FEDERAL COURT OF AUSTRALIA Thomas, in the matter of Opes Prime Stockbroking Limited [2011] FCA 319 Citation: Thomas, in the matter of Opes Prime Stockbroking Limited [2011] FCA 319 Parties: PHILLIP THOMAS, OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028), LEVERAGED CAPITAL PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 097 720 495), HAWKSWOOD INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 098 040 683), OPES PRIME GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 120 372 223), JOHN ROSS LINDHOLM, ADRIAN LAWRENCE BROWN and PETER DAMIEN MCCLUSKEY File number: VID 222 of 2009 Judge: GORDON J Date of judgment: 5 April 2011 Date of hearing: On the papers Date of last submissions: 16 March 2011 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 12 Counsel for the Non Party Applicant: S Rubenstein Solicitor for the Non Party Applicant: Logie-Smith Lanyon Counsel for the Plaintiffs: RD Strong Solicitor for the Plaintiffs: Mallesons Stephen Jaques IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 222 of 2009 IN THE MATTER OF OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028) BETWEEN: PHILLIP THOMAS Non Party Applicant OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028) First Plaintiff LEVERAGED CAPITAL PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 097 720 495) Second Plaintiff HAWKSWOOD INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 098 040 683) Third Plaintiff OPES PRIME GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 120 372 223) Fourth Plaintiff JOHN ROSS LINDHOLM Fifth Plaintiff ADRIAN LAWRENCE BROWN Sixth Plaintiff PETER DAMIEN MCCLUSKEY Seventh Plaintiff JUDGE: GORDON J DATE OF ORDER: 5 APRIL 2011 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties submit orders to give effect to these reasons for decision by no later than 4:00pm on 8 April 2011. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 222 of 2009 IN THE MATTER OF OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028) BETWEEN: PHILLIP THOMAS Non Party Applicant OPES PRIME STOCKBROKING LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 086 294 028) First Plaintiff LEVERAGED CAPITAL PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 097 720 495) Second Plaintiff HAWKSWOOD INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 098 040 683) Third Plaintiff OPES PRIME GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 120 372 223) Fourth Plaintiff JOHN ROSS LINDHOLM Fifth Plaintiff ADRIAN LAWRENCE BROWN Sixth Plaintiff PETER DAMIEN MCCLUSKEY Seventh Plaintiff JUDGE: GORDON J DATE: 5 APRIL 2011 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This is the next in a series of cases dealing with the Opes Companies. 2 On 4 August 2009, the Court approved a Scheme of Arrangement in order to deal with the respective rights of the creditors: In the matter of Opes Prime Stockbroking Limited (No 2) [2009] FCA 864. In that decision, Finkelstein J described the Opes companies and the need for the Scheme as follows: 3. The Opes companies carried on stockbroking and related businesses. Many of their clients' share trading activities were financed by an Opes company. The financing (called securities lending) was of a kind not understood by many, if not most, of the Opes companies' clients. There is material which suggests that a great number of clients were deceived into thinking they had entered into standard margin lending agreements to facilitate their share trading activities. Following the stock market collapse in late 2007, the clients were left lamenting. As a group they have lost hundreds of millions of dollars. On current estimates the Opes companies owe their former clients approximately $630 million. 4. Many clients have been left in a disastrous position. Quite a number have lost all their savings and have suffered greatly. I have been told how difficult it has been for so many people and their families and cannot help but feel the greatest of sympathy for them. The proposed schemes, if approved, will provide small comfort for the creditors. 5. Australia and New Zealand Banking Group Limited, Merrill Lynch International and Merrill Lynch International (Australia) Limited, have agreed to contribute $226 million, together with a number of assets seized by the banks' receivers, to establish a fund which, if distributed between creditors, will yield them a return of around 37 cents in the dollar. In exchange, the banks, receivers, Green Frog Nominees Pty Ltd (in liq) (Green Frog) (the Opes companies' nominee company) and Green Frog's liquidators (together, the released parties) will be released from all claims by the Opes companies, their liquidators and Opes clients. 6. If the schemes are not approved the 13 or so actions which have been commenced by former Opes clients against an Opes company or the banks, and which at the moment are on hold, will be revived. No doubt more actions will be commenced. I am familiar with a number of them and can say, with some confidence, that the cost involved in taking them to trial will amount to many millions of dollars. Moreover, if the creditors are forced to litigate to get back some of the money which they have lost, they will be embarking upon a very hazardous venture. Most litigation is a gamble. The clients here have gambled and lost on the stock market. They may not wish to gamble any more. If, on the other hand, the schemes are approved, the creditors will be able to put this entire affair behind them. 3 The Applicant, Mr Thomas was a Scheme Creditor, as that term was defined in the Scheme of Arrangement: cl 1.1. 