FEDERAL COURT OF AUSTRALIA Hopkins v AECOM Australia Pty Ltd [2012] FCA 1204 Citation: Hopkins v AECOM Australia Pty Ltd [2012] FCA 1204 Parties: STEPHEN HOPKINS AS TRUSTEE FOR THE HOPKINS SUPERANNUATION FUND and KIM DENISE HOPKINS AS TRUSTEE FOR THE HOPKINS SUPERANNUATION FUND v AECOM AUSTRALIA PTY LTD (ACN 093 846 925) (FORMERLY KNOWN AS MAUNSELL AUSTRALIA PTY LTD and RiverCity Motorway Management Limited (Administrators appointed) (ACN 117 343 361) and RiverCity Motorway Services Pty Limited (Administrators appointed) (Receivers and Managers appointed) (ACN 117 139 992) ` File number: NSD 757 of 2012 Judge: NICHOLAS J Catchwords: CORPORATIONS – where company in voluntary administration – whether leave to proceed should be given under s 440D of the Corporations Act 2001 (Cth) – where leave to proceed neither consented to nor opposed by administrators – where administration likely to be complex and lengthy – where claims against company part of wider controversy raising common issues and involving numerous related entities – relevance of insurance – lack of insurance relevant but not decisive – conditions upon which leave to proceed should be granted – power of Court to avoid or ameliorate any hardship or inconvenience by case management or imposition of further conditions – leave to proceed granted on condition that any judgment obtained not to be enforced without leave Date of judgment: 1 August 2012 Legislation: Corporations Act 2001 (Cth) s440D Federal Court of Australia Act 1976 (Cth) Part IVA Cases cited: Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203 Brian Rochford Ltd (admin apptd) v Textile Clothing & Footwear Union of NSW (1998) 47 NSWLR 47 Arpic Pty Ltd v Austin Australia Pty Ltd (2004) 49 ACSR 71 Attard v James Legal Pty Ltd [2010] NSWCA 311 Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd (2011) 285 ALR 207 Date of hearing: 1 August 2012 Date of orders: 1 August 2012 Date of publication of reasons: 2 November 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 29 Counsel for the Applicants: Mr S M Nixon Solicitor for the Applicants: Maurice Blackburn Lawyers Counsel for the First Respondent: The First Respondent did not appear at the interlocutory hearing Solicitor for the Second Respondent King & Wood Mallesons Solicitor for the Third Respondent Gilbert + Tobin IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 757 of 2012 BETWEEN: STEPHEN HOPKINS AS TRUSTEE FOR THE HOPKINS SUPERANNUATION FUND First Applicant KIM DENISE HOPKINS AS TRUSTEE FOR THE HOPKINS SUPERANNUATION FUND Second Applicant AND: AECOM AUSTRALIA PTY LTD (ACN 093 846 925) (FORMERLY KNOWN AS MAUNSELL AUSTRALIA PTY LTD) First Respondent RiverCity Motorway Management Limited (Administrators appointed) (ACN 117 343 361) Second Respondent RiverCity Motorway Services Pty Limited (Administrators appointed) (Receivers and Managers appointed) (ACN 117 139 992) Third Respondent JUDGE: NICHOLAS J DATE OF ORDER: 1 AUGUST 2012 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicants are granted leave under s440D of the Corporations Act 2001 (Cth) to: (a) commence and prosecute proceedings against RiverCity Motorway Management Limited (Administrators appointed) ACN 117 343 361 (RiverCity Management) and RiverCity Motorway Services Pty Limited (Administrators appointed) (Receivers and Managers appointed) ACN 117 139 992 (RiverCity Services) by joining them to the proceeding. (b) file and serve an amended originating application and amended statement of claim, such amended originating application to be in the form annexed to the affidavit of Richard Ryan, affirmed 23 July 2011, and such amended statement of claim to be in the form of the document marked MFI-1. 2. The applicants are not to take any steps to enforce any judgment that may be obtained in their proceeding against RiverCity Management or RiverCity Services without the leave of the Court. 3. Costs of the interlocutory application are reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 757 of 2012 BETWEEN: STEPHEN HOPKINS AS TRUSTEE FOR THE HOPKINS SUPERANNUATION FUND First Applicant KIM DENISE HOPKINS AS TRUSTEE FOR THE HOPKINS SUPERANNUATION FUND Second Applicant AND: AECOM AUSTRALIA PTY LTD (ACN 093 846 925) (FORMERLY KNOWN AS MAUNSELL AUSTRALIA PTY LTD) First Respondent RiverCity Motorway Management Limited (Administrators appointed) (ACN 117 343 361) Second Respondent RiverCity Motorway Services Pty Limited (Administrators appointed) (Receivers and Managers appointed) (ACN 117 139 992) Third Respondent JUDGE: NICHOLAS J DATE: 2 November 2012 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 1 August 2012 I made orders in this proceeding (inter alia) granting the applicants leave under s440D of the Corporations Act 2001 (Cth) to commence and prosecute proceedings against RiverCity Motorway Management Limited (Administrators appointed) ACN 117 343 361 (RiverCity Management) and RiverCity Motorway Services Pty Limited (Administrators appointed) (Receivers and Managers appointed) ACN 117 139 992 (RiverCity Services) and joining them as respondents to this proceeding. I also ordered the applicants not to take any steps to enforce any judgment that may be obtained in their proceeding against RiverCity Management or RiverCity Services without the leave of the Court. These are my reasons for making such orders. 