Court rejects interim receivers' proposed settlement over estoppel risk

The Federal Court of Australia has refused to give interim receivers judicial approval to settle a Queensland Supreme Court proceeding over disputed trust funds, holding that the proposed compromise carried a real risk of barring larger, unpleaded claims through Anshun estoppel and was therefore not shown to be prudent.

On 25 October 2024, Richard Albarran and Brent Kijurina of Hall Chadwick were appointed interim receivers of the property of various companies and trusts associated with Sam Mitchell (an undischarged bankrupt), including The Edge TC Pty Ltd (TETC) and Wealthcheck Finance Pty Ltd (WFP).

The proposed settlement pertained to a Queensland proceeding previously brought by WFP against O’Shea and Partners Lawyers Pty Ltd and a related services entity, seeking payment of $381,361.19 in trust funds said to be owed following the sale of a cattle station interest. The defendants counterclaimed, alleging oral payment agreements and equitable entitlements that would justify retaining the funds to satisfy outstanding professional fees.

The interim receivers sought a direction that they would be justified in settling that proceeding on terms requiring O’Shea and Partners to pay approximately half of the disputed trust funds, with the balance retained by O’Shea, and for the Queensland proceeding to be discontinued with no order as to costs. The interim receivers had received detailed legal opinions supporting a 50% settlement as commercially reasonable on the pleaded issues, and sought approval because their appointment orders did not confer an express power to compromise proceedings or dispose of assets without leave.

The Court ultimately refused to grant approval. Justice Jackson’s concern was not that the settlement extended beyond the Queensland proceeding in form, but that settling and discontinuing that proceeding could, as a matter of law, expose any later claims arising from the same factual matrix to an Anshun estoppel, even though those potential claims were not pleaded in Queensland.

While the Court accepted that litigation risk, costs, and evidentiary uncertainty could justify a compromise of the pleaded dispute in isolation, it identified a broader concern. The circumstances surrounding the transfer of nearly $2 million in sale proceeds from one trust entity to another were unexplained, raising potential claims for breach of fiduciary duty or knowing participation that had not been pleaded.

The receivers attempted to narrow the settlement so it resolved only the Queensland proceeding and did not expressly release any other claims. Even so, the Court held that discontinuing the proceeding pursuant to settlement could still expose future claims to an Anshun estoppel, depending on how Australian authorities treat discontinuance following settlement.

Justice Jackson reviewed competing lines of authority on whether Anshun estoppel can arise absent a final adjudication, noting that while High Court reasoning points toward the need for a judgment, several intermediate appellate and trial decisions have applied the principle where proceedings were settled and discontinued. That divergence created sufficient doubt to preclude approval.

Because the receivers had not undertaken any analysis of the value or merits of the potential broader claims, or obtained advice addressing the estoppel risk, the Court was not persuaded it would be reasonable or prudent to approve a settlement that might, by side effect, foreclose claims potentially worth far more than the amount in dispute.

The application for directions was dismissed, although the Court confirmed that the receivers’ costs of bringing it would form part of their approved remuneration and expenses.

Read the decision here.

Professionals involved:

• Stefan Tomasich of Quayside Chambers (instructed by HWL Ebsworth Lawyers) for the interim receivers;

• Nunzio Lucarelli KC of Francis Burt Chambers and James Paterson (instructed by Matthews Folbigg Solicitors and Forbes Kirby) for certain interested parties