Reported Decision : (2000) 35 ACSR 114 New South Wales Supreme Court CITATION : Parkston Limited (in liquidation), Application of [2000] NSWSC 764 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1546/90 HEARING DATE(S) : 09/06/00 JUDGMENT DATE : 3 August 2000 PARTIES : Martin Russell in his capacity as Official Liquidator of Parkston Limited (in liquidation) (Applicant) JUDGMENT OF : Santow J P Hayes, QC/P Riordan (Tricontinental) COUNSEL : B A Coles, QC (Gibraltar Factors) M Walton, SC/T G R Parker (State Bank of New South Wales/Bank of West Australia) C R C Newlinds (Liquidator Parkston Limited) Middletons Moore & Bevins (Tricontinental) SOLICITORS : Baker & McKenzie (Gibraltar Factors) Blake Dawson Waldron (State Bank of New South Wales/Bank of West Australia) Kemp Strang (Liquidator Parkston Limited) CATCHWORDS : CORPORATIONS — Giving two creditors an advantage over the others under s450 of the Companies (NSW) Code or s564 of the Corporations Law where the two creditors funded risky, complex and expensive litigation — How is risk assessed over continuing period of litigation — Hindsight — Should 100% of the recovered proceeds go to funding creditors or something less — Relevance of one of them withdrawing from a commitment to contribute but continuing to contribute thereafter — Meaning of "indemnity" includes actual contribution whether pre-committed or not — also s450 includes preservation of property being right of action — Relevance of risk of cost order against non-party funders of litigation — Relevance and foreseeability of litigation risk — How and when ascertained — Relevance of the two non-funding creditors not having been asked to fund but generally aware of litigation and standing passively by — no realistic prospect would have funded despite assertions otherwise — All or nothing approach appropriate rather than valuation of a chance — Relevance if at all of other sources of recovery for non-funding creditors — joinder of parties. Companies (NSW) Code 1981 s450 LEGISLATION CITED : Corporations Law s564 Supreme Court Rules Pt 52A r4 Allquip (WA) Pty Ltd v Allan (1998) 16 ACLC 34 Re Cartco (1994) 12 ACLC 766 Re Glenisia Investments Pty Ltd (in liq) (1996) 14 ACLC 237; (1995) 19 ACSR 84 Household Financial Services Pty Ltd v Chase Medical Centre Pty Ltd (in liq) (1995) 13 ACLC 1569; (1995) 18 ACSR 294 Re Ken Godfrey Pty Ltd (1994) 12 ACLC 1,071; (1994) 14 ACSR 610 CASES CITED : Knight v F P Special Assets Ltd (1992) 174 CLR 178 Re Kyra Nominees Pty Ltd (in liq) (1987) 5 ACLC 811 Linter Group Ltd v Goldberg & Ors (1992) 7 ACSR 580 Power Demolitions Pty Ltd v Tosich Construction Pty Ltd (1998) 16 ACLC 410 Sellers v Adelaide Petroleum NL (1994) 179 CLR 332 Wentworth v Wentworth (1998-1999) 46 NSWLR 300 DECISION : 100% of recovery to funding creditors. IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 1546/90 PARKSTON PTY LTD (in liquidation) and the Corporations Law MARTIN RUSSELL BROWN (in his capacity as the official liquidator of Parkston Pty Ltd (in liquidation)) Applicant JUDGMENT 3 August 2000 introduction 1 Two creditors (Tricontinental Corporation Limited and Gibraltar Factors Limited) fund at different stages highly risky, difficult and expensive litigation, doing so over a number of years. It is brought by a company in liquidation, Parkston Pty Limited, in conjunction with a co-subsidiary Roxbury Pty Limited, each being subsidiaries of Linter Group Limited. The litigation is finally settled for a substantially lesser amount of which $1,830,744 went to Parkston. One of the risks did indeed come home, of a kind that could be anticipated, when evidence from a witness turned out adverse. This was a potent factor (amongst others) in encouraging settlement for a much lesser figure than originally claimed. These two creditors now seek a court order whereby they receive 100% of the recovered sum, though they represent just over half the unsecured debt. They contend that the Court should deem that just, "with a view to giving those creditors an advantage over others in consideration of the risk assumed by them"; see s450 of the then applicable Companies (NSW) Code 1981 (now s564 of the Corporations Law). Their application is supported by the liquidator but opposed by the other two major unsecured creditors. 2 While those two other major unsecured creditors, both banks (Colonial State Bank Limited and Bank of Western Australian Ltd ("the two Banks"), oppose 100% of the proceeds of recovery being so allocated, they do not oppose some advantage being allowed, but only for Tricontinental which they concede continued funding to the end. They contend that the other, Gibraltar, should get no advantage, as it ceased its commitment to fund in 1996 though still funding thereafter. The two Banks contend that: (i) they were never asked to fund; (ii) they had experience in funding litigation; (iii) had they been asked, they certainly would have considered a request on its merits, and (iv) there is every reason to believe they would have contributed to the funding required. 3 The two funding creditors dispute (iii) and (iv) above. They contend that in any event the two banks had every opportunity to offer to fund, being aware of the litigation though not specifically asked to fund, and failed to do so. That the banks were not asked to fund should therefore not prevent 100% of the proceeds going to the two funding creditors, commensurately with the risk they undertook and given their modest recovery compared to what they spent and risked. 4 The questions before me are these: (i) Is s450 capable of applying at all, in the circumstances, to Gibraltar? (ii) If capable of applying, what if any advantage should be ordered as would be just in the circumstances "in consideration of the risk assumed"? (iii) In answering (ii) to what extent, if at all, is it relevant that a non-funding creditor has expectations of a dividend derived from other recoveries? RELEVANT CIRCUMSTANCES 5 Before me are two applications. The first is uncontroversial. It is an application by the liquidator of Parkston Pty Limited (in liq) ("Parkston") and of Roxbury Holdings Pty Limited (in liq) ("Roxbury") for an order to distribute gross proceeds upon the settlement of proceedings No. 1412 of 1993 ("the CIBC litigation") as to $2,480,000 to Parkston and as to $1,800,000 to Roxbury. The only creditor of Roxbury adversely affected by such an order is the ANZ Banking Group Limited ("ANZ") and it consents. What follows concerns the second application. But first the background to that application. 6 Briefly, the CIBC litigation was a gross claim of some $40—$50 million in relation to the proceeds of sale of shares in a company Brick and Pipe Limited sold by CIBC. Parkston and Roxbury alleged that CIBC had knowingly participated in a breach of the fiduciary duties of Parkston (and Roxbury) thereby causing Parkston (and Roxbury) to be deprived of approximately $20 million of assets as part of Mr Abe Goldberg's scheme to take over a listed company, Brick and Pipe Limited. Mr Goldberg was a director and principal shareholder of Linter Group Limited, parent of Parkston and Roxbury. Reliance was placed on the judgment of Southwell J in Linter Group Ltd v Goldberg & Ors (1992) 7 ACSR 580 especially at 626-30 and also advice of Archibald, QC and Garner (exhibit TJC 620 to the affidavit of Mr Cuming of 9 November 1995). This was in support of the proposition that Parkston's (and Roxbury's) equitable interest (by reason of that alleged knowing participation by CIBC) prevailed over CIBC's equitable mortgage, being earlier in point of time. 7 In relation to the present proceedings, to the extent relevant (as to which see para 10 below), I should explain that each of the two banks is a creditor directly of Linter Group and guaranteed by Parkson. Bankwest is thus owed $10,742,174.22 by Linter Group (guaranteed by Parkston) and has recovered $6,934,252 (para 9 of the affidavit of Gregory Wynne of 10 May 2000). On the basis of its percentage entitlements to the assets of Linter Group (see final page of exhibit TX3) Bankwest is likely to receive a further $759,000 from distributions by Linter (to the extent this is relevant). 