4 Under the Schemes, on 7 July 2010, the Scheme Administrators approved Mr Thomas' Established Securities Claim in the amount of $621,913.51. On 4 August 2010, the Scheme Administrators paid him $404,267.72 but withheld the balance ($217,645.79). The Scheme Administrators' reason for withholding that amount was that they (in their capacity as Scheme Administrators) claimed a preference against Mr Thomas in an amount of $345,159.84 which Mr Thomas had drawn as cash collateral from his account with Opes Prime on 25 March 2008. 5 It was common ground that cl 13.2(b) of the Schemes relevantly provides: … [I]f: (i) a Scheme Creditor is liable to a Scheme Company for any amount; or (ii) the … Scheme Administrators have made a claim against a Scheme Creditor in respect of any Liquidator Recoveries, the … Scheme Administrators will be entitled to withhold any distribution of the Scheme Assets to which the Scheme Creditor would otherwise be entitled until such time as the Scheme Creditor has satisfied the liability or the Liquidators have made the relevant Liquidator Recovery. (Emphasis added.) 6 "Liquidator Recoveries" was defined in cl 1.1 of the Schemes to mean: Any money or property recovered by the Liquidators for the benefit of creditors of any Scheme Company whether under the provisions of Part 7.5B of the Corporations Act or otherwise. 7 On 3 December 2010, Mr Thomas applied to review the Scheme Administrators decision to withhold payment of the balance of his Established Securities Claim in the amount of $217,645.79 (the Federal Court Application). Mr Thomas disputes (1) that the drawing of cash collateral from his account with Opes Prime on 25 March 2008 was a preference payment and (2) that the Scheme Administrators were entitled to withhold that amount. Mr Thomas' solicitors informed the Scheme Administrators of that fact on 23 December 2008, 27 April 2010, 23 July 2010 and 11 August 2010. 8 On 3 May 2010, the Scheme Administrators wrote to Mr Thomas' solicitors stating that they were entitled to withhold payment under cl 13.2(b) of the Schemes and that they "anticipate commencing proceedings in relation to their claim against Mr Thomas shortly". They also invite him to attend a without prejudice conference to discuss the claim. On 4 June 2010, Mr Thomas referred his claim to the Panel of Scheme Valuers (established under cl 15 of the Schemes) but the Panel refused to hear his complaint. On 7 July 2010, the Scheme Administrators wrote again to Mr Thomas' solicitors stating that preference proceedings would be commenced shortly. 9 By September 2010, Mr Thomas had had enough. His solicitors wrote to the Scheme Administrators' solicitors stating that nothing further had been done, no action had been commenced and that either proceedings should be commenced within 21 days or the allegations should be withdrawn and the balance paid to Mr Thomas. The Federal Court Application was foreshadowed. On 4 October 2010, the Scheme Administrators' solicitors responded stating proceedings would be issued within 21 days (by 25 October 2010). The preference claim was not filed on or before 25 October 2010. Mr Thomas did not hear from the Scheme Administrators' solicitors until the Federal Court Application was filed on 3 December 2010 and served on him on 8 December 2010. 10 Subsequently, it has become evident that, in fact, the Scheme Administrators issued a writ and statement of claim against Mr Thomas on 23 November 2010 (the Preference Proceeding) but did not notify Mr Thomas of the Preference Proceeding until after the Federal Court Proceeding had been filed and served. Mr Thomas was not served with the Preference Proceeding until 8 December 2010. Mr Thomas seeks his costs of the Federal Court Proceeding. 11 The Scheme Administrators oppose the costs order on the basis that Mr Thomas misconstrues the word "claim" in cl 13.2(b) to mean "commenced a proceeding". I reject that submission. The proper construction of cl 13.2(b) is not the issue. The Schemes are large and Mr Thomas is just one of many Scheme Creditors. However, the fact is that after significant efforts over a considerable period of time by Mr Thomas to have the Scheme Administrators decide whether or not they wished to proceed with a claim for a preference, the Scheme Administrators stated they intended to file proceedings by no later than 25 October 2010. They did not do so. And even when they did ultimately file, they failed to inform Mr Thomas of that fact. It was those events that necessitated Mr Thomas to file the Federal Court Application. 12 For those reasons, Mr Thomas is entitled to his costs of the Federal Court Application, such costs to be taxed in default of agreement. I will direct the parties to bring in an appropriate form of agreed order by 4:00pm on 8 April 2011. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 5 April 2011