4,100,735.16. Distributions to Balanced Securities between 14 August 2002 and 2 August 2004 totalled $3,575,139.56. The WCH mortgage, the Balanced Securities mortgage and the Hurly Investments and Casey mortgage were all extinguished as securities over the property pursuant to s 110 of the Transfer of Land Act 1893 on registration of a transfer of the property to LLV by WCH exercising its power of sale under the WCH mortgage. 23 After the resort had been sold Meadow Springs' only substantial assets were causes of action against Colliers arising out of the valuations of the property and/or resort prepared by them. Mr McMaster sought funding from Meadow Springs' creditors to pursue the claim but none of them were prepared to fund him. He then sought the consent of the creditors to enter into a funding agreement with IMF to pursue the claim. He did this by a circular to creditors dated 4 September 2003 informing them that he would seek their consent at a meeting on 19 September 2003. None of Balanced Securities, WCH, the Knightsbridge Parties, Hurly Investments or Casey attended the meeting of creditors on 19 September 2003. Those creditors who did attend gave consent to the proposed funding agreement. On 23 September 2003 Mr McMaster sent a circular to secured creditors enclosing a draft funding agreement with IMF. It was sent to Mr Geer of Balanced Securities, to Mr Carrello and Casey. Mr McMaster requested that those persons inform him whether the secured creditors would consent to him entering into the funding agreement and requested a response within 14 days. 24 Hurly Investments and Casey consented to Mr McMaster entering into the funding agreement and to the priority sought by IMF under it. Mr Carrello and the KFM Scheme investors did not consent to the funding agreement or to the priority sought by IMF. Nor did Balanced Securities. On or about 3 November 2003 Mr McMaster executed the funding agreement. Having obtained funding from IMF, Meadow Springs commenced proceedings against Colliers in the Federal Court. These were proceedings WAD 126 of 2004. 25 Between September 2004 and April 2006 WCH was administratively deregistered by ASIC. It was reinstated by an order of the Supreme Court of Western Australia on 19 September 2006. 26 On or about 16 November 2006 the liquidator of WCH appointed Mr Carrello as receiver and manager of Meadow Springs to take possession of its causes of action against Colliers. On or about 6 February 2007, without notice to Meadow Springs or its solicitors, Christensen Vaughan as solicitors for Mr Carrello in his capacity as receiver and manager of Meadow Springs, filed and served a notice that Solomon Bros had ceased acting for Meadow Springs and that Christensen Vaughan now acted for it. Meadow Springs, by Mr McMaster, disputed Mr Carrello's appointment as receiver and manager and the appointment of Christensen Vaughan. 27 On 1 March 2007 Mr McMaster applied to this Court for a declaration that he was entitled to retain possession of the Meadow Springs' causes of action against Colliers. On 16 April 2007 Marshall J ordered that the notice of change of solicitors filed by Christensen Vaughan be uplifted, Mr McMaster's application filed on 1 March 2007 be adjourned sine die and that Mr Carrello's application to revoke the joinder of second applicants, be dismissed with no order as to costs. 28 On or about 10 June 2007, shortly before the scheduled commencement of the trial in WAD 126 of 2004, Meadow Springs settled the claim for, and later received, $6,950,000 comprising $6,400,000 in satisfaction of its claims and $550,000 in satisfaction of the liquidator's costs (including legal costs). The terms were set out in a deed of settlement between Meadow Springs, Colliers, WCH, KMF and KFP dated 29 June 2007. 29 Balanced Securities has brought its own separate action against Colliers in this Court in WAD 353 of 2005. That action has not been determined. It has calculated an amount owing by Meadow Springs to it under the facility agreement by treating amounts paid by Balanced Securities as further advances allegedly being "costs charges expenses and payments including legal costs and disbursements" pursuant to clause 1.1(ag)(iii) of the Balanced Securities facility agreement. Particulars of the further advances so defined are set out in a schedule in the statement of claim. It has credited Meadow Springs with the proceeds of sale of the resort to LLV. It claims default interest on the amount outstanding at 17.5% at the start of each interest period as defined in the Balanced Securities' facility agreement and by capitalising the amount owed by Meadow Springs to it at the end of each interest period. It also claims a one month late payment penalty pursuant to cl 4.4 of the facility agreement and all of its legal costs. 30 Hurly Investments and Casey commenced their own separate proceedings against Colliers in the Supreme Court of Western Australia, an action also funded by IMF. That action was settled in 2006 for $918,000. Of that amount $595,822.78 was applied in reduction of the principal outstanding under the Hurly Investments and Casey loan agreement. $66,824.60 was applied in payment of Hurly Investments and Casey's legal costs. $255,352.62 was applied in payment of IMF's litigation funding fee. Hurly Investments and Casey have calculated the amount owing by Meadow Springs under the loan agreement on the basis that they are not required to give it a credit of the sums of $66,824.60 and $255,352.62 mentioned above. 