2 This proceeding relates to investments alleged to have been made by the applicants in the RiverCity Motorway Investment Trust (RCMIT) and the RiverCity Motorway Holding Trust (RCMHT), both of which were involved in financing the design and construction of the North-South Bypass Tunnel in Brisbane (the Tunnel). Construction of the Tunnel was completed in early 2010 at a total cost of almost $2bn. 3 The proceeding was brought by the applicants as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) on their own behalf and on behalf of a group of other persons who: acquired an interest in stapled units in the RCMIT and the RCMHT on or about 4 August 2006; suffered loss or damage because of the conduct of the respondent (Aecom) pleaded in the statement of claim; and had entered into a litigation funding agreement with IMF (Australia) Ltd (IMF), as at the date of the commencement of the proceeding. 4 The description of the group was subsequently amended to refer to persons who had entered into a litigation funding agreement with IMF as at 27 July 2012. At the present time there are approximately 850 persons who have entered into such agreements with IMF. According to the solicitors for the applicants, their losses (or at least those of the first 773) are calculated at $134 million on the basis of "price paid less benefit left in the hand" excluding any allowance for interest. 5 The applicants allege they suffered loss and damage as a result of their reliance upon various representations which they attribute to Aecom and which they allege were misleading or deceptive or likely to mislead or deceive. In particular, the applicants allege that they relied upon traffic forecasts prepared by Aecom and which were referred to in a product disclosure statement (the PDS) lodged with the Australian Investment and Securities Commission (ASIC) on or about 21 June 2006 and issued on or about that date. The applicants allege (inter alia) that Aecom had no reasonable basis for making the traffic forecasts referred to in the PDS. 6 RiverCity Management is in voluntary administration and RiverCity Services is in both voluntary administration and receivership. Mr Owen, Mr Parbery and Mr Hill are the joint and several co-administrators of RiverCity Management, RiverCity Services, and various other companies in the RiverCity Motorway group of companies. All together, there are 10 companies in the group, all are now in voluntary administration, and all of which except for two - RiverCity Management and RiverCity Motorway RE Holdings Pty Limited (administrators appointed) - are also in receivership. 7 By order made on 18 March 2011, the period during which the administrators must convene the second meeting of creditors of RiverCity Management and RiverCity Services was extended to 18 December 2012. 8 RiverCity Management is and was at all material times the responsible entity of RCMIT and RCMHT. The principal asset of the group is the Tunnel which the receivers are apparently intending to put on the market next year, perhaps well into next year. The evidence suggests that it may be in the best interests of both the secured and unsecured creditors of the RiverCity group not to wind-up the member companies, but to instead have them enter into a deed of company arrangement. I mention these matters only to make clear that the administration may be a complex and lengthy affair. 9 The PDS contains statements which indicate that RiverCity Management engaged RiverCity Services to manage the day to day operations of the RiverCity Motorway Group, to prepare the PDS and to ensure that appropriate due diligence was performed. The PDS also includes statements that show that a PDS lodged with ASIC on 13 June 2006 was replaced by a PDS lodged on 21 June 2006. 10 RiverCity Services is one of the applicants in related proceeding NSD678/2012 (the RiverCity proceeding) brought against Aecom by RiverCity Services and seven other companies (but not RiverCity Management) within the RiverCity Motorway group. The applicants in that proceeding allege that they suffered loss and damage as a result of having relied upon Aecom's traffic forecasts which are said to have been (inter alia) misleading or deceptive or likely to mislead or deceive because they were made without any reasonable basis. Very substantial damages are claimed by the applicants in the RiverCity proceeding. 11 The administrators of RiverCity Management and RiverCity Services were represented at the hearing of the relevant interlocutory application. They relied upon several affidavits and a written submission. Ultimately, however, their attitude to the application for leave to proceed was that it was neither consented to nor opposed by them but that, if leave to proceed was to be granted, it should be on terms that: (a) the applicants not be permitted to serve the amended statement of claim on RiverCity Services or RiverCity Management without the leave of the Court; and (b) the applicants not be permitted to seek to execute any judgment against RiverCity Services or RiverCity Management without the leave of the Court. 