8 Of the Colonial State Bank's debt of $27,501,640.98 owed by Linter Group (also guaranteed by Parkston) it has recovered $16,411,209 (see para 7 of the affidavit of Robert John Moulds of 10 May 2000). On the basis of its percentage entitlements as above, Colonial State Bank is likely to receive a further $1,914,000 from distributions by Linter. 9 Tricontinental and Gibraltar then seek to rely upon the comparative position of the two banks compared to their own. I quote from the former's written submission of 14 June 2000: "The position of these non-indemnifying creditors contrasts with that of Tricontinental and Gibraltar who, having contributed $1,248,500.00 to the costs of the proceeding (plus the incurring of additional risk of costs payable to the other parties), stand to receive a total benefit of $1,830,744.00. In Power Demolitions v Tosich Construction (1998) 16 ACLC 410 AND Re Cartco Pty Ltd (1994) 12 ACLC 766 the court, in both cases, considered that the indemnifying creditors were entitled to an allowance of approximately three times the sum invested before a balance was made available for the benefit of non-indemnifying creditors." 10 In that regard, I am asked to admit against objection, exhibit RBI to the affidavit of the General Manager of Tricontinental dated 14 June 2000. That foreshadows a distribution at the earliest opportunity, following the settlement of associated litigation with Price Waterhouse. Whilst I have decided to admit it, I do not need to rely on that comparison to reach the conclusions I do. I consider that it goes only to the likelihood of whether the two banks would have funded if asked. In that respect it is by itself inconclusive but this question (would the banks have funded if asked) can be answered from other evidence and considerations. 11 I turn now to the second application being the relevant one here. It is by the Liquidator of Parkston pursuant to s450 of the then applicable Companies (NSW) Code 1981 for an order for the distribution of monies, being the net proceeds of settlement of the CIBC litigation. The order sought is that, after providing for fifty per cent of the legal costs of the CIBC litigation and the Liquidator's fees, there should be a 60/40 division of the net pool of funds otherwise available for Parkston's creditors between the two corporations that funded the CIBC litigation. Sixty per cent would then go to Tricontinental and forty per cent to Gibraltar. That pool of funds has still to be finally ascertained but can be treated as being of the order of $1,856,000. Any such division would be subject to any costs orders which might be made in the present application. This division is opposed by the two banks Colonial State Bank Limited (formerly State Bank of NSW and hereinafter referred to as "SBNSW") and by Bank of Western Australia Ltd (formerly R & I Holdings Limited and hereinafter called "Bankwest"). The two banks are both unsecured creditors of Parkston and their percentage claims with those of other unsecured creditors are set out in the table below. 12 As is clear from that table of known unsecured creditors below, the only significant creditors are Tricontinental, Gibraltar, SBNSW and Bankwest. The remaining unsecured creditors are below one per cent, being the then Coopers & Lybrand and five sundry creditors. They can be ignored for present purposes. 13 Set out below is the table of known unsecured creditors and the proportion of debts of indemnifiers and non-indemnifiers: Parkston Limited Known Unsecured Creditors Claims Approx. % of Claims 1. Tricontinental 26,996,623.19 31% 2. Gibraltar 20,771,631.00 24% 3. State Bank 27,501,640.98 32% 4. BankWest 10,742,174.22 12% 5. Coopers & Lybrand 3,404.00 6. 5 Sundry creditors 330.00 <1% $86,015,803.39 100% Proportion of debts of Indemnifiers 55% Proportion of debts of Non-Indemnifiers 45% 14 Only the Liquidator and Parkston are parties to the present application. SBNSW and Bankwest are effectively its contradictors, though not formally joined as parties. Tricontinental and Gibraltar appear separately represented from the Liquidator in support of the application. As an initial procedural matter, I have concluded that, subject to hearing further in writing (or orally if necessary) from the parties, if they desire, an order should be made joining as parties Tricontinental, Gibraltar, SBNSW and Bankwest. This will bind all parties to any determination now made in relation to the Liquidator's application. Furthermore, while cost orders in the discretion of the Court may be made against non-parties by reason of their close connection to the subject matter of the proceedings, joinder of those companies here recognises more relevantly that these four entities are the true protagonists in the present proceedings and should be joined, so as to be formally bound to the result. In so concluding, I do not infringe the prohibition on joining a person as a party for the purpose of awarding costs against that person in Pt 52A r4(3) SCR, though noting the exception in r4(4). I am satisfied that such an award can be made, if at all, under the discretion in that behalf to award costs against non-parties, even were they not joined. 15 As to the circumstances of the funding, Gibraltar funded a total of $478,503 for the costs of the conduct of the CIBC litigation. $393,503 was first funded from 1993 to 1996. Then, withstanding the decision made on 31 January 1996 by Gibraltar's committee of management not to continue funding of CIBC litigation beyond a further two months, Gibraltar in fact funded a further $85,000 from 1996 to the date of settlement of those proceedings giving the total of $478,503. Tricontinental funded $770,000 of the costs of the CIBC litigation from early 1996 until their settlement. 16 Settlement of the CIBC litigation was approved by the court on 10 November 1999 in circumstances where it could not seriously be disputed that the CIBC litigation was complex, substantial, costly and of uncertain outcome. That in turn is a proper gauge of "the risk assumed" by the two funders; it was clearly a very substantial risk for reasons which I now elaborate. In those proceedings, Parkston and Roxbury sought to recover a gross claim of $40-50 million. They alleged that CIBC had knowingly participated in a breach of the fiduciary duties of the directors of Parkston, thereby causing Parkston to be deprived of approximately $20 million of its assets as part of a scheme by the former Managing Director and principal shareholder of the Linter Group to take over a company called Brick and Pipe Industries Limited. Self-evidently this involved complexities of law and fact. Those proceedings were transferred to the Supreme Court of New South Wales on 5 February 1993. 17 The size, risk and complexity of the claim can further be gauged by the quantum of costs incurred in its conduct. Advices were given at various points as to the prospects of success (see Salient Facts below). The initial assessment on 14 April 1997 from Mr Archibald, QC and Mr Garner was that Roxbury and Parkston have "a reasonably good prospect of success" in the CIBC litigation. Prospects of success were however rated at "no better than 60%". The risks of the claim as they emerged can be seen from the fact that the claim eventually settled for approximately $4,200,000, due in part to the change in evidence given by a key witness at the trial, Mr Durlacher, as compared to the evidence foreshadowed in his affidavit. 