Timbercorp Finance Pty Ltd ((in Liquidation)) v Douglas James Collins and Another

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: French CJ,Kiefel,Keane,Nettle JJ,Gordon J.
• Judgment Date: 09 November 2016
• Neutral Citation: [2016] HCA 44
• Docket Number: M98/2016 & M101/2016
• Date: 09 November 2016

[2016] HCA 44

HIGH COURT OF AUSTRALIA

French CJ, Kiefel, Keane, Nettle AND Gordon JJ

M98/2016 & M101/2016

Timbercorp Finance Pty Ltd (In Liquidation)

Appellant

and

Douglas James Collins & Anor

Respondents

Timbercorp Finance Pty Ltd (In Liquidation)

Appellant

and

John Charles Tomes

Respondent

Representation

P H Solomon QC with C O H Parkinson and C J Tran for the appellant in both matters (instructed by Mills Oakley)

M D Wyles QC with D J Fahey for the respondents in M98/2016 (instructed by M+K Lawyers Group Pty Ltd)

B W Walker SC with M K Condon SC and L H Kirwan for the respondent in M101/2016 (instructed by Somerset Ryckmans Lawyers)

Supreme Court Act 1986 (Vic), Pt 4A.

Estoppel — Anshun estoppel — Where appellant provided loans to investors to fund investments in managed investment schemes — Where appellant placed in liquidation — Where group proceeding against appellant under Pt 4A of Supreme Court Act 1986 (Vic) by lead plaintiff on behalf of himself and group members alleging misrepresentations and failure to disclose information about risks — Where respondents group members in group proceeding — Where group proceeding unsuccessful — Where subsequent proceedings by appellant against respondents seeking recovery of outstanding principal and interest — Where respondents pleaded number of defences in recovery proceedings — Whether lead plaintiff in group proceeding respondents' privy — Whether defences precluded by reason of estoppel which arises by reference to principle in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

Practice and procedure — Whether defences sought to be raised in recovery proceedings an abuse of process.

Words and phrases — “abuse of process”, “ Anshun estoppel”, “control”, “estoppel”, “group member”, “group proceeding”, “lead plaintiff”, “opt out notice”, “privy”, “unreasonable”.

1 French CJ, Kiefel, Keane AND Nettle JJ. The appellant, Timbercorp Finance Pty Ltd (in liquidation) (“Timbercorp Finance”), is a subsidiary of Timbercorp Ltd (in liquidation) (“Timbercorp Ltd”). Its purpose was to provide loans to investors in horticultural and forestry projects which were operated as managed investment schemes by Timbercorp Ltd from about 1992. Timbercorp Securities Ltd (in liquidation) (“Timbercorp Securities”) replaced Timbercorp Ltd as the responsible entity of the schemes. Each of the companies was a member of the “Timbercorp Group”, and was placed in liquidation in June 2009.

2 A group proceeding was commenced in the Supreme Court of Victoria in October 2009 under Pt 4A of the Supreme Court Act 1986 (Vic) by Mr Woodcroft-Brown (“the lead plaintiff”) against Timbercorp Finance, Timbercorp Securities and certain of their directors (“the group proceeding”). The group proceeding was brought on Mr Woodcroft-Brown's behalf and on behalf of persons who, at any time during the period between 6 February 2007 and 23 April 2009 (“the relevant period”), acquired or held an interest in a managed investment scheme of which Timbercorp Securities was the responsible entity. The relief sought by the lead plaintiff against Timbercorp Finance included orders declaring that it was involved in contraventions of a number of the provisions of the Corporations Act 2001 (Cth), the Corporations Law (set out in s 82 of the Corporations Act 1989 (Cth)), the Fair Trading Act 1999 (Vic), the Trade Practices Act 1974 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth); damages under provisions of those statutes; and a declaration that the lead plaintiff and the group members not be liable for any loans, fees or costs in connection with the schemes in question. The group proceeding was not successful at trial 1 or on appeal 2.

3 Some, but not all, of the members in the group proceeding had applied for loans from the appellant to fund their investments, in whole or in part, or costs associated with the schemes. The respondents in the present appeals – Mr and Mrs Collins and Mr Tomes – were group members who had applied for loans in the period between May and October 2008. In the proceedings the subject of these appeals, which were brought by the liquidators in 2014, it is alleged that agreements for loans were concluded between the appellant and the respondents and that the respondents defaulted on their payments under those agreements in July 2009.