12 The evidence indicates that RiverCity Services may have a right of indemnity under a policy of insurance in respect of any liability it may have to the applicants in this proceeding subject, of course, to the policy limit and other relevant terms and conditions. 13 The evidence includes a copy of an extract of a policy of insurance issued in favour of RiverCity Motorway on behalf of American Home Assurance Company (AHAC). The policy provides what may for present purposes be called "prospectus liability insurance" and expressly refers in the schedule to the policy to a PDS lodged with ASIC on 13 June 2006. The period of cover is stated to be from 5 July 2006 to 5 July 2013. The insured is RiverCity Motorway Pty Limited (RiverCity Motorway) and, relevantly, its subsidiaries specified in an endorsement to the policy. RiverCity Services is specified in the endorsement as a subsidiary of RiverCity Motorway. However, there is no mention of RiverCity Management in the endorsement to the policy. 14 The evidence indicates that RiverCity Services and RiverCity Management may also have rights of indemnity under another policy of insurance issued by or on behalf of AHAC. The evidence includes a certificate of currency issued on 13 September 2010 identifying RiverCity Services and its subsidiaries as the insured. The certificate of currency identifies RiverCity Management as a "Deemed Subsidiary" presumably because it is not or was not an actual subsidiary of RiverCity Services. The period of insurance is stated to be from 13 September 2010 to 13 September 2011. The policy provides what is referred to as "investment management insurance". 15 The evidence tendered by the administrators included copies of correspondence received from Wotton Kearney Insurance Lawyers. The correspondence from Wotton Kearney states that it is written on behalf of Chartis Insurance (Australia) Limited (Chartis) which is said to be the insurer under (inter alia) an "Investment Managers Insurance Policy" (the IMI policy) in favour of RiverCity Services and a "Prospectus Liability Policy" (the PL policy) in favour of RiverCity Motorway. The correspondence asserts that RiverCity Management is not insured under (inter alia) either policy in respect of the allegations set out in the proposed amended statement of claim, and that a number of significant issues will arise in respect of any claim for indemnity by RiverCity Services. It is not necessary for present purposes to determine which of AHAC or Chartis is the insurer under the relevant policies. I shall assume that Wotton Kearney was authorised to explain the position of the insurer whether it be Chartis or AHAC in the correspondence to which I have referred. 16 The views expressed in correspondence from Wotton Kearney on behalf of the insurer are expressed rather tentatively. This is true, it seems to me, not only of the views expressed in relation to RiverCity Services (which Wotton Kearney seems to accept may be insured against the applicants' claims) but also those expressed in relation to RiverCity Management (which Wotton Kearney asserts is not insured against such claims). According to Wotton Kearney, the indemnity position under each of the policies has been reserved until a formal decision on indemnity can be made and that no such decision can be made until: a claim is made against an insured entity; indemnity is pursued by the relevant insured entity; and the insurer thoroughly investigates all relevant indemnity issues and provides a formal indemnity position. 17 The correspondence from Wotton Kearney does not explain the basis for thinking that the IMI policy issued in favour of RiverCity Services would not cover RiverCity Management in respect of the matters pleaded in the proposed amended statement of claim. Presumably, it is the insurer's contention that the cover provided under the terms of the IMI policy does not extend to conduct of the kind which RiverCity Management is alleged to have engaged in in the amended statement of claim. Counsel for the applicants did not advance any argument to show why the IMI policy might provide such cover. 18 I approach the question of whether or not leave to proceed should be granted on the basis that it is reasonably arguable that RiverCity Services has rights of indemnity under the PL policy against the claims being asserted against them by the applicants in this proceeding. In the case of RiverCity Management, however, the position is different. There is nothing before me to show that it is likely to have any right of indemnity under either the PL policy or the IMI policy in respect of the applicants' claims. 