18 While in one sense the risk only came home at the time of trial, it is not unreasonable to infer that that kind of risk is inherent in complex litigation and one that was foreseen. It was a generic risk applicable to any potential witness rather than foreseen in relation to the particular witness whose evidence turned out adverse when tested. Complex litigation usually depends not only on contestable issues of law but also typically upon factual evidence to be given by key witnesses whose credibility will be rigorously tested at trial. So indeed here. 19 The end result was that the two creditors Gibraltar and Tricontinental expended between them $1,248,503 on the costs of litigation for an eventual and long-delayed recovery in gross of only $2,480,000 to Parkston. After providing for fifty per cent of the legal costs of the CIBC litigation (attributable to Roxbury) and for the Liquidator's fees ($25,000) this leaves a pool of funds ($856,000) available for Parkston's creditors, or such of them as are to receive it following the determination of this application. 20 It is common ground that there would have been virtually nothing for unsecured creditors (only some $20,000) but for the CIBC litigation having been conducted, once payment was made of the Liquidator's costs and expenses in relation to Parkston. Thus the indemnifiers, whose proportion of the total debts was fifty-five per cent, put at risk a substantial sum of money yet secured by their efforts merely a gross $2,480,000 and a net $1,830,744 now sought to be split 60/40 between Tricontinental and Gibraltar. That might be viewed as a large recovery in comparison with nil recovery otherwise, but was clearly small in relation to the costs expended and at risk and in relation to the amount originally claimed. That puts in perspective the potential recovery for Roxbury and Parkston starting off at $19.4 million (Exhibit "ABW3"), and its potentiality for increase with interest. But it must be kept in mind that was always no better than 60% prospects of success and much lesser prospects when latterly at trial the witness' evidence turned out adverse. Yet a much lesser amount was recovered, namely $1,856,000 for Parkston, pointing to the very hazards of litigation that were to be anticipated; hazards accentuated when the matters below are also taken into account. 21 Mr Hayes, QC and Mr Riordan, who ultimately appeared for Tricontinental, having first appeared for the applicant Liquidator (subsequently represented by Mr Newlinds) put the following propositions which I substantially accept, save where indicated. The risks run by the two indemnifying creditors are to be evaluated in this way: (a) The CIBC litigation was an unusually difficult one with substantial contested issues. Although Linter Holdings Limited had been successful before Southwell J in a similar piece of litigation, the following matters should be noted: (i) There were no offers by CIBC prior to the verdict in the Linter litigation; (ii) CIBC appealed from the decision of Southwell J and the appeal proceeding was settled for less than one-third of what would have been Linter's entitlement if the judgment of Southwell J had been upheld. (b) The claim in the CIBC litigation was significantly more difficult because Linter was a creditor of Gibraltar, but Gibraltar was a creditor of both Parkston and Roxbury. In both cases, according to the financial accounts, the contributions were made through Gibraltar. But in the case of Parkston and Roxbury, it could be said against their case that in reality they suffered no detriment (an essential element in their cause of action) when they made their payments. This was because they were each substantial debtors of Gibraltar and the amounts of their respective contributions had been credited by Gibraltar against their outstanding debts. That argument could well at trial have defeated the claims brought in the CIBC litigation against CIBC. (c) On 31 January 1996 the creditors of Gibraltar resolved not to continue the litigation and to withdraw the claim, adding to the burden (and risk) for continued funding. (d) The ANZ Bank refused to contribute, despite holding the priority debenture over Roxbury. (e) Both companies' claim, which was eventually between $40-50 million, was settled for $4.5 million all in with the companies to pay the costs of the third party in the sum of $220,000. Further, Gibraltar was required to release CIBC from any claim it had against CIBC. (f) Added to these risk factors, is the quantum of the payment of costs and the risk of potential indemnity for CIBC's costs if the action failed. Costs and expenses in conducting the proceedings to settlement totalled $1,249,000 made up of $478,000 for Gibraltar and $770,000 for Tricontinental. The estimated costs of completing the trial, which Tricontinental would have been required to expend, was the sum of $400,000, plus the probable costs of a likely appeal. (g) If the claim had failed, Roxbury and Parkston as the cross-claimants would have been primarily liable for the costs of CIBC and the third parties' solicitors, estimated as in the order of $1.5 million. Nonetheless, there was real risk that application would have been successfully made to recover costs against Tricontinental as the continuing funding party and also Gibraltar as having funded the action till 1996, and thereafter in a further $85,000. This would have been on the basis that, though not a party to the proceedings, they were each so closely connected to the proceeding they funded that they were in a sense the real plaintiff, and therefore potentially liable for a cost order in the circumstances. Certainly the principles for awarding costs against a non-party enjoin a cautious approach. But where the connection between the non-party and the judicial proceeding is sufficiently close, that courts will not necessarily be deterred from making an order for costs against a non-party; see generally my judgment in Wentworth v Wentworth (1998-1999) 46 NSWLR 300 at 310-1 for the principles governing that discretion. An example of recovery of costs against a non-party is where proceedings are being carried on by and for the benefit of a third person, such as proceedings carried on by receivers and managers of an insolvent company as illustrated by Knight v F P Special Assets Ltd (1992) 174 CLR 178. There as here the connection was close; the present funding creditors, as the evidence records, were closely involved with the litigation which, without their funding, would not have proceeded; see para 58 below. Indeed the advice given by Mr Garner of Counsel on 28 November 1995 to Tricontinental (ABW 1) at pages 20-22 gives very clear warning of that risk. This was even for the period before Tricontinental got involved, though that was a lesser risk. (h) While the outcome of a cost order application against Tricontinental and Gibraltar could not be stated with any degree of certainty, I do accept there was a substantial risk, though not a certainty that both funding creditors would suffer a cost order against them, had the CIBC litigation been lost. Mr Hayes, QC argued that the amount at risk for the contributing creditors exceeded $3 million, being $1.2 million in costs plus the possibility of liability for CIBC's costs as against an eventual return of $1.8 million. I would accept that summation but with two qualifications. The first is that the latter liability for costs was a significant risk rather than a certainty. Second, that only half CIBC's potential costs were realistically at risk, namely $900,000; see para 22 below. 