15 December 2017: A stitch being on time also means not too early – Common Fund Order refused due to unresolved claims in defendant’s administration
- Court and judge: Stevenson J in Supreme Court of NSW
- Decision date: 14 December 2017
- Citation and link: TW McConnell Pty Ltd as trustee for the McConnell Superannuation Fund v SurfStitch Group Ltd (administrators appointed); Nakali Pty Ltd v SurfStitch Group Ltd (administrators appointed) [2017] NSWSC 1755 (the Surfstich Competing Shareholder Class Actions)
Executive summary:
Application for common fund order refused on grounds of:
(a) Being premature given the unresolved status of debts claimed in the external administration of a defendant (being the same claims sought in the class action), and the potential for joinder of additional defendants to the action; and
(b) The terms proposed would allow the funder to take a success fee for debts recovered in the administration, not just the class action it was funding.
Summary:
A shareholder class action alleging breaches of disclosure obligations was commenced, against the Surfsitch company and its former CEO and director Justin Cameron. Those proceedings were brought with an open class, with T W McConnell Pty Ltd as plaintiff, and funded by International Litigation Partners (the McConnell Proceeding).
But there was a competing and overlapping class action, also with an open class, which had been commenced earlier, on 22 May 2017. It was funded by Vannin Capital Operations Ltd, with Nakali Pty Ltd as plaintiff (the Nakali Proceeding). Significantly, the Nakali proceedings were not brought against Justin Cameron.
And then after both proceedings were issued:
- Surfstich entered administration in August 2017, with the effect that the both proceedings against it became stayed, and the McConnell Proceeding is moving forward against only Justin Cameron (which remained the case at the time of this judgment).
- Justin Cameron submitted that the case against him is apportionable to other company officers, and he is currently contemplating whether to join them to the proceedings.
Separate from the two class actions, consideration by the administrators of Surfstich as to whether to admit claims of shareholders (being class members in the two actions) was ongoing.
This report is about the Judgment on an application in the McConnell Proceeding for a common fund order (the Common Fund Application).
Nakali participated in the Common Fund Application as an intervenor.
The Court noted that:
- it is “common ground that it would not be practicable for both proceedings to continue to trial as open class proceedings”; and
- in a previous judgment dealing with similar but not identical issues, the Federal Court of Australia chose one of two proceedings as the preferable case.
On these basis Stevenson J said that “At some stage a decision…will have to be made… as to how, in the best interests of group members, the progress of the McConnell and the Nakali proceedings is to be managed”.
But Stevenson J considered such a decision would be premature in this case because it remained to be seen:
- how matters would play out in the administration of Surfstitch; and
- whether Justin Cameron joined other defendants to the McConnell Proceeding
Also of interest may be that while the funding rates asked for had included a success fee of 30% of any recovery plus reimbursement of legal costs, the judgment did not discuss the appropriateness of the rate.
But, His Honour also held that a further ground for refusing the common fund order was that the orders proposed in the McConnell Proceeding would entitle the funder to a success fee for any payment made to shareholders through the administration, and not just a recovery achieved via the court proceedings (albeit that the funder told the Court that receiving a share of a distribution from the administration was not intended).