19 In Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203 an application for an order giving leave to proceed under s 440D of the Corporations Law was refused by Young J. His Honour said (at 204-205): The provisions of Pt 5.3a, as exemplified in sections such as 437C, 437F, 440C and 440D, provide that there shall be a complete freeze of proceedings against the company during the administration so that the administrator can have time to assess the situation, and the company's creditors have an opportunity to work out the net position and adopt an attitude under s 439C which will be in their common interest. To allow one creditor or potential creditor to proceed would not only take the administrator's attention from what he needs to do under the division in a relatively short period of time, but it would also involve costs in running the legal action on behalf of the administrator, as well as perhaps giving the claimant some advantage over the other creditors or potential creditors. Accordingly, it seems to me that an application under s 440D will rarely be granted. It may be that where the company is insured against the liability the subject of the proceedings, the administrator will ordinarily consent or the court will give conditional leave, but outside this field it is hard to see situations where it would be proper to grant leave, though doubtless there are such situations. His Honour went on to refer to the circumstances of the particular administration which were such that, one way or another, it would come to an end within the space of only a few months. The approach of Young J to applications made under s 440D has been followed in numerous other cases including Brian Rochford Ltd (admin apptd) v Textile Clothing & Footwear Union of NSW (1998) 47 NSWLR 47 (Austin J) and Arpic Pty Ltd v Austin Australia Pty Ltd (2004) 49 ACSR 71 (Barrett J). 20 In Attard v James Legal Pty Ltd [2010] NSWCA 311 the New South Wales Court of Appeal identified a number of factors relevant to the question of whether leave to proceed should be granted under s 440D. In that case Tobias JA (with whom Beazley and Giles JJA agreed) said (at para [146]-[147]): [146] More recently, Rein AJ (as his Honour then was) summarised in J F Keir Pty Ltd v Priority Management Systems Pty Ltd (admin apptd) [2007] NSWSC 748 at [8] the factors to be taken into account in respect of an application for leave under s 444E(3): • whether the claim has a solid foundation and gives rise to a serious dispute: Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550; • whether the administrator would be unreasonably distracted from his or her statutory duties and be obliged unnecessarily to incur substantial legal costs: Foxcroft v Ink Group Pty Ltd (1994) 12 ACLC 1063; J & B Records v Brashs Pty Ltd (1994) 12 ACLC 534; Pioneer Water Tanks (Aust 94) Pty Ltd v Delat Pty Ltd (1998) 16 ACLC 36; Slater v Global Finance Group Pty Ltd (1999) 150 FLR 264; • whether the company is insured against the liability that is the subject of the proceedings: Foxcroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063; • who appointed the administrator: Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396; • whether the applicant will suffer any disadvantage if leave is not granted: J & B Records v Brashs Pty Ltd (1994) 12 ACLC 534; Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396; • whether there are good reasons for allowing a creditor to depart from the general intention of Pt 5.3A, which is that a creditor ought not be able to take action against the company in such circumstances: Foxcroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063; Re Grenadier Constructions No 2 Pty Ltd (1994) 12 ACLC 460. [147] To these factors may be added the following: • who is applying for leave: Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396; BBC Hardware Ltd v GT Homes Pty Ltd [1997] 2 Qd R 123; • what funds the company has available to defend against litigation: Wallabah Pty Ltd v Navillo Pty Ltd (1997) 15 ACLC 396. 21 In Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd (2011) 285 ALR 207, Hammerschlag J discussed the scope of the discretion under s 440D. His Honour observed that the discretion, although it must be exercised with the objects of Pt 5.3A in mind, was nevertheless "at large". His Honour said (at paras [36]-[40]: [36] I respectfully take a view different to that of Young J and Austin J. It seems to me that an approach which commences with an assumption that leave will only rarely be granted or that the court must approach this type of application with a degree of caution greater than that with which it would approach the exercise of any other discretion within a particular statutory context where it must be satisfied that appropriate circumstances exist for the making of an order imposes upon the applicant a standard higher than that which the section requires. This is an unwarranted confinement of the discretion. [37] The policy underlying Pt 5.3A, as evinced by s 435A, is to maximise the chances of the beleaguered company staying alive. [38] The stay of proceedings imposed by s 440D may facilitate