22 Bankwest and Colonial State Bank respond that the comparison is misleading for several reasons. First, the "risk" figure includes the costs of the whole action, i.e. including both Roxbury and Parkston, whereas Roxbury and Parkston would be at risk only for half each of CIBC's costs if unsuccessful. That would on those figures mean a potential liability of $900,000 for CIBC's costs, so far as Parkston was concerned. It would only be otherwise if the cost order were made on a joint and several basis, but that seems quite unlikely. That said, even if the amount at risk were the lesser figure of $2.1 million, it was a large enough sum to hazard for the prospect of winning difficult, complex litigation with only "good" (or "no better than 60%") prospects of success. That is to undertake a high risk for a speculative gain, whose eventual modest outcome (at $1.8 million) is a good index of that risk; this is so, even though the most optimistic case was a ten times multiple of that. 23 The two banks also contend that taking Gibraltar and Tricontinental together disregards the different considerations applicable to each. Because Gibraltar ceased to bind itself to contribute in early 1996 it was no longer at risk. However, Gibraltar did in fact continue to contribute from 1996 to settlement, contributing $85,000. That it was not bound to do so does not alter the fact that it put at risk that further sum and left itself more vulnerable to a cost order in doing so. 24 Then it is said that there is no evidence that Gibraltar was ever at risk for CIBC's costs as Parkston and Roxbury were the actual defendants and cross-claimants not Gibraltar or Tricontinental. So far as Tricontinental is concerned, clause 4 of the Funding Agreement (Annexure "C" to affidavit of T J Cumming of 9 June 2000) provided for Tricontinental to contribute funds as required, and gave Tricontinental a right to withdraw provided that it paid any remaining costs of Parkston and Roxbury. Clause 3 provided for Tricontinental to indemnify the Liquidator against any costs order made against him personally; but that would only arise were the Liquidator liable personally and as he was not a party to the litigation it could not be said for practical purposes that Tricontinental was at risk for CIBC's costs of the litigation. I have refuted that contention in para 21(g) and (h) above and para 22. 25 Bankwest and SBNSW argue that the only evidence on the perceived merits of the claim is that, as recorded in the circular to creditors of Linter Group Limited dated 18 July 1994 (Exhibit "GX5") the solicitors for Linter Group Limited (not Parkston and Roxbury) were expressing the view that it would not succeed. This was apparently based on the provisions of the subordination agreement, but that particular view is not addressed apparently in any of the advices commissioned by Roxbury and Parkston which are in evidence and does not appear to have assumed any great significance in the proceedings. 26 Bankwest and SBNSW point out that there is no evidence as to any significant re-appraisal of the risk during the time that Tricontinental provided funding. Then it is pointed out at the time of the trial Tricontinental was not proposing to accept any less than $15 million in settlement until the unexpected evidence given at trial by Mr Durlacher; see the joint memorandum of advice dated 8 November 1999 (Exhibit "TJC6" to affidavit of T J Cumming of 9 November 1999), especially paragraph 12. However, I do not consider this point ultimately outweighs the other factors in favour of the funding creditors. 27 Finally, the two banks contend that the correct comparison is between $770,000 "risked" and a potential gain at the time the risk was first undertaken up until the unexpected evidence, of between $15 million and $20 million. It is then contended that one assesses the risk/reward, in light of perceptions at the time the contribution is made available, and not with the vision of hindsight. With that I would generally agree but with two qualifications. First, I would conclude that because the contribution was made on a continuing basis with a right of withdrawal, it is quite artificial to disregard as risk the later event of the Durlacher unexpected evidence, precisely because it was that kind of risk which from the outset must have been anticipated. Second, looking at what is "just" directs attention primarily to foreseeable risks viewed over the time of continuing contribution rather than with retrospective hindsight. But the further qualification is this. Advantage "in consideration of the risks assumed by [the funding creditors]", does permit hindsight to this extent. If s450 is to fulfil its statutory purpose in the public interest of encouraging such funding, then if a risk comes home to produce a very modest recovery for disproportionately large expenditure, that gives little incentive to others to fund in future cases. In those circumstances it may still be just to allow a relatively larger advantage in light of the risk actually assumed and its outcome. A balance must here be struck. It would be unjust to force non-funding creditors to fund for fear of harsh treatment. But they can be encouraged so to fund, knowing that courts place considerable weight on there being adequate incentive to fund when it comes to awarding an advantage in relation to what has been thereby recovered. Summing Up 28 Taking into account the arguments put by the two banks, I am nonetheless of the view that the litigation throughout must have been perceived as involving the expenditure of a large sum of money for a speculative outcome, with for Parkston $15-20 million being a fairly optimistic best case. For this was in circumstances where the funders were advised they had no more than "a reasonably good prospects of success" of "not better than 60%" with all the attendant risks that go with a complex factual and legal dispute. That risk is made manifest by the risk factors recognised by the creditors of Gibraltar and ANZ Bank in discontinuing the commitment in the case of Gibraltar and refusing to contribute at all in the case of ANZ. Furthermore, both Gibraltar and Tricontinental were at real risk of having to contribute to costs as non-parties, if they lost. Finally, Tricontinental initially refused to fund and only came in, in 1996. 29 While actual risk run must be determined throughout the time of the funding, it is fair to look at the outcome of litigation as throwing light on what must have been apparent to those funding that litigation during the time of its funding. This is in the sense that a risk that comes home is not untypically a foreseeable risk and was so here. 30 The Court's proper course is therefore to assess the perceived merits and prospects of the litigation at the time a commitment is first made to fund that litigation and thereafter throughout the funding period. So where, as here, payments in funding the litigation are made over time, and the risk relevantly alters, then this must be accommodated in assessing perceived risk. In the nature of things many of the factors which bear upon that risk are and will be perceived at the time to be unknown, such as how particular witnesses will in fact turn out when they give evidence as against what they foreshadow in affidavit form. But that generic risk is still to be anticipated, even if the outcome for a particular witness be not predictable. It is also right to look at the end result in terms of outcome compared to amount expended, in order to achieve a just result which offers sufficient incentive to fund while not being punitive upon non-funding creditors. 31 I am therefore satisfied that the present proceedings were properly perceived from the outset and throughout as risky with only good (not more than 60%) prospects of success. There were never such prospects as would give any high degree of confidence that the proceedings would be successful at the most optimistic level of recovery of $15-20 million for Parkston. SALIENT FACTS 32 I have already referred to the factual circumstances in providing the setting for the present application. As a convenient reference point, I set out below an agreed chronology of the salient facts. 1. 14/3/90 Anthony Sherlock care of Messrs Coopers & Lybrand was appointed the provisional liquidator of both Parkston Pty Limited ("Parkston") and Roxbury Holdings Pty Ltd ("Roxbury") and then subsequently as liquidator of those companies on 18/6/90. 