31 The liquidator says that a dispute has now arisen as to the respective entitlements of Balanced Securities, WCH, KMF, KFP, Hurly Investments, Casey and IMF to the $6,400,000 balance of the settlement sum. He applies under s 511 of the Act to determine the respective entitlements and to determine any questions giving rise to the dispute. The proposed questions 32 The proposed statement of claim sets out questions to be determined. Questions relating to IMF: 62.1 whether IMF: 62.1.1 has a contractual entitlement to the Fees (as defined in the Funding Agreement) pursuant to clause 4.1(b) of the Funding Agreement in the sum of $115,000 and reimbursement for any costs paid by IMF in excess of the $350,000 already paid to IMF out of the balance of the Settlement Sum and, if so, whether those amounts are to be paid out of the Claim Proceeds in priority to all or any of the other Interested Parties; and 62.1.2 by reason of McMaster's purported disposal of 35% of the Resolution Sum (as defined in the Funding Agreement) (the "Resolution Sum") to IMF pursuant to clause 4.3 of the Funding Agreement, has a contractual entitlement to its share of the Resolution Sum being $2,199,750 and, if so, whether that amount is to be paid out of the Claim Proceeds in priority to all or any of the other Interested Parties; 62.2 further or alternatively, whether IMF's Fees and its share of the Resolution Sum are costs of the liquidation totalling $2,314,750 ("IMF's alleged entitlement") and as such are to be paid by McMaster to IMF out of the Claim Proceeds in priority to all of the other Interested Parties; 62.3 further or alternatively, whether IMF funded McMaster or continued to fund McMaster with the implied and/or inferred agreement of HG & R and the Knightsbridge Parties, and the express or implied and/or inferred agreement of Hurly Investments and Casey, that IMF's alleged entitlement would not be subject to either the WCH charge, the HG & R charge or the Hurly Investments and Casey charge and is to be paid by McMaster to IMF out of the Claim Proceeds in priority to all of the other Interested Parties; and 62.4 further or alternatively, whether IMF's alleged entitlement is to be paid by McMaster to IMF in priority to Hurly Investments and Casey only. Questions relating to Balanced Securities (referred to in the body of the statement of claim as HG & R): 33 The questions asked in respect of Balanced Securities (referring to it as HG & R) are as follows: 66.1 whether s 26 of the Stamp Act 1921 (WA) has been contravened by having the HG & R transaction documents stamped collateral to the WCH loan agreement, and if so: 66.1.1 whether HG & R was a party to that contravention; and 66.1.2 whether the HG & R facility agreement is contrary to public policy and void because entered into to achieve an illegal purpose; 66.2 whether HG & R has a priority over or is subordinated to IMF for all or any of the amount owing by Meadow Springs to HG & R by reason of the matters referred to in paragraph 62; 66.3 in relation to the amount (if any) owing by Meadow Springs to HG & R: …. 66.3.5 if applicable, whether the Late Payment Penalty is owing under the HG & R facility agreement; 66.3.6 whether all or any of HG & R's legal costs are amounts owing under the WCH loan agreement and/or the HG & R facility agreement; 66.3.7 the amount, if any, owing by Meadow Springs to HG & R; 66.4 whether all or any of the amount, if any, owing by Meadow Springs to HG & R under the WCH loan agreement and/or the HG & R facility agreement is secured by the HG & R charge and whether all or any of that amount is unsecured; There are particulars under the question in 66.4 which it is not necessary to reproduce here. 66.5 whether HG & R is required to share any amount it receives from Meadow Springs with the Knightsbridge Parties and/or the KFM Scheme Investors pursuant to the Second Deed of Priority or vice versa; There are particulars under the question in 66.5 which it is not necessary to reproduce here. Questions relating to the Knightsbridge parties 34 Questions relating to the Knightsbridge parties are as follows: 68.1 whether the Knightsbridge Parties and/or the KFM Scheme Investors have priority over or are subordinated to IMF for all or any of the amount owing by Meadow Springs to the Knightsbridge Parties and/or the KFM Scheme Investors by reason of the matters referred to in paragraph 62; 68.2 whether all or any of the amounts advanced out of Knightsbridge Finance's trust account were advanced on any terms, and if not, whether the Knightsbridge Parties' claim is limited to recovery of the actual amounts advanced and interest under statute; 68.3 alternatively to paragraph 68.2, whether there was an agreement made between Meadow Springs, WCH and the Knightsbridge Parties that Knightsbridge Finance would advance the balance agreed to be advanced by WCH on the same terms as the WCH loan agreement and, if so, the terms of any such agreement; 68.4 whether Knightsbridge Parties and/or the KFM Scheme Investors or any of them are secured creditors of Meadow Springs and, if so, for what amount and in particular: 68.4.1 whether WCH holds the WCH charge on trust for the Knightsbridge Parties and/or the KFM Scheme Investors; 68.4.2 further or alternatively, whether the WCH charge is property of the KFM Scheme and, if so, for whom is it held in trust under s 601FC(2) of the Corporations Act 2001; 68.5 the amount owing by Meadow Springs to the Knightsbridge Parties and/or the KFM Scheme