The proceeding concerned a joint venture to develop land. At the time the development vehicle (AVSS) encountered difficulties, it had only one director (Mr Leggo).

One group of venturers (the Melville interests) brought claims through their related entity against Mr Leggo’s company (NDP), which were determined by the Court of Appeal substantially against them in mid-2016. The Melville interests then sought to fund the liquidator of AVSS to bring a proceeding against Mr Leggo and NDP.

The proceeding was filed in 2013 but was beleaguered by delay. Two funding applications had been rejected by the Court, including because the funding terms compromised the liquidator’s independence. A third funding agreement was entered on substantially similar terms and approved under s.477(2B) of the Corporations Act 2001 (Cth) by creditors of AVSS.

Gardiner AsJ permanently stayed the proceeding on the basis the terms of funding continued to be unacceptable and that the proceeding was being undertaken for the sole benefit of the Melville interests and not creditors as a whole. Riordan J overturned that stay, finding that the decision of creditors to approve the funding agreement led to the presumption those creditors had assessed the proceeding as being in their interests. His Honour found it was consistent with the objectives of the Corporations Act that substantial creditors fund liquidators to bring proceedings, even where they stand to recover much (or even all) of the proceeds of the proceeding.

Before the Court of Appeal (McLeish, Niall and Hargrave JJA) the applicants again impugned the terms of funding as featuring the same vices the Court had previously refused to approve, and contended that obtaining creditor approval for the third funding agreement and prosecuting the proceeding on that basis was an abuse of process. The Court of Appeal disagreed, describing s.477(2B) as contemplating and condoning creditors approving such an agreement having regard to their own self-interest and not taking into account the matters the Court would consider on an application for approval of the same agreement.

The Court also rejected a submission that the funding deed conferred on the Melville interests too great an ability to control the litigation. That the liquidator was an officer of the Court with duties to act independently and in the interests of all creditors did not mean the funder’s control over the litigation was unacceptable.

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