On 1 June 2016 the Victorian Court of Appeal delivered its judgment in Timbercorp Finance Pty Ltd (In Liquidation) (Timbercorp) v Collins (Collins) and Tomes (Tomes) [2016] VSCA 128, the latest in a string of Timbercorp cases.

The latest decision was preceded by a class action which went all the way to the High Court in which the investors lost their claim against Timbercorp for misleading representations.

Following the High Court loss the liquidator called in the 1,288 Timbercorp loans still outstanding. Some of those investors have defended Timbercorp's claims in Court by raising further defences.

The Group Proceeding

In 2009 Timbercorp investors commenced a group proceeding against Timbercorp alleging deficiencies in various product disclosure statements issued by Timbercorp in respect of investment schemes. It was alleged by the investors that Timbercorp breached its disclosure obligations under the Corporations Act and issued false and misleading statements in breach of the Australian Securities and Investments Commission Act. The relief sought included an order that those participating in the group proceeding be found not liable for repayment of the loans advanced by Timbercorp.

The group proceeding dealt with 33 common questions identified by the investors most of which concerned disclosure obligations.

Tomes and Collins were part of the group proceeding.

Loan Recovery Proceedings by Timbercorp Following the dismissal of the group proceeding Timbercorp commenced proceedings for the recovery of moneys owing under loans advanced to investors of Timbercorp including proceedings against Collins and Tomes. Collins and Tomes both defended the claims.

Timbercorp contended that Collins and Tomes' defences were precluded by either or both of the doctrines of Anshun estoppel or abuse of process on the basis that Collins and Tomes had:

  1. renounced their individual claims by failing to opt out of the group proceeding (and in so doing accepted that the common claims and questions identified in the group proceeding represented the totality of their claims); and
  2. failed to raise each of their individual claims or seek directions from the Court in the group proceeding and their failure to do so was so unreasonable that their defences in the loan recovery proceedings ought be stayed or estopped.

The primary judge rejected Timbercorp's argument. Timbercorp subsequently appealed the decision to the Court of Appeal.

Court of Appeal decision

The Court of Appeal upheld the findings of the primary judge and allowed Collins and Tomes to rely on their defences in the loan recovery proceedings notwithstanding their participation in the group proceeding.

The Court held that it was not unreasonable for group members not to have raised their individual defences in the conduct of the group proceeding and that they ought not to be estopped from relying on their individual defences in the loan recovery proceedings.

In arriving at this conclusion the Court had particular regard to the fact that:

  1. the defences pleaded by Collins and Tomes were, in large part, matters personal to them and different to the allegations raised in the group proceeding. For instance, Collins alleged that because he was not named in the schedule to the relevant grove lot licence agreement, Timbercorp could not reasonably satisfy itself that a grove lot licence agreement was in place to manage Collins' investment, which was a precondition to Timbercorp releasing any application moneys. On the other hand, Tomes alleged that a series of representations were made to him by an agent of Timbercorp such that if he defaulted on his loan, Timbercorp would only seek recourse by taking possession of his grove lots and selling them on the secondary market.
  2. the ability of group members to participate in the group proceeding, and raise their claims, depended upon the favourable exercise of a Court's discretion, which was uncertain;
  3. whilst there was no barrier to group members bringing their unpleaded claims to the attention of the Court in the group proceeding, it was entirely possible that the Court would have refused to make orders directing individual claims to be case managed in the group proceeding;
  4. Timbercorp would have had to respond to the individual claims either as part of the group proceeding or in a separate proceeding, and as such, there was little if any prejudice caused to Timbercorp; and
  5. in the circumstances, it was not unreasonable or oppressive of Collins and Tomes to defer reliance on their individual claims until such a time as Timbercorp sought to enforce the loan agreements.

The liquidator of Timbercorp must now face the prospect of over 1,000 defended debt claims having already litigated the earlier group proceeding.

The case is a timely reminder of just how inconclusive group proceedings can potentially be.