the achievement of this object, among others, by (a) affording the administrator time to assess and report on the company without the distraction of the proceedings; (b) putting a brake on legal and associated costs; (c) allowing time for the development of proposals which might preserve the value of the company as a going concern; (d) giving the creditors time to consider their position for the purposes of the creditors' meeting; and (e) in appropriate circumstances, preventing a creditor from obtaining some advantage over other creditors or potential creditors. [39] While the discretion under s 440D must be exercised with the objects of the part in mind, it remains one at large. A stay is the starting point. There must be circumstances which warrant its displacement. [40] Every application must be considered on its own circumstances. There are infinite possible scenarios. There may be a flurry or a dearth of meritorious applications. Those circumstances need have no particular quality of rarity. 22 For the purposes of determining whether leave to proceed should be granted, the claims made by the applicants may be taken to have a solid foundation and to give rise to a serious dispute. 23 The evidence of the administrators suggested that they may be distracted from their duties as administrators at what they consider to be a critical point in the administration of the RiverCity group of companies if leave to proceed is granted. 24 I do not think the administrators will be unreasonably distracted from their duties if leave to proceed is granted. In the case of RiverCity Services, if and how the proceeding against it is to be defended is a matter in relation to which the insurer will no doubt have its own view assuming that it does not refuse indemnity before the time for the filing of a defence. 25 The position of RiverCity Management is somewhat different given that there is nothing before me to establish that it is or even may be covered against claims of the kind which the applicants seek to assert against it. In those circumstances, the question that arises is whether leave to proceed should be refused, leaving the applicants to simply lodge proofs of debt in the usual way and in due course in respect of their claims. 26 A critical question that all the claims raise for consideration is whether there was a reasonable basis for the traffic forecasts referred to in the PDS. This is a question that arises not only in the proceeding brought by the applicants but also in the related proceeding brought by the seven other companies that are members of the RiverCity Motorway group of companies. 27 The evidence before me did not suggest that either RiverCity Services or RiverCity Management lacked the funds needed to defend the proceeding although it must be assumed that money spent doing so may ultimately reduce the amount that may be recovered by their creditors. But an important factor to be borne in mind so far as costs are concerned is that the parties to this and the related proceedings are already engaged in what is likely to be a prolonged and hard fought contest over the reasonableness of the Aecom traffic forecasts. In these circumstances, especially where all the related proceedings are being case managed, the burden imposed on RiverCity Management in particular as a result of being drawn into the proceeding can be significantly lessened through appropriate case management that takes account of developments in the company's administration and in the related proceedings. 28 There was no opposition from the applicants in relation to the imposition of the second of the terms referred to by the administrators (see para 11(b) above) which is usually imposed in matters of this kind. The first of the terms postulated by the administrators (see para 11(a) above) is not one that should be imposed. In my view the amended statement of claim should be served so that it may be forwarded by RiverCity Services to the insurer together with any claim it proposes to make under the PL policy. 29 In the case of RiverCity Management, it is desirable that leave to proceed be granted even though (at least on the evidence before me) it appears not to be insured against claims of the type made against it by the applicants. The lack of insurance is a relevant, but not decisive, factor in determining whether to grant leave to proceed. What is also relevant is that the controversy between the applicants and RiverCity Management is part of a much larger controversy which raises a common issue upon which the Court must adjudicate unless there is a prior commercial resolution of the claims. The preferable course is to grant leave to proceed on the footing that any hardship or inconvenience that might arise as a result of granting leave to proceed against RiverCity Management in particular may be avoided or ameliorated by effective case management or, if necessary, the imposition of further conditions beyond that already imposed. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate: Dated: 2 November 2012