Investors and, if so what amount is unsecured, which question depends on: 68.5.1 who advanced the money; 68.5.2 whether it was advanced on terms; 68.5.3 how much of the proceeds of sale of the Resort to LLV was correctly apportioned to the WCH mortgage and how much was correctly apportioned to the and who was entitled to the money correctly apportioned to the WCH charge; and 68.5.4 whether the amount owing by Meadow Springs to the Knightsbridge Parties and/or the KFM Scheme Investors is secured by the WCH charge because unsecured creditors are only entitled to post-liquidation interest under s 563B of the Corporations Act 2001; and 68.6 whether the Knightsbridge Parties and/or the KFM Scheme Investors are required to share any amount they receive from Meadow Springs with HG & R pursuant to the Second Deed of Priority. Particulars The plaintiff repeats the particulars to paragraph 66.5 above. Questions relating to Hurly Investments and Casey 35 The questions to be determined in relation to Hurly Investments and Casey are as follows: 72.1 whether the Hurly Investments and Casey have a priority over or are subordinated to IMF for all or any of the amount owing by Meadow Springs to the Knightsbridge Parties by reason of the matters referred to in paragraph 62; and 72.2 in relation to the amount owing by Meadow Springs to Hurly Investments and Casey under the Hurly Investments and Casey loan agreement: 72.2.1 whether Hurly Investments and Casey are also required to give a credit to Meadow Springs for the amounts particularised in items (ii) – (iii) to the particulars to paragraph 70 above; 72.2.2 further or alternatively, whether Hurly Investments and Casey are also required to give a credit to Meadow Springs for the amount particularised in item (iii) to the particulars to paragraph 70 above; 36 The liquidator seeks declarations in relation to the questions to be determined pursuant to s 511(2) of the Act and an order that all parties' costs of the proceeding be taxed and paid out of the Claim Proceeds as liquidation expenses. Procedural proposals 37 At the directions hearing on the first return of the application, the liquidator proposed that the matter proceed on the pleadings. IMF submitted in addition that each of the defendants should be granted leave, pursuant to s 471B of the Act to file and serve a cross-claim against the plaintiff within the scope of the controversy raised by the statement of claim. Its minute of suggested directions provided for the filing of defences to the statement of claim and defences to the cross-claims, if any. Counsel for the liquidator said that the directions proposed by IMF were consistent with the orders that he would be seeking. He had also intended that there be cross-claims within the application so that other parties could resolve their issues inter se. 38 In discussion about the utility of s 511 as a vehicle for this kind of procedure, counsel for the liquidator made the point that the claims of secured creditors were increasing at a rate of $60,000 to $70,000 a month and that it was in the interests of the unsecured creditors to ensure that the resolution of issues between the defendants be conducted in as expeditious a manner as possible. Counsel for the liquidator supported the IMF proposal. He suggested that although there might be some scope for oral evidence on the question of a possible estoppel against the secured creditors raised by IMF, there was unlikely to be any controversy about the transaction documents or payments, advances and repayments actually made. 39 Counsel for Balanced Securities had filed submissions opposing the proposal to proceed on the pleadings on the basis that a s 511 application was not a suitable vehicle for resolving questions about the validity of its security, the amount secured by it or the priority to be accorded to it. Balanced Securities put before the Court a proposed statement of claim in separate proceedings it proposed to initiate. A draft of the statement of claim was annexed to an affidavit sworn by one of its solicitors. 40 There was further discussion about the appropriate procedure in this case having regard to the need to proceed in an expeditious fashion. 41 I reserved judgment until today and in the meantime requested the parties to consult with a view to agreeing appropriate directions in the event that they were to proceed to deal with disputes inter partes under the umbrella of the s 511 proceedings. Statutory framework 42 Section 511 of the Act, which applies to voluntary winding up, provides: (1) The liquidator, or any contributory or creditor, may apply to the Court: (a) to determine any question arising in the winding up of a company; or (b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. … (2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just. 43 Reference should also be made to s 479(3) of the Act which applies to a court appointed liquidator in a court ordered winding up. It provides: (3) The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up. 44 It is also useful to recall the source of the Court's jurisdiction in such applications. It is conferred by s 1337B(1) of the Act in the following terms: Jurisdiction is conferred on the Federal Court of Australia with respect to civil matters arising under the Corporations legislation. Principles governing the application of s 511 45 There is a distinction between s 511 under which the present application is brought and s 479(3). The latter provision applies to liquidators appointed by the Court who are officers of the Court and therefore subject, at least by implication, to its supervision and control and the exercise of its general powers to make orders in aid of its jurisdiction. In the case of the Federal Court these general powers are found in s 23 of the Federal Court of Australia Act 1976 (Cth). Section 511 applies to liquidators appointed to companies voluntarily wound up. They are not officers of the Court in the same sense as court appointed liquidators and so the section confers explicit powers to make orders relevant to them. Even then, those orders may be supplemented by the powers conferred on the Court by s 23. 