Case: Jarbin Pty Ltd v Clutha Ltd (in liq) [2004] NSWSC 28 ; (2004) 208 ALR 242
Outcome: referred to
Jarbin Pty Ltd v Clutha Ltd (in liq) [2004] NSWSC 28 ; (2004) 208 ALR 242 , Campbell J noted (at 104) that an alternative approach is to give the indemnifying creditor an advantage calculated as a percentage of the investment that that creditor made in funding the litigation. His Honour noted that in assessing that percentage, one would need to take into account that the indemnifying creditor had not only a risk of losing the investment made, but also a risk of being liable to pay other expenses of the liquidator and the liquidator's solicitors, and possibly the costs of the other side. Campbell J noted (at [107]) that the funding creditor's entitlement could be compared, as a rough check, to the premium that would have been demanded by a litigation funder. RGH submits that the Transactions Proceeding, although apparently complex, was not risky. RGH submits that there is no evidence before the Court that it was considered to be risky, although I note that in para 54(b) of Mr Chamberlain's affidavit of 7 August 2009, he claims there was a significant exposure to the risk of an adverse costs order. RGH submits that the Court should infer that if evidence to that effect was available, Mr Chamberlain would have adduced it. RGH also makes the following submissions: At paras 32-37 of his written submission, Mr Docker, counsel for RGH, makes the following helpful submissions: Taking the first approach set out in [10] above [a percentage of the funds remaining after payment of priority debts and claims], an appropriate percentage of the net funds available for distribution which should be allocated for advantage to the DCT is 1/3 rd . ... The effect of this approach would be as follows: the DCT would be entitled to 1/3 rd of the total amount available, $2,027,938.06, being $675,979.35 by way of priority; the balance of the DCT's debt, being $624,294.28 ($1,300,273.63 [sic] - $675,979.35) will rank with the other unsecured debts; the total of the non priority unsecured debts will be $1,699,294.28 ($700,000 + $375,000 + $624,294.28); the total available for distribution to the non priority unsecured debts will be $1,351,958.71 ($2,027,938.06 - $675,979.35); the percentage recovery on unsecured debts will be 79.5% ($1,351,958.71/$1,699,294.28 x 100) this means that: the DCT will get a total of $1,172,293.30 ($675,979.35 + $496,313.95) which is 90.1% of its debt; RG&amp;H will get $556,500.00, which is 79.5% of its debt; and Hardys' [sic] will get $298,125.00, which is 79.5% of their debt. If the alternative method referred to in [10] above is used [a percentage of the investment made by the indemnifying creditor in providing funding] and the priority is calculated by reference to the amount invested by the DCT, $266,286.77, the above approach is supported. That is, the DCT will be receiving in priority an amount ($675,979.35) which is more than 2&#189; times the amount it invested as well as being reimbursed for the amount it invested. A third way of checking the approach is by reference to what a litigation funder would have received. If the figure of 40% of the amount recovered is used (although the examples in Jarbin Pty Ltd v Clutha Ltd ... suggest the figure is often lower) the amount the DCT would receive ($1,172,293.30) exceeds 40% of the recovery of $2,600,000. The above figures do not take account of when the distributions will be made. The instalment payments add a level of complexity to the exercise. In short, the DCT should share the burden of the late payments with the other unsecured creditors. Presumably, the DCT was consulted about the settlement which resulted in the instalment regime. However, if the DCT seeks to be paid immediately, it should receive less. Assuming the creditors all share in the delay, this would mean that the current amount available for distribution would be treated as one distribution and so would each instalment payment. For example, if $1,200,000 was available for distribution now: DCT would get 1/3 rd , being $400,000, as a priority; and the other $800,000 would be distributed rateably amongst the 3 unsecured creditors in accordance with their non priority debts. In an example with $60,000, the DCT would get $20,000 as a priority and the remaining $40,000 would be distributed rateably amongst the 3 unsecured creditors in accordance with their non priority debts. Mr Dawson, counsel for Mr Chamberlain, submits that the merits based standing of the DCT as funding creditor outweighs that of RGH and the Hardys in the following respects in particular: RGH elected not to lodge a proof of debt until the settlement of the Transactions Proceeding in November 2008, immediately prior to the scheduled hearing. The DCT entered into the Indemnities in circumstances in which it was the only creditor who had lodged a proof of debt in the winding up, and it is not "just" for the purposes of s 564 to recognise the interests of RGH asserted at such a late stage over those of the DCT; as noted above, there is no evidence that RGH would have funded the Transactions Proceeding; and the Hardys, being the only other creditor, do not oppose the DCT's application. In my opinion, RGH's submissions understate the risk that was associated with the Transactions Proceeding. The pleadings are in evidence. They include a second further amended statement of claim and the separate defences of the first to sixth defendants and the seventh to twelfth defendants. The plaintiffs were the Company and Mr Chamberlain as its liquidator. The first to sixth defendants were the Hardy interests and the seventh to twelfth were the Company's accountants.