Case: Spalla v St George Wholesale Finance Pty Ltd [1999] FCA 513
Outcome: referred to
In proceeding V 74 of 1999, Mr Spalla contested the appointment of Messrs Beck and Home as receivers and managers of the property of Irlmond and APS. Finkelstein J held that their appointment was lawful: see Spalla v St George Wholesale Finance Pty Ltd [1999] FCA 513 (" Spalla (No 1) "). In his reasons, his Honour addressed the question of whether Irlmond and APS were insolvent at the time receivers were appointed. Mr Spalla contended that the companies were not insolvent at that time. His Honour held, however, that "the fact that the companies were insolvent is an inescapable conclusion from the evidence": see Spalla (No 1) at [140]. 8 Mr Spalla appealed against the decision of Finkelstein J to the Full Court. The Full Court, which was constituted by Heerey, Sundberg and Weinberg JJ, upheld his Honour's decision: see Spalla v St George Wholesale Finance Pty Ltd [1999] FCA 1566 (" Spalla (No 2) "). The Full Court held, amongst other things, that the primary judge was correct to find that Irlmond and APS were insolvent at the time receivers were appointed: see Spalla (No 2) at [61]-[70]. 9 In proceeding V 7877 of 1999, St George Wholesale Finance unsuccessfully petitioned for a sequestration order against Mr Spalla based on an alleged failure to comply with a bankruptcy notice. The notice claimed that Mr Spalla owed a debt pursuant to the judgment obtained in proceeding V 74 of 1999 before Finkelstein J. Mr Spalla contested the sum specified. In St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 at [40] - [41] , Heerey J concluded that "St George is not sure itself what is really owing under the judgment" and that "this proceeding amounts to an abuse of the procedures provided by the Act". 27 The primary proceeding began on 17 October 2002, when Still &amp; Co filed the original application and statement of claim on behalf of the then applicants. Those applicants were Mr Spalla and his wife, Stella, Mr Still, and Anstella Nominees Pty Ltd ("Anstella") as the holder of all shares in Irlmond and APS. Irlmond was not one of the original parties to the primary proceeding. The original respondents included St George Motor Finance, St George Wholesale Finance, Messrs Beck and Home, and Deloittes. By their original statement of claim, the applicants alleged that the respondents had given false evidence in the proceeding before Finkelstein J and raised various claims relating to the receivership of Irlmond and APS. The applicants also claimed that the respondents had conspired wrongly to subject Mr Spalla and Mr Still to criminal conspiracy charges. 28 Prior to May 2003, Mr Rambaldi retained the firm of Darrer Muir Fleiter to advise him with respect to the primary proceeding and, in particular, as to Irlmond's prospects if it were to join in the proceeding. On 22 November 2002, Mr Rambaldi sought quotations for insurance litigation funding. In a facsimile dated 3 February 2003, Mr Rambaldi's solicitors subsequently wrote to Mr Spalla's solicitors stating that, as liquidator of Irlmond, Mr Rambaldi was not in a position to join in the primary proceeding, or institute his own proceeding, until he had entered into an acceptable funding arrangement, although Mr Rambaldi had "his own legal advice that various claims against the Respondents, or a combination of them are likely to be successful". 29 Throughout February and March 2003, Mr Rambaldi, assisted by Mr Vasudevan negotiated with IMF (Australia) Ltd ("IMF"), represented by Mr Clive Bowman, to secure litigation funding and, in particular, concerning the terms of a litigation funding agreement, which Mr Rambaldi required before agreeing to Irlmond becoming an applicant in the primary proceeding. The contemporaneous correspondence shows that control of the litigation was an important issue. By a letter dated 6 March 2003, IMF specifically noted that it wanted to avoid "Spalla attempting to block, or interfere with, a settlement which Irlmond wishes to pursue". It reiterated this concern in an email of 29 April 2003. Ultimately, a funding agreement was reached with Insolvency Litigation Fund Pty Ltd ("ILF"), a wholly owned subsidiary of IMF. Before concluding the funding agreement, Mr Spalla retained the services of Mr Borden to act on his behalf in place of Still &amp; Co. 32 At the hearing of the motion on 8 May 2003, Finkelstein J allowed Mr Iain Jones, as counsel for two of the St George parties in their capacity as creditors of Irlmond, to appear and make submissions. Mr Jones argued that the agreement, as then drafted, improperly limited the liquidator's discretion to settle claims on behalf of Irlmond. Mr Jones noted that clauses 13 and 14 of the proposed funding agreement allowed the Spalla Interests to object to the liquidator accepting a settlement offer made only to Irlmond and, in the event of such an objection, delegated to an arbitrator the decision whether to accept such an offer. Mr Jones claimed that this arrangement was an unlawful restraint on the liquidator's discretion. His Honour said that it appeared that Mr Jones was correct on this point. Mr Jones also argued that the proposed funding agreement which allowed ILF to withdraw at any time on seven days' notice but still take part in a distribution of any recovery gave ILF a potential windfall if it withdrew shortly after executing the agreement. 33 After the hearing of 8 May 2006, the parties to the proposed funding agreement negotiated further, in order to amend it so as to meet the concerns expressed by Finkelstein J. In particular, as part of these further negotiations, the parties considered the issue of control over any settlement offer to Irlmond and the issue of ILF getting a 'windfall' if it withdrew its indemnity shortly after executing the agreement. They prepared a new draft funding agreement. On 12 May 2003, Mr Rambaldi filed this new draft in the Court, together with counsel's supplementary submission in support of the new agreement. 34 This supplementary submission stated that the amendments to the proposed funding agreement "address the criticisms made by Mr Jones". It continued: "The effect of the amendments is to: (a) remove any restriction on the power of the liquidator to accept a settlement offer made to the company. No limitations are imposed upon the liquidator at all in this regard; (b) in the event that ILF terminates its indemnity pursuant to clause 6.2, to restrict the entitlement of ILF to the "Recovery" to simply a reimbursement of monies it has paid pursuant to clause 6.2." 35 The new agreement deleted the former clauses 13 and 14 from the earlier draft. Clause 9, relating to control of the proceedings, was unchanged except "clause 14" was substituted for the words "clause 13" in clause 9.3. A new clause 13 dealt with "Recoveries". A new clause 14 relevantly read: "14. DISPUTE RESOLUTION PROCEDURE 14.1 If at any time, a dispute or difference arises in connection with this Agreement and that dispute or difference has not been able to be resolved by negotiations between the parties then a party may provide the other parties with a written notice addressed to the other parties outlining the dispute or difference, and if capable of remedy, requiring remedy on the expiry of 3 Business Days from receipt of the written notice. 14.2 If the dispute or difference communicated to the other parties by written notice is not remedied or is not capable of remedy, then the parties agree to submit to mediation prior to the institution of Court proceedings utilising the following procedure:- (a) The parties shall jointly appoint a mediator. If the parties cannot agree on a mediator within 2 Business Days of receipt of the written notice by the other parties, the parties agree that any one or more of the parties may request the President for the time being of the Law Institute of Victoria to nominate a mediator. (b) The costs and expenses plus any GST payable to the mediator and the costs and expenses of the mediation shall be paid by Anstella. (c) If a settlement is reached at the mediation, written terms of settlement shall be entered into immediately upon conclusion of the mediation and shall, unless Court approval of the terms of settlement is required, override the terms and conditions of this Agreement. ..."