46 The distinction between the status of court appointed liquidators and liquidators appointed under voluntary administrators, as a basis for the distinction between the language of s 479(3) and s 511 has long been recognised: see eg, Australian Securities Commission v Melbourne Asset Management Pty Ltd (Receiver and Manager Appointed) (1994) 49 FCR 334 at 348-349 (Northrop J); Deane-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209. In the latter case Young J said that: … the authorities tend to suggest that the court has the same jurisdiction under both sections… The reasons advanced in those and other cases for the conferral of express powers in s 511 are supported by the comment on one of its many predecessors, s 274 of the Uniform Companies Act 1961, in Wallace and Young, Australian Company Law and Practice (Law Book Co, 1965) at 759: the effect of this section (which the court has interpreted so as to give it wide powers) … is to lessen the distinction between a voluntary and compulsory winding up. 47 The facilities provided by ss 479(3) and 511 have a long ancestry. Section 479(3) of the former Corporations Law was considered by McLelland J in Re GB Nathan & Co Pty Ltd (In liq) (1991) 24 NSWLR 674. He traced its origins back to the Joint Stock Companies Winding Up Act 1848 (UK) which allowed an official manager to apply for directions from the Master from time to time. A similar facility has long existed for trustees, administrators and executors. As McLelland J said (at 677): These various statutory provisions for directions were a development from the practice of the Court of Chancery under the general law in giving directions to those entrusted with the administration of property under the control of the court. Two main classes of such persons were (1) trustees of trust property, or executors or administrators of a deceased estate, under administration by the court pursuant to a decree for general administration, and (2) receivers (and managers) appointed by the court in respect of property the subject of litigation. 48 A direction given or a question determined under s 479(3) or s 511, as the case may be, will protect the liquidator who acts in accordance with the direction or determination. In relation to a determination under s 511 it may be an open question whether it establishes a res judicata between the liquidator and any parties affected by it who are named as defendants in the application but neither direction nor determination gives rise to a res judicata as between parties who may have competing interests affected by it: Equity Funds of Australia (In Liq) (1977-78) CLC 40-303 at 29,253-29,254 (Bowen CJ (in Eq)). McLelland J said in GB Nathan & Co 24 NSWLR 674 (at 677): The protection of the official administrator, acting under a direction of the court, from personal liability would not however affect the rights of creditors and beneficiaries as between themselves. So far as s 479(3) is concerned, McLelland J was of the view that it does not enable the court to make binding orders in the nature of judgments and that the function of an application for directions under that section is to give the liquidator advice about the proper course of action in the liquidation and not to determine rights and liabilities arising from pre-liquidation transactions (at 679). See also Re JW Murphy and PC Allen (1996) 19 ACSR 569 at 570 (McLelland CJ). 49 On the other hand there is sufficient flexibility in the procedures of the Court to enable proceedings begun as an application for directions to be converted into proceedings for the determination of substantive rights: Re GB Nathan & Co 24 NSWLR 674 at 680. In Melbourne Asset Management Nominees 49 FCR 334, Northrop J said (at 352): It has been accepted that Courts have power to make final orders in preference claims on an application by a liquidator under sections similar to s 479(3) of the Corporations Law. There is no logical reason why final orders binding on other persons cannot be made on applications under s 479(3) with respect to other subject matters. And further (at 352): I can see no reason why binding orders cannot be made where the parties affected have been given the opportunity to be heard. 50 Given the more substantive character of the applications contemplated by s 511(1)(a) the preceding observations are even more apposite in applications made under that provision. Whether the Court should proceed to entertain applications for the determination of substantive rights and award final relief as between competing creditors and others in an application under s 511, is a matter of discretion. As Young J said about s 511 in Deane-Willcocks 42 NSWLR 209 (at 212): There are many questions where the only order that the court should make is that the liquidator or the claimant proceed in the ordinary courts in the ordinary way for the determination of a dispute. However, there are many other situations where the court can summarily solve the difficulty that has arisen in the liquidation by an order under the section in a cheap and efficient manner. Where this can be done it is "just and beneficial" to exercise the power. 