2. 18/7/90 Report as to Affairs identifies creditors as Tricontinental, Gibraltar Factors Pty Limited ("Gibraltar"), State Bank of NSW now called Colonial State Bank Limited ("SBNSW") and Linter Affidavit of T J Cuming 9/6/00 paras 3-4 3. 4/5/92 Southwell J gave judgment for Linter Group Ltd against CIBC (Aust) Ltd in proceeding 1990 No. 2195 ("the Linter litigation"), the appeal from which being subsequently settled. 4. 9/12/92 Liquidator of Parkston and Roxbury under proceedings No. 1412 of 1993 claimed an interest in the proceeds of the sale of certain shares in Brick and Pipe Industries Limited by way of constructive trust from CIBC ("the CIBC litigation"). 5. 11/12/92 CIBC commenced the CIBC litigation which sought a declaration that those companies were not so entitled to an interest in the proceeds of the sale of the shareholding in Brick and Pipe Industries Ltd, which proceeding was transferred to the Supreme Court of New South Wales on 5/2/93. See 22 and 23 below. Liquidator of Gibraltar decides to fund the CIBC proceeding and it is in fact funded as follows: 1. $393,503 from 1993 to 1996; 6. 14/12/92 2. $85,000 from 1996 to settlement (notwithstanding 13 below). Affidavit of T J Cuming 23/2/00 Ex TJC 4 para 2 Affidavit of T J Cuming 23/2/00 para 17 The only non-contingent creditors recorded at the time were Gibraltar and Tricontinental. Affidavit of T J Cuming 23/2/00 para 15 & Ex TJC 1. See also 13 and 17 below. 7. 18/12/92 Minutes of Meeting of Committee of Inspection. Paragraph 5.2 refers to "... a demand from A G Sherlock in his capacity as Liquidator of two Goldberg companies asserting a constructive trust claim in relation to funds totalling $47 million allegedly advanced by those two companies to part finance the purchase of the Brick & Pipe shares." TX2 8. 6/4/93 Roxbury and Parkston filed a cross-claim against CIBC seeking declarations that the proceeds of the sale of the Brick and Pipe shares were held on a constructive trust for Roxbury and Parkston 9. 18/7/94 Circular letter KPMG to Lenders enclosing Minutes of Meeting dated 13/7/94. Paragraph 9 of the minutes records the report re "Parkston and Roxbury -v- CIBC" GX5 10. c. June 1995 Informal negotiations begin between solicitors for Tricontinental and solicitors for liquidator about funding CIBC litigation Affidavit of A B Watson 6/6/00 para 3 11. 28/11/95 Initial Memorandum of Advice by Michael Garner Ex ABW1 Affidavit of Watson 12. 7/12/95 Meeting between Coltmans and Baker & McKenzie to discuss CIBC litigation Affidavit of Watson 6/6/00 para 6 13. 31/1/96 Gibraltar's Committee of Management resolves not to continue funding CIBC litigation beyond 2 months Affidavit of T J Cuming 23/2/00 para 21 14. 1/2/96 Letter from Coltmans to Tricontinental records advice from Baker & McKenzie that Roxbury and Parkston have "a strong case" in the CIBC litigation and estimating recovery (for both) at a minimum of $19.4 million Affidavit of Watson Ex ABW3 15. 22/2/96 Letter from Baker & McKenzie to Coltmans estimates costs of CIBC at $1 million and minimum recovery for Parkston as $11.4 million Affidavit of T J Cuming 23/2/00 Ex TJC 5 16. c. February 1996 R & I identified as further creditor of Parkston Affidavit of T J Cuming 9/6/00 para 22 17. 1996 Tricontinental funded $770,000 from 1996 until settlement Affidavit of T J Cuming 23/2/00 para 17 18. 7/11/96 Notice Of Meeting Of Creditors of the Bankrupt Estate of Abraham Goldberg. The creditors, including SBNSW (now Colonial State Bank) and Rural & Industry Bank of WA (now Bankwest), are detailed in paragraph 6 and the history of indemnities sought in paragraphs 19-31. TX1 19. 14/4/97 Memorandum of advice from Archibald QC and Garner concludes Roxbury and Parkston have "reasonably good prospects of success" in CIBC litigation. Affidavit of T J Cuming 11/99 Ex TJC 6 20. 27/10/97 Circular letter Coopers & Lybrand inviting lodging of formal proof of debt in Parkston Limited and stating "I advise that a mediation has been scheduled to resolve a dispute with CIBC concerning the ownership of certain sale proceeds of Brick and Pipe shares" Affidavit of G K Wynne 10/5/00 Ex B 21. 18/10/99 Letter KPMG to Lenders dated 18/10/99; which attaches "... schedules which detail remaining assets and the interest of each creditor in those assets." The schedule shows: State Bank of NSW has a 3.48% interest in Linter Group Limited and a 3.21% interest in Linter Textiles Limited Bank West has a 1.38% interest in Linter Group Limited and a 1.27% interest in Linter Textiles Limited TX2 22. 1/11/99 The trial of the CIBC litigation commenced before Justice Hamilton in The Equity Division of New South Wales, Supreme Court 23. 10/11/99 Settlement of the CIBC litigation was approved by the Court Distribution Sheet from KPMG with the following attachments: 24. 6/4/00 1. Letter KPMG to Lenders dated 6/4/00 TX2 2. Letter KPMG to Lenders dated 18/10/99; which attaches Distribution Sheet from KPMG with the following attachments: 25. 28/4/00 1. Letter KPMG to Lenders dated 27/4/00 TX2 2. File Note Howard Hamlyn KPMG to R J Bennett General Manager relating to the leaking of the amount of settlement in the Australian Financial Review article dated 13/4/00. 3. Australian Financial Review article dated 13/4/00 RESOLUTION OF LEGAL ISSUES 33 The starting point is the terms of s450 of the Companies (NSW) Code 1981: "Where in any winding up - (a) property has been recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of monies or the giving of indemnity by the creditors; or (b) expenses in relation to which a creditor has indemnified a liquidator have been recovered, the Court may make such orders, as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk assumed by them." 34 The authorities recognise that the purpose behind that section and its successors, being now s564 of the Corporations Law, is to give the courts "a broad and general discretion and one that is to be exercised having regard to the desirability in the public interest of encouraging creditors to indemnify liquidators who desire to pursue claims in the winding-up of companies"; (per Hayne J in Re Ken Godfrey Pty Ltd (1994) 12 ACLC 1,071 at 1,072-1,073; (1994) 14 ACSR 610 at 612; also Re Glenisia Investments Pty Ltd (in liq) (1996) 14 ACLC 237; (1995) 19 ACSR 84; Allquip (WA) Pty Ltd v Allan (1998) 16 ACLC 34 and Power Demolitions Pty Ltd v Tosich Construction Pty Ltd (supra).) 35 In Household Financial Services Pty Ltd v Chase Medical Centre Pty Ltd (in liq) (1995) 13 ACLC 1569; (1995) 18 ACSR 294, the court ordered hundred per cent priority be given to indemnifying creditors after meeting priority debts and the costs and expenses of the liquidator under the application. However, the application was unopposed by the priority creditor, the Australian Taxation Office. It had earlier not responded to the request for indemnity. Similarly, all of the non-contributing creditors had been given the opportunity, which they did not take up, to fund the litigation in the two other cases where 100% was awarded exclusively to the funding creditors; Re Glenisia Investments Pty Ltd in liq) (supra) and Allquip (WA) Pty Ltd (supra). It appears the only other case where 100% was awarded exclusively to the funding creditors involved a very small amount ($11,000) namely Re Cartco (1994) 12 ACLC 766. 