Australia: Group members not prevented from raising individual defences in subsequent actions for debt recovery

Last Updated: 9 January 2017
Article by Adam Meyer and Alistair Boughton

Declaration of interest: Colin Biggers & Paisley has acted in the Great Southern proceedings referred to in this article

In brief - High Court Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323, holds that "Anshun estoppel" does not apply

The High Court has recently determined, in Timbercorp Finance Pty Ltd (in liquidation) v Collins & Anor; Timbercorp Finance Pty Ltd v Tomes [2016] HCA 44, that group members in "defensive" group proceedings are not prevented from raising their own individual defences and that the principle of Anshun estoppel does not apply in subsequent proceedings.

Anshun estoppel principle and its application in group proceedings

In "defensive" group proceedings, proceedings are brought by group members to seek relief from liability to repay loans taken out to fund group members' investments in public offerings or managed investment schemes, on the basis that they had relied on defendants' misrepresentations. On judgment or settlement of a group proceeding, group members who have not opted out of the group proceeding pursuant to section 33J of the Supreme Court Act 1986 (Vic) and section 33J of the Federal Court of Australia Act 1976, are bound by the judgment or settlement. In subsequent debt recovery proceedings brought by financiers following judgment or settlement in several group proceedings, group members have raised individual defences arising out of the circumstances of their investments.

This issue has been considered by several judges in Australian Courts during recent years, producing conflicting authorities. The key issue has been whether Anshun (Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45) estoppel applies; that is, that group members are prevented from bringing claims or raising defences in subsequent proceedings which should have been made in the group proceeding. Anshun estoppel does not apply "unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it." (At [37].)

Great Southern group proceedings sees Supreme Court confirm application of Anshun estoppel principle

The Great Southern group proceedings arose out of the collapse of the Great Southern Group in 2009. Investors in Great Southern managed investment schemes brought group proceedings, alleging that the Product Disclosure Statements, which they alleged they had relied on in deciding to invest, contained misleading or deceptive statements or omitted information that was required to be disclosed. The lead plaintiffs sought declarations to avoid their obligations to repay loans that they (and group members) had entered to fund their investments.

The Great Southern group proceeding progressed to trial (which occupied 90 sitting days) but ultimately settled only two days before the trial judge, Justice Croft, was due to deliver his judgment (see Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and Managers Appointed) (in liquidation) & Ors [2014] VSC 516). The deed of settlement included a key term acknowledging and admitting that the lead plaintiffs' and group members' loan deeds were valid and enforceable ("acknowledgement clause").

The issue that arose was whether, if judgment in the Great Southern group proceeding had been delivered (rather than the Great Southern group proceeding settling), group members would have been precluded from litigating individual defences to resist liability under their loan agreements, by the application of Anshun estoppel.

Certain group members brought applications seeking orders that they cease to be group members to avoid being bound by the settlement (if approved) and by the acknowledgement clause. His Honour Justice Judd of the Supreme Court of Victoria heard the application. Justice Judd dismissed the group members' applications, confirming the application of the Anshun estoppel principle to group proceedings.

Many group members also objected to the approval of the settlement on the grounds that acknowledgement clause would deny them the ability to raise individual defences, to avoid repayment of their loans, in subsequent debt recovery proceedings.

In the face of these objections, His Honour Justice Croft approved the settlement, relevantly holding that:

  • the objectors had not identified any specific defence or counterclaim that any specific objector asserted they had, which they would be precluded from pursuing and the Court should not entertain objections which are made on a theoretical or hypothetical basis
  • any group members with claims or defences different to those pleaded in the group proceeding could have and should have opted out
  • by not opting out, those group members must be taken to have accepted that the claims pleaded in the group proceeding were all the claims available to them
  • it would not have been reasonable for group members to raise different claims or defences in subsequent proceedings
  • the Bank Parties were entitled to assume that the only challenges to the enforceability of the loans were made in the group proceeding
  • it would be an abuse of process for group members to frustrate the complete settlement of the matters in dispute by bringing subsequent claims or defences

The reasoning of the Court in the Great Southern group proceeding suggested that group members would be precluded from advancing individual defences not raised in the group proceedings by reason of the doctrine of Anshun estoppel.