4 The respondents have filed defences in these proceedings. In its reply to each of those defences, the appellant pleads that the respondents are precluded from raising their defences on account of their membership in the group proceeding. The preclusion is said to arise as a matter of law. The appellant contends that either the respondents are estopped from raising the matters in their defences or the defences constitute an abuse of process.

5 The estoppel to which the appellant refers is not an issue estoppel, but rather one which arises by reference to the principle in Port of Melbourne Authority v Anshun Pty Ltd3 (“ Anshun”). In essence, the appellant contends that the respondents should be estopped from pursuing their defences because they could and should have raised them for determination in the group proceeding. In their rejoinders filed in the proceedings, the respondents take issue with these allegations.

6 The question as to what defences may now be pursued by the respondents was ordered to be determined as a separate question 4, framed in these terms:

“Are the defendants precluded from raising any and if so what defences pleaded by them in this proceeding by reason of their participation as group members within the meaning of [Pt 4A] of the Supreme Court Act 1986 (Vic) in [the group proceeding]?”

The answer given to that question, by Robson J 5, was that the respondents are not precluded from raising any of their defences. Leave was granted by the Court of Appeal of the Supreme Court of Victoria to appeal that decision, but the appeals were dismissed 6.

The group proceeding

The claims and common questions

7 Mr Woodcroft-Brown was the lead plaintiff in the group proceeding. Before the trial of the proceeding another person, Mr Van Hoff, was appointed to

represent a sub-group. It would appear that it became necessary to consider separately group members who were involved in recent schemes, that is, the schemes subscribed to during the relevant period, and those who were involved in early schemes, being the schemes which pre-dated the relevant period. The lead plaintiff had invested in the recent schemes, and Mr Van Hoff had invested in both the recent schemes and the early schemes.

8 The appellant in these proceedings, Timbercorp Finance, was the fifth defendant in the group proceeding. Timbercorp Securities was the first defendant and the principal focus of the lead plaintiff's case. Timbercorp Finance became a plaintiff by counterclaim in the group proceeding when it sought to recover monies alleged to be owed by Mr and Mrs Woodcroft-Brown under their loan agreement with it.

9 The lead plaintiff's case was pleaded in a complex, confusing way despite being the subject of a series of amendments. However, as the trial judge, Judd J, observed 7, the case was essentially that Timbercorp Securities had failed to disclose information about risks, which it was required to disclose in compliance with its statutory obligations. The overall theme of the lead plaintiff's case was that the fortunes of the schemes were linked to the viability of the Timbercorp Group.

10 There were said to have been risks associated with Timbercorp Securities' financial structure. It was alleged that they should have been disclosed because they were significant or material to a decision to invest in the schemes. This was described as a “structural risk”, a risk that the group might fail due to insufficient cash and having a consequent impact on the viability of the schemes managed by Timbercorp Securities. The lead plaintiff alleged that the structural risk should have been disclosed in the Product Disclosure Statement which Timbercorp Securities was required to give with any invitation to invest.

11 The lead plaintiff also argued that there were two critical events which occurred on and after 6 February 2007 which put the Timbercorp Group at a heightened risk of failure and which should have been disclosed. One was an announcement about a proposal by the Australian Taxation Office to change its position with respect to the deductibility of certain fees paid by investors. The other was the global financial crisis, which had an impact upon the availability of credit. These were described as the “adverse matters”. The lead plaintiff also

alleged that the failure to disclose these matters when they occurred constituted misleading and deceptive conduct by silence.

12 The misrepresentations alleged by the lead plaintiff fell into two categories: “financial representations”, which were to the effect that the Timbercorp Group was sufficiently strong such that investors could expect Timbercorp Securities to manage the schemes to their end, and that the principal risks had been fully disclosed; and “scheme contributions representations”, which were to the effect that investors' contributions would be applied only to the particular scheme in which they had invested, which is to say they were to be quarantined from the group as a whole and not pooled with other funds.

13 Judd J found that either there was no need to disclose the matters identified in the lead plaintiff's pleading or the matters were not material to a decision by group members to invest 8. With respect to the alleged misrepresentations, his Honour found 9 that the first of them was either too vague or too uncertain to be actionable and that there were in any event reasonable grounds for confidence in the strength of the Timbercorp Group at the...