Group proceeding targets beware: High Court of Australia affirms Anshun estoppel does not apply to 'individual' claims of group members

Litigation Update

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In Timbercorp Finance Pty Ltd (in liquidation) v Collins; Timbercorp Finance Pty Ltd (in liquidation) v Tomes [2016] 44 the High Court has affirmed principles of Anshun estoppel in the context of a Part 4A group proceeding and upheld earlier decisions of Robson J and the Court of Appeal of the Supreme Court of Victoria. By unanimous judgment, the Court dismissed an appeal brought by a financier (in liquidation) who sought to preclude 3 members of the unsuccessful Timbercorp group proceeding from relying on defences individual to them (and which had not been raised in the group proceeding) in subsequent recovery proceedings to enforce payment of defaulting loans.

The High Court has held that the respondents, who were investors in agribusiness managed investment schemes operated by the Timbercorp Group of companies, are not precluded from relying on certain defences they propose to raise in the recovery proceedings as no Anshun estoppel arises against them and relying on the defences is not an 'abuse of process'.

The case is likely to have implications beyond the recovery proceedings that the respondent investors are involved in. The Timbercorp group proceeding alone involved several thousand investor group members, many of whom entered into loan agreements to finance their investments. Other investors who are presently subject to a multitude of recovery proceedings commenced by Timbercorp Finance and who wish to raise 'individual' defences that were not agitated in the group proceeding will also benefit from the decision. Further, the decision is likely to have implications for the conduct and settlement of other group proceedings.

Background

The case relates to the now notorious Timbercorp collapse, which began in 2009 when the Timbercorp Group of companies went into liquidation. Timbercorp Finance was part of the Timbercorp Group, which invested in agribusiness managed investment schemes on behalf of some 18,500 investors. Each respondent in the appeal was an investor and a party to a loan agreement. They were group members in the group proceeding commenced under Part 4A of the Supreme Court Act 1986 (Vic) against various entities in (and directors of) the Timbercorp Group, where it was alleged that Timbercorp Securities had failed to disclose information about risks and adverse matters in relation to scheme investments. The hearing of the group proceeding was concerned only with various agreed common questions. The group proceeding was unsuccessful at trial (Woodcroft-Brown v Timbercorp Securities Ltd (2011) 253 FLR 240) and on appeal (Woodcroft-Brown v Timbercorp Securities Ltd (in liq) (2013) 96 ACSR 307). The respondents did not elect to opt out of the group proceeding.

In proceedings brought by the liquidators of the Timbercorp Group in 2014, it is alleged that the respondents defaulted on their loan agreements with Timbercorp Finance. The respondents seek to raise defences in those proceedings, including that there was no relevant loan agreement and the loan offers were unconscionable. Timbercorp Finance pleads in its reply to those defences that either the respondents are estopped from raising those defences, or that the defences constitute an abuse of process. The estoppel that was said to arise was by reference to the principle enunciated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 (Anshun estoppel). In essence, Timbercorp Finance contended that the respondents should be estopped from pursuing their defences because they ought to have been raised in the group proceeding.

The Judgment

The Court confirmed that an Anshun estoppel will preclude the assertion of a claim or an issue of law or fact if the claim or issue was so connected to the subject matter of the first proceeding as to make it unreasonable, in the context of the first proceeding, for the claim or issue not to have been made or raised in it. Here, the lead plaintiff in the group proceeding was not the 'privy in interest' of the respondents with respect to their individual claims, regardless of whether they should have been raised in the group proceeding.

The Court referred to the limited control of group members over group proceedings and noted that a lead plaintiff represents group members with respect to their interests in connection with common questions of law or fact only. Part 4A makes it plain that group members may have other, individual, claims which do not form part of the subject matter of the group proceeding. The Court's view was that it could hardly be said to have been expected that the respondents would raise their individual issues about their loan agreements in the group proceeding, where the common issues were about undisclosed risks and misrepresentations. The bases for seeking to avoid the loan agreements in the group proceeding were entirely different from the matters sought to be agitated in the recovery proceedings. Further, there was no need for the respondents to opt out of the group proceeding in order to preserve their position with respect to the claims now the subject of the defences.

The Court also rejected the abuse of process submission, holding that raising the defences in the recovery proceedings can in no way be said to amount to an abuse of process. To the contrary, the Court held that the preclusion of the respondents' defences would be unwarranted in principle and therefore unjust.

Gordon J (in a separate judgment) held that Part 4A expressly contemplates and provides for the individuality of claims within a group proceeding and (further) that a judgment in a group proceeding will not necessarily resolve all of the individual claims of each group member. Her Honour rejected a 'mechanical approach' to the application of Anshun estoppel in group proceedings which does not account for the particular circumstances of each case. Gordon J also held that there is nothing inherent in the opt out procedure that suggests that, by not opting out, a group member is signing away their ability to bring any proceedings that are in some way connected to the group proceeding.

Implications

Whilst the decision on one view merely gives effect to the existing statutory regime for group proceedings, current and future defendants to group proceedings (and their insurers) need to be aware of the wider implications. Even if a group proceeding is successfully defended (or resolved pursuant to a settlement that is approved by the Court), there is the risk of ongoing litigation in connection with individual defences/issues raised by group members that were not part of the resolution of the group proceeding. This is likely to create uncertainty, risk and potential further exposure to defendants to group proceedings (and their insurers) and may ultimately result in a disincentive to settle proceedings on a commercial basis, or to settle for a reduced price.

Further, the collapse of the Timbercorp Group is not the only example of failed agribusiness managed investment schemes in Australia in recent history, with class action litigation also arising from collapses of the Gunns Group, Great Southern Group and Willmott Forests Group (amongst others). The effect of the High Court's decision may well affect run off litigation in connection with those matters.

Whilst the primary object of Part 4A is to avoid multiplicity of actions, it is now clear (to the extent that it wasn't already) that this object is confined to preventing relitigation of common (not individual) issues of fact and law. As noted by Gordon J, 'the group proceeding is only representative to the extent of the commonality'. Parties involved in group proceedings need to bear this in mind and tailor their case strategies accordingly.

For further information, please contact the authors.