36 In Household Financial Services (supra) the liquidator did not know of any creditors other than two; the plaintiff who later obtained the advantage and the Australian Tax Office. He could not therefore notify any other creditors than those two. The liquidator was unable to comment on their attitude to funding, because by the time he learnt of them he had already obtained the indemnity from the plaintiff. None of the other creditors responded to the court application under s564 of the Corporations Law. 37 The plaintiff had there provided the indemnity promptly, enabling the liquidator to commence urgent proceedings which were successful, notwithstanding the level of opposition which was strenuous and where the risk was not inconsiderable with the litigation vigorously contested and complex. That accurately describes the present case also. 38 In that case Brownie J usefully summarises the authorities concerning the appropriate discretionary factors to be considered in the present s450 application. These included (i) the sum recovered; (ii) the failure by the creditors to provide the indemnity, (iii) the proportion between the debts of indemnifiers and others, (iv) the public interest in encouraging creditors to provide indemnities so as to enable assets to be recovered, and (v) generally the totality of the circumstances, noting that there has been a tendency in recent times to adopt a more liberal approach in favour of indemnifying creditors. Brownie J added (at 1,571) that "obviously it will be an extremely rare case for the contributing creditors to receive 100% of the amount recovered". 39 In the present case, the two banks complain that they were not asked to fund the CIBC litigation; see para 42 and following. The two banks submit that Tricontinental should be paid only $200,000 in priority from the pool, that Gibraltar should be paid nothing in priority from the pool and thereafter the pool should be divided pro rata to the amount owed to each unsecured creditor including the two banks. The outcome of that scenario and various other scenarios is set out in an attachment to this judgment. 40 Gibraltar strenuously opposes such an order as being manifestly unjust and not justified by the fact that Gibraltar had withdrawn in 1996, having regard to the role it had played not only in the early part of the proceedings but its continued role thereafter, despite its announced withdrawal. Gibraltar had expended a substantial amount of its creditors' money in funding Parkston at short notice in complex proceedings, in circumstances where the liquidator had not yet called for proofs of debt, but at least knew that Tricontinental and Gibraltar were creditors of Parkston; see T J Cumming unsworn affidavit para 6.11. A further measure of the risk taken on by Gibraltar in 1992 at the time of the first part of funding was that the liquidator had already approached two creditors for funding, namely Tricontinental and Gibraltar, and Tricontinental at that time refused to fund. Likewise, as has already been noted, ANZ did not fund, even though it was assured one hundred per cent of the proceedings in Roxbury, being its first registered chargeholder; see T J Cumming unsworn affidavit, paras 10 and 17. On that basis, Gibraltar contends that it should be given a substantial advantage under s450. 41 So far as Gibraltar is concerned, the two banks contended as a threshold matter that Gibraltar could not recover any amount under s450 because there was no continuing indemnity for costs in respect of the money it had paid. The two banks relied on the decision of Franklyn J in Re Kyra Nominees Pty Ltd (in liq) (1987) 5 ACLC 811 at 816. He held that creditors who had provided funds to a liquidator to enable him to proceed with litigation could not be said to have "indemnified" the liquidator against the costs of such litigation within the meaning of the corresponding provision of s292(10) of the Companies Act 1961 (WA). I prefer the broader view of "indemnity" adopted by Branson J in Power Demolitions Pty Limited v Tosich Construction Pty Ltd (supra) at 413 as meaning simply "protection or security, as by insurance against damage or loss". Thus the actual provision of funds by unsecured creditors to the Liquidator would meet that description in providing the Liquidator with a measure of protection in respect of the costs of the litigation instituted by him. Branson J did not however need to adopt a concluded view in that regard. This is because in that case, as in the present case, those monies come within the second set of circumstances in paragraph (a) of s450. That is to say, "property" "has been protected or preserved by the payment of monies or the giving of indemnity by the creditors". I am satisfied that Gibraltar's payment of monies protected or preserved the property constituted by Parkston's right of action. This is no less so because that property fructified in a settlement amount paid in satisfaction of that right of action and in substitution for it. 42 In neither set of circumstances covered by paragraph (a) of s450 do I consider that Gibraltar is excluded at the threshold by reason of its commitment to provide indemnity for costs ceasing, when that indemnity in the sense of actual payment continued. In particular, I do not consider that the term "indemnity" is so narrow as only to encompass a binding obligation to provide the indemnity payments as distinct from an actual payment made whether covered by a pre-existing agreement or not. The only significance of whether or not there is a binding commitment or simply ad hoc payments is that a legally binding indemnity agreement gives greater certainty to those reliant upon it and in particular to the company itself. However, as of 1996 and thereafter, reliance could still be placed on the commitment of Tricontinental, so that factor is not of great importance. And of course the more the two funding creditors put in, the harder it would have been to walk away with nothing, so the liquidator had that assurance also. 43 The real gravamen of the two banks' complaint is that they themselves were not asked to fund the litigation at any stage. The banks' submissions then assert that had they been asked to fund, they would have certainly considered such a request on its merits. They then assert, "there is every reason to believe that they would have contributed to the funding required"; see written submissions of the two banks dated 11 May 2000, para 4.5. 44 On the evidence before me, I am satisfied that the banks were indeed never asked to indemnify the CIBC litigation. However, the real significance of that as a factor in the exercise of the Court's discretion is whether, had they been given that opportunity to fund, would they have exercised the opportunity so to do. If they would not, then failure to notify the banks would not establish any prejudice suffered by the banks by the lack of notification. 45 The evidence before the Court included affidavits by Mr Robert Moulds on behalf of SBNSW and Mr Gregory Wynne of Bankwest. Both were cross-examined. 46 Mr Moulds of SBNSW states in his affidavit of 11 May 2000 (paras 10-11) that any request for funding for the Liquidator "would have received serious consideration on its merits". He stops short of stating whether, in his opinion, the bank would have in fact funded. Instead he says that in his experience, in the ordinary course of business, SBNSW at times receives requests from liquidators to fund litigation and on occasion has done so. But he cited no examples, merely referring to "its usual practise being to refer requests to its credit committee". There was however no evidence from any member of that credit committee as to what it typically did with those requests. The evidence to that effect was therefore substantially qualified, though in a context where the question was hypothetical. It may fairly be inferred that any such evidence from its credit committee would not have assisted SBNSW. 47 The affidavit of 10 May 2000 of Mr Wynne of Bankwest was to similar effect (see paras 12 and 13), except that he says that bank refers requests to its in-house legal department, and loan and credit departments to form a view on the merits and prospects. He says that from time to time the bank seeks external advice from qualified legal and commercial advisers. He says that "frequent requests" to fund litigation have been received from liquidators and "on occasion" the bank has done so. He gave no concrete example. He then said that if it had received a request from Mr Sherlock to fund the CIBC litigation "it would have had no reason not to follow its usual procedure in respect of such a request" … "and that the request would have received serious consideration on its merits". 