51 In my opinion it is open to the Court, in a suitable case, to entertain an application for the determination of questions under s 511 by joining affected parties with competing interests as defendants and permitting them to file cross-claims for declaratory relief as between themselves and any other interested parties and the liquidator so that there can be a res judicata between all of them. Such a course may be appropriate where the evidence necessary to determine the questions and the competing claims is largely documentary and amenable to expeditious hearing and determination. Otherwise the parties can simply commence their own substantive proceedings. The appropriate procedure in this case 52 On the basis of the information provided at the directions hearing and the nature of the factual matters underpinning the questions raised by the liquidator, it appears likely that the resolution of the competing claims reflected in the liquidator's questions could proceed expeditiously on a largely documentary basis. I accept that there may be some oral evidence going to questions of estoppel in relation to IMF. Although the proposed statement of claim outlines a somewhat complex and convoluted sequence of transactions, the heavy documentary emphasis suggests that a largely documentary case can be run. 53 I have had regard to the procedure which was agreed between the parties in the event that I was of the view that they could raise their claims against each other in the context of this proceeding. I think it is preferable to vary their proposals a little closer to the form of the original IMF proposal. On that basis the liquidator's application remains on foot with the named defendants bringing cross-claims against Meadow Springs and such other of the parties as are appropriate. The cross-claims should be confined, as proposed by the parties, to the scope of the controversies identified in the draft statement of claim prepared by the liquidator. In the event that the resolution of the cross-claims resolves all the questions raised by the liquidator then it may not be necessary to make a separate determination of those questions. If there is any question not effectively resolved by the determination of the cross-claims then the Court will be able to consider determining such questions on the basis of the liquidator's application. 54 Although it appear unlikely that any additional parties will need to be joined, it will be necessary for both the plaintiff and any cross-claimant to ensure that all parties whom it is necessary to join for a complete resolution of the matters raised by the liquidator's questions, are joined. They will necessarily have to have the opportunity to apply to the Court for directions as to their participation. However in default of any such application then it will be taken that the procedural directions generally will apply to them also. There will be a general liberty to apply to ensure that there is a degree of flexibility in the application of the procedures leading up to the trial of the application and any associated cross-claims. 55 There will be no need for any party to file a defence to the liquidator's statement of claim which merely exists to define the questions he seeks to have determined. It can be filed and served as a statement of the case upon which the liquidator bases his questions. 56 The parties will be required to jointly prepare a book of relevant agreements and other transaction documents referred to in the statement of claim and any other document to be relied upon by any of them in any cross-claim. I do not contemplate any form of discovery. I will not order discovery as I do not expect it will be necessary. The parties will be required to disclose documents which they propose to put in evidence. I do not expect that, save by informal agreement, they will be producing documents to each other apart from those which they intend to rely in evidence. I will also require the parties to file outlines of the evidence of any witness to be called. The evidence-in-chief of each witness will be oral unless a witness statement is tendered by agreement. I am prepared to allocate four days for the trial of the action and the parties will be expected to agree to divide the time for the presentation of their cases. Consistently with the proposed agreed procedures, the liquidator can tender all transaction documents underlying the questions he seeks to have determined. There should also be an agreed statement of facts setting out a chronology of transactions, events and payments related to the questions in the statement of claim. Further directions can be made as required. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 13 September 2007 Counsel for the Plaintiff: Mr MA Stork Solicitor for the Counsel for the Plaintiff: Solomon Bros Counsel for the First Defendant: Mr PA Tottle Solicitor for the First Defendant: Tottle Partners Counsel for the Second Defendants: Mr GD Cobby Solicitor for the Second Defendants: Christensen Vaughan Counsel for the Fourth Defendants: Mr D Stone Solicitor for the Fourth Defendants: Williams & Hughes Date of Hearing: 6 September 2007 Date of Judgment: 13 September 2007