Challenging liquidator's payment of litigation funder's fees

Queensland Nickel Sales Pty Ltd v Park in his capacity as liquidator of Queensland Nickel Pty Ltd (in liq) [2023] FCAFC 150
When will a court refuse to enforce a litigation funding agreement entered into by liquidators?

Overview

The payment of a litigation funder’s fees by a company’s liquidators has been upheld following a challenge by a related party who alleged that the fees were not reasonably incurred.

Background

John Park and Kelly-Anne Trenfield of FTI were appointed Liquidators of Queensland Nickel Pty (QNI) in April 2016. QNI is the former Manager of a joint venture (JV) between QNI Metals Pty Ltd and QNI Resources Pty Ltd (collectively, the JVCs). As Manager of the JV, QNI sourced, processed and sold nickel and deposited the money that it received from its sales into bank accounts that it maintained as Manager. In March 2016, just prior to the appointment of the Liquidators, the JVCs resolved to appoint Queensland Nickel Sales Pty Ltd (QNS) as Manager of the joint venture. The JVCs are the shareholders of QNS.

The dispute arose in the context of interconnected litigation proceedings brought by QNI, the Liquidators and Special Purpose Liquidators who were also appointed to pursue certain tasks on behalf of QNI. This litigation included a claim commenced in March 2017 by QNI (by the Liquidators) against Mineralogy Pty Ltd (the Mineralogy proceeding). The Mineralogy proceeding concerned payments that QNI had made to, for or at the request of Mineralogy, from funds held in a joint venture bank account by way of loans. Vannin Capital Operations Limited (Vannin) provided litigation funding to QNI to conduct the Mineralogy proceeding pursuant to a litigation funding agreement dated 13 September 2016 (the Vannin LFA)

The litigation also included a proceeding commenced by the Special Purpose Liquidators in June 2021 against 21 defendants including the JVCs, Clive Palmer (who is or was a director, secretary or shareholder of each of the companies) and Mineralogy. Ultimately, the parties agreed that the Special Purpose Liquidators would discontinue this proceeding, and that the other proceedings existing at this time would be consolidated (the Consolidated proceeding).

At first instance in the Consolidated proceeding, Mullins J (as her Honour then was) found in favour of the Liquidators/QNI in relation to a voidable transactions claim, but dismissed the Mineralogy claim. The Liquidators/QNI successfully appealed the dismissal of the Mineralogy claim, and Mineralogy paid $102,884,346.26 to QNI. On the same day, QNS demanded that the entire amount be paid to it, without deduction. The demand was not complied with.

The Liquidators/QNI argued that they were entitled to use the judgment proceeds to pay Vannin the amounts owing under the Vannin LFA (among other amounts), while QNS and the JVCs (the Palmer Parties) opposed the payment of Vannin’s fees on the basis that they were not properly and reasonably incurred.

The Court’s Decision

The Court rejected the Palmer Parties’ argument that the fees and expenses incurred to pursue the Mineralogy claims were not reasonable because QNI should have prosecuted the Mineralogy proceeding through the Special Purpose Liquidators. The Court reviewed the orders appointing the Special Purpose Liquidators and found that the primary judge did not err in concluding that their mandate did not extend to the pursuit of the Mineralogy proceeding.

The Court was similarly not persuaded by the Palmer Parties’ contentions with respect to the reasonableness of Vannin’s funding premium. In the Court’s view, the finding by the primary judge that the Vannin LFA and funding premium were reasonable by ordinary commercial standards was entirely unexceptional given (a) the absence of any funding proposals from the funder backing the other litigation in this case or other creditors, (b) the absence of any objectively superior funding offer from an alternative funder, (c) the absence of any available funds to pursue the proceedings against Mineralogy, (d) the assessment made by the Liquidators as to the merits of the Mineralogy proceeding, and (e) the time pressures on commencing proceedings as a result of the impending expiry of limitation periods.

Conclusion

The Court ultimately upheld the primary judge’s findings with respect to the payment of Vannin’s fees. This decision also addresses an interesting issue pertaining to the rights, duties and obligations of a trustee who has been replaced by a subsequent trustee, which has not been covered in this summary. You can read the decision here.

Judge: Markovic, Banks-Smith, Halley JJ

Counsel for the First and Second Respondents, the Liquidators and Queensland Nickel Pty Ltd (In Liquidation): Mr M Stewart KC with Mr N Derrington

Solicitor for the First and Second Respondents, the Liquidators and Queensland Nickel Pty Ltd (In Liquidation): HWL Ebsworth Lawyers

Counsel for the Third Respondent, Vannin Capital Operations Limited: Mr M Hodge KC with Ms F Lubett and Mr P Kucharski

Solicitor for the Third Respondent, Vannin Capital Operations Limited: Corrs Chambers Westgarth

Counsel for the Appellants, Queensland Nickel Sales Pty Ltd, QNI Metals Pty Ltd and QNI Resources Pty Ltd: Mr P Dunning KC with Mr G Gee and Mr K Byrne

Solicitor for the Appellants, Queensland Nickel Sales Pty Ltd, QNI Metals Pty Ltd and QNI Resources Pty Ltd: Robinson Nielsen Legal