48 Neither of the banks provided any evidence of examples of other occasions when they have funded liquidators (save SBNSW in para 49 below where SBNSW was secured) nor the extent to which, in the relevant years of 1992 and 1996, funding requests were sought from them nor the extent to which they were taken up. The absence of such evidence suggests that it would not have been helpful to the banks. 49 Each of the two witnesses were cross-examined both on behalf of the two funding creditors and of the liquidator. It became evident that Mr Moulds has never had the carriage of nor been involved in a case where his bank, as an unsecured creditor, had been requested to fund litigation. To the knowledge of Mr Moulds SBNSW, as a secured creditor, has only provided funding for litigation in one case the details of which are outlined in TX4. Mr Moulds was unable to provide any further details about this transaction other than those found in TX4 (T.13-31-14,5). As is consistent with paragraph 11 of his Affidavit Mr Moulds informed the court that if the Bank had been approached for funding the matter would have been considered on its merits (T. 13.53). 50 He was pressed as to whether SBNSW presented its best evidence. Mr Moulds has only been responsible for overseeing the bank's claim in relation to the Linter companies since he took over the file in June 1999. Prior to this a Mr Oaks had carriage of the matter for 12 months. Mr Oaks took over from Mr Booth. (T, 15.42—.45). Mr Alan Booth was one of the individuals to whom GX5 was addressed, and in relation to Mr Booth he was asked (T, 20.32—.34): "Q. The question was so far as you know Mr Booth, who was the recipient [of GX5], is alive and well and living in Sydney? A. As far as I know." 51 From the oral evidence presented it became clear that Mr Moulds was not able to assist beyond generalities in answering the question whether or not SBNSW would have funded the litigation if given the opportunity. Given Mr Oaks' probable greater knowledge. I would draw the inference that any evidence from Mr Oaks would not have assisted the bank's case. 52 Turning to Mr Wynne of Bankwest, in cross-examination Mr Wynne said again that had Bankwest received a request for funding they would have made due inquiry of the prospects of success (T, 31.12—.15). This would involve the bank requesting their advisers or the lawyers of those requesting the funding to provide an opinion of the prospects of success, the costs of running the case and the expected distribution and then that would be referred to Bankwest's in-house legal counsel (T, 31.40—.45). It can be inferred, however, from the following exchange in cross examination that Bankwest probably would not have funded litigation if the likely prospect of return were likely to be low or, inferentially, if the risks were very high (T, 30.46—31.5): "Q. Did you know what the amount was that was at risk for Gibraltar and Tricontinental in terms of costs outlaid and the risks of costs if the action lost? A. No Q. Would it be relevant to your decision if that was in the millions of dollars? A. It may have been Q. Would it have been relevant to you to have outlaid $1.2 million or more of costs for a total return after contested litigation of $1.8 million. Would that have been relevant? A. I can't answer. Q. You can can't you, Mr Wynne? Your bank wouldn't have been interested in a one-for-one proposition. Wouldn't have been worth the risk, would it? A. It would seem a low return." 53 However, that the return was low only became apparent in hindsight. One should not make too much of these concessions, if such they were, when the true context is back in 1992 when Gibraltar started to fund, or 1996 when Tricontinental did, and then during the funding period. But a closer look at that context does not assist the two banks either. 54 Thus like Mr Moulds, Mr Wynne was cross-examined in relation to his experiences of requests from liquidators for funding. This line of questioning was based on paragraph 12 of Mr Wynne's affidavit where he stated: "In my experience, in the ordinary course of business, R & I Holdings and Bank West has frequently received requests from liquidators to fund litigation and on occasion has done so." 55 In oral evidence it developed that in a ten year period Mr Wynne was only able to recall Bank West receiving three requests for funding litigation and funding was only approved on one of those occasions. Mr Wynne did not have carriage of that matter, was not able to find any documentation in relation to that funding and did not know whether it was a matter involving a secured or unsecured debt. (T, 31.17—32.49). 56 During cross-examination it emerged that neither Mr Moulds for SBNSW nor Mr Wynne for Bank West were able to point to any example where, upon a request for funding, their respective banks, as unsecured creditors, have approved such funding. In answering the question whether or not, given the opportunity, the banks would then have funded the litigation, the statement "the request would have received serious consideration on its merits" (para 11 Affidavit Mr Moulds) though in relation to a hypothetical question, does not take matters very far. 57 There are in addition other factors tending against the Banks. It appears both banks were requested to fund litigation in relation to the bankrupt estate of Mr Goldberg and neither did. Mr Moulds knew nothing about this (T, 7-9) whilst Mr Wynne stated that Bankwest refused the request (T, 25-28). 58 While Mr Moulds professed no knowledge of the CIBC proceedings (T, 9-10), on 5 January 1996 KPMG Mr Maxsted the liquidator of Linter Group, sent to the lenders, including both SBNSW and Bankwest, a circular to "Lenders" of the meetings of Committees of Inspection held on 5 December 1995 (GX5). Attached to GX5 is an earlier set of minutes of the Committee of Inspection held on 13 July 1994 in which, at para 9, appears the following: " Parkston and Roxbury Holdings v CIBC Mr Maxsted advised the meeting that Mr Tony Sherlock in his capacity as Liquidator of Parkston Ltd and Roxbury Holdings Ltd had obtained legal advise that he had a cause of action against CIBC along similar lines as LGL's Constructive Trust action against CIBC. Late in 1993, he sought support from the creditors of Gibraltar Factors Pty Ltd (of which he was also Liquidator) to the effect that funds held by that company would be advanced to Parkston and Roxbury so that the case against CIBC could be pursued. Gibraltar Factors is a major creditor of Parkston and Roxbury and would benefit from any funds received if the action against CIBC was successful. Mr Maxsted advised the meeting that he had determined not the support the legal action against CIBC and had written to Mr Sherlock to advise that he did not approve of funds held by Gibraltar Factors being used for that purpose as he had received advice from Phillips Fox that the action, on balance, would not succeed. Mr Sawer advised the meeting that he did not believe the action could succeed because of a Subordination Agreement executed between Parkston, Roxbury and CIBC. Linter has seen no documentation from Mr Sherlock explaining why the Subordination Agreement would be held by a Court to be invalid. Mr Sawer also advised that LGL could not support the action indirectly through Gibraltar Factors because of the deed of Release executed by LGL as part of the settlement of the Constructive Trust proceedings. Mr Maxsted said that he believed that to support the action by Roxbury and Parkston would be in breach of the Deed of Release. Mr Maxsted also offered the comment that failing to obtain the support of LGL did not prevent Mr Sherlock from supporting the action as Liquidator of Gibraltar Factors. If, however, the action failed, he would be answerable to the creditors of Gibraltar Factors and this may explain why he was seeking the support of creditors at this time." 59 This action was clearly enough described. Mr Wynne conceded in cross-examination that he would have received GX5 in 1996 and would have read it but he did not give the circular enough attention (T, 32—38). 