Willmot Forests group proceeding sees Federal Court refuse application to approve settlement

This issue was later considered by His Honour Justice Murphy in the Federal Court of Australia in Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323, the Willmott Forests group proceeding. The parties sought approval of a settlement which contained an equivalent acknowledgement clause.

Justice Murphy refused the application to approve the settlement on grounds, including, that:

  • the acknowledgement clause would constitute a significant detriment for some group members
  • the opt out notices did not unambiguously inform group members that they would or might be precluded from defending loan enforcement proceedings on any basis
  • following any trial, it was unlikely that group members would be precluded from relying on individual claims or defences by Anshun estoppel
  • group members were not entitled or required to assert their individual claims or defences within the framework of the group proceeding
  • His Honour disagreed with the comments of Justice Croft in the Great Southern proceedings

Timbercorp group proceeding - respondent group members not precluded from raising individual defences

The Timbercorp group proceeding concerned investments in agribusiness managed investment schemes conducted by Timbercorp. In the proceeding, the lead plaintiff sought declarations that Timbercorp Finance had contravened provisions of the Corporations Act 2001, the Fair Trading Act 1999 (Vic) the Trade Practices Act 1974 (Cth) and the Australian Securities and Investments Commission Act 2001 and sought declarations that he and group members were not liable for repayments of loans.

The plaintiff (and group members) were unsuccessful at trial and on appeal. Subsequently, Timbercorp Finance issued debt recovery proceedings against many group members.

The issue arose as to whether group members were permitted, in their defences to debt recovery proceedings, to raise defences relevant to their own individual loans and investments which had not been considered in the trial of the group proceeding. At first instance, in Timbercorp Finance Ltd (in Liq) v Collins and Tomes [2015] VSC 461, His Honour Justice Robson of the Supreme Court of Victoria held that the respondent group members were not precluded from raising individual defences. Timbercorp Finance appealed to the Victorian Court of Appeal which dismissed the appeal and subsequently appealed to the High Court.

High Court's judgment in Timbercorp group proceedings

The High Court handed down its judgment on 9 November 2016. The question for determination by the High Court was whether the defendant group members were precluded from raising their defences by reason of their participation as group members in the group proceeding.

The group members raised individual defences to the debt recovery proceedings, that:

  • they did not acquire an interest in the project in which they sought to invest
  • no loan was advanced to them by Timbercorp Finance
  • the loan offers constituted unconscionable conduct
  • if they were required to repay the loans, Timbercorp Finance would be unjustly enriched
  • agents of Timbercorp Finance had made a series of misrepresentations to them

Timbercorp Finance submitted that:

  • the group members were estopped from raising their individual defences on the basis that they could and should have raised those individual defences during the trial of the group proceeding
  • the individual defences constituted an abuse of process
  • the respondents' proposed defence?hat they did not hold an interest in the projects?as contrary to the basis on which the group proceeding had been conducted at trial, leading to the potential for inconsistent results
  • it was unreasonable for the respondents not to have opted out of the group proceeding or to have raised their defences in the group proceeding

The High Court held that:

  • it could not have been expected that the respondent group members would raise their individual issues about their loan agreements in the trial of the group proceeding; the only commonality between the common issues determined in the group proceeding and the loan agreements was the relief sought regarding the enforceability of the loan agreements. There was no issue in the group proceeding about the validity of the loan agreements which would have made the respondent group members' defences relevant in the group proceeding
  • raising the defences in the subsequent debt recovery proceedings would not lead to any findings that would be inconsistent with the findings in the group proceeding
  • there was no need for group members to opt out in order to preserve their position in respect to the defences they now wished to raise
  • raising the defences in the debt recovery proceedings could not be said to amount to an abuse of process. Rather, precluding the respondents from raising their defences would be unwarranted and unjust

The respondent group members are now permitted to proceed with the individual defences that they have pleaded in their defences to the debt recovery proceedings against them.

Conflicting authorities resolved, but what will be the effect on settlement and subsequent debt recovery proceedings?

The High Court's judgment is consistent with the approaches of the Supreme Court of Victoria and Court of Appeal in their judgments below and with Justice Murphy's approach in Willmott Forests.

The High Court's judgment resolves the earlier conflicting authorities, but may now make settlement of defensive group proceedings, by defendants and their insurers, more difficult and will make subsequent debt recovery proceedings more complex for financiers.

Adam Meyer Alistair Boughton
Insurance and reinsurance
Colin Biggers & Paisley

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