60 I am satisfied that the two banks were at least generally aware of the CIBC litigation and took no initiative to offer funding in the absence of any approach for funding. This was in circumstances where there was, back in July 1994 a pessimistic assessment of its prospects from Mr Maxsted quoted above which must have been known to the banks. 61 Would then the two banks have funded if requested? On balance I conclude they would not have. Though one could not totally exclude that possibility, it was of a low order of likelihood. This is a case where causal issues should not be resolved on some analogous basis to the valuation of a chance, especially where the odds are well below 51%. I compare here, for example, the assessment of future damages for loss of a commercial opportunity, following misrepresentation as in Sellers v Adelaide Petroleum NL (1994) 179 CLR 332. This factor — would the banks have lent if asked — calls for an all or nothing approach where there is no realistic chance they would rather than the forensic equivalent of a dimmer switch. Indeed if one applied the valuation of a small chance (of say 10%) to the present circumstances where only a net $856,000 is to be divided, that would give each of the two banks little more than $40,000 each, so reducing the funding creditors by a corresponding $80,000. I see no justification in logic or justice for such an adjustment. 62 Here I am satisfied there was never a realistic possibility that the two banks would have funded so risky and expensive a piece of litigation. 63 It might be said also that they had some responsibility not to sit passively by but to proffer funding even if not formally asked; they were aware of the litigation, were sophisticated banks professing knowledge about funding litigation and should have been aware of the risk of a s450 order benefiting the existing funders to their disadvantage. They could hardly assume that litigation of so expensive a sort would have been carried on by the liquidator unassisted. This is especially after the meeting of the Committee of Inspection of 14 July 1994 and what is recorded in the last paragraph thereof (see para 58 above). It is true that there is no evidence they were ever properly informed about the prospects of the litigation, as by being given copies of the legal advice. But that does not mean that sophisticated creditors could not reasonably have sought that out. 64 It therefore follows, in my judgment, that I can disregard that basis of objection to giving 100% of the recovery, modest as it was, to the two funding creditors. The only question is whether, being satisfied that s450 is capable of application to both Tricontinental and Gibraltar, it would in all the circumstances, be that rare case where 100% should be allowed them both, or something less. Conclusion 65 Given my earlier conclusion that only those two funding creditors would likely have funded, even had the two banks been given the relevant information and invited to fund, and given the high risks for this expensive litigation as earlier set out, I conclude that the two funding creditors should get 100% of the proceeds. I reach that conclusion without need to rely on the further ground in para 63 above, though I consider it supports that conclusion. I expressly exclude as unnecessary to take into account any recoveries the two banks have derived from other sources. Its only relevance, and the most that can be said, is that to the extent the two banks had other sources of recovery, it makes even less likely that they would have participated in this funding. 66 What is important is that the public interest in encouraging assistance to liquidators in funding difficult and expensive litigation should be vindicated by giving the two funding creditors an advantage over other creditors which is just in consideration of the magnitude of risk assumed. To give less than 100% of the modest amount recovered would not be adequate consideration for a risk assumed at considerable cost which had an at least 40% chance of a nil recovery and a risk what is more that came home. While I have based my judgment primarily on forseeable risk, it is not irrelevant that the risk which eventuated may well have proven greater than anticipated — as witness the "detriment" argument which surfaced late and evidently was not anticipated. If future situations see creditors deterred from funding because the risk assumed is not adequately recompensed, then the clear public purpose behind s450 will be defeated. That is why one may look also at the actual litigation outcome relative to what has been expended to achieve it, so as to give sufficient incentive by way of advantage to the funding creditors without being unjust to those who did not fund; see para 27 above. Even without the last factor and looking only at what was foreseeable, that would in my judgment justify an order that 100% of such proceeds go to the two funding creditors. In so concluding, I take into account the circumstances that attended their not contributing. However, I would add that liquidators who seek to attract funding should ordinarily give all substantial creditors the opportunity to fund, if only to avoid the kind of argument that has arisen here. ORDERS 67 Consideration should be given to joining SBNSW, Bankwest, Tricontinental and Gibraltar as parties. Unless there is opposition, I will so order, but if there is opposition I will hear the parties on that. 68 In any event, the whole of the proceeds recovered should go to Tricontinental and Gibraltar in the proportions 60/40 and I direct that the liquidator submit orders to that effect. I am further satisfied that the two banks should pay the costs, on a party and party basis, of the liquidator and, subject to them being joined as parties, Tricontinental and Gibraltar. 69 I do not consider that costs should be on an indemnity basis, as the two banks had not insubstantial arguments to put. attachment SCENARIO 1 Percentage of $1,800,000 on a pro rata basis according to proofs Proof Percentage Share of $1,856,000 Tricontinental 26,996,623 31.39% 582,543 Gibraltar Factors 20,771,631 24.15% 448,218 BankWest 10,742,174 12.49% 231,799 Colonial 27,501,640 31.97% 593,440 86,012,068 100.00% 1,856,000 SCENARIO 2 Payment of $200,000 to Tricontinental with balance pro rata Percentage Share of $1,856,000 Tricontinental 31.39% 719,769 (first $200,000 + $519,769) Gibraltar Factors 24.15% 399,919 BankWest 12.49% 206,820 Colonial 31.97% 529,492 100.00% 1,856,000 SCENARIO 3 Payment of 25% to Tricontinental with balance pro rata Percentage Share of $1,856,000 Tricontinental 31.39% 900,907 (first $464,000 + $436,907) Gibraltar Factors 24.15% 336,163 BankWest 12.49% 173,849 Colonial 31.97% 445,080 100.00% 1,856,000 SCENARIO 4 Payment of 50% to Tricontinental with balance pro rata Percentage Share of $1,856,000 Tricontinental 31.39% 1,219,272 (first $928,000 + $291,272) Gibraltar Factors 24.15% 224,109 BankWest 12.49% 115,899 Colonial 31.97% 296,720 100.00% 1,856,000 NOTES: 1. On each scenario, in addition to the above, Tricontinental and Gibraltar Factors receive $770,000 and $478,503 respectively, being a full reimbursement of their costs and disbursements in the CIBC proceedings. 2. For the purpose of the above calculations, other creditors (whose debts are de minimis) have been excluded. ********** Last Modified: 01/04/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.