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Knowing when to settle: Re 22 Park Street Pty Ltd No 2 [2021] VSC 588

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By Alicia Hill, Principal and Helena Swidron, Law Clerk

The case of Re 22 Park Street Pty Ltd No 2 [2021] VSC 588 (Re 22 Part Street) concerns the plaintiff, Maria Lantouris who was the sole director and shareholder of 22 Park Street Pty Ltd (the Company), which is now in receivership. This case details Ms Lantouris seeking leave from the Court to compromise and settle the claims brought forward in prior proceedings against 7 defendants. Justice Connock makes valuable observations on the benefits of settling, particularly when it is in the best interest of the Company.

Background

Thus far, there have been two applications made regarding the compromise of the initial proceedings.

At first, Lantouris sought leave to compromise and settle a claim brought against the eighth defendant, Morry Blumenthal. In May 2021, she was successful in her application and leave was granted.

This case considers the second application. Here, Lantouris urgently sought leave pursuant to section 240 of the Corporations Act 2001 (Cth) for the compromise and settling of claims brought on behalf of the Company against the other seven defendants (the LSC Proceedings). The claim related to terms set out in a deed of settlement executed in May 2021. Leave was required as the Company’s claim under the LSC proceedings was brought subject to leave granted in November 2020 under section 236 of the Corporations Act 2001.

The Defendants

Boris Mutavdzija (the first defendant in the LSC proceedings) was a solicitor who allegedly failed to satisfactorily discharge his duty of care owed to the following Plaintiffs: Ms Lantouris, her Mother, and the Company. Allegedly, he had wrongfully distributed the sale and loan proceeds, amounting to around $758,000, when actioning a loan for Ms Lantouris and the Company.

The remaining six defendants were the lenders who made the loan to Ms Lantouris and the Company. The utilised an asset-based lending model.

The loan was to be used by the Company to purchase the property at 22 Part Street in Abbotsford, being sold by a mortgagee. At the time, the property was registered to Ms Lantouris’ Mother and Brother. Shortly after the acquisition of the Abbotsford property, Ms Lantouris and the Company almost immediately defaulted. The loan included a mortgage and security over the Company. In response, the lenders exercised their power of sale and sold the property to a third party. Ms Lantouris alleged that the lenders, in their provision of the loan and acquisition of the property, engaged in misleading and deceptive conduct, as well as acting unconscionably.

Both Mr Mutavdzija and the lenders denied that they were liable to the Plaintiffs as alleged.

Mediation was attended by all parties; however, the proceedings were not resolve. Negotiations took place afterward leading up to trial, and in May 2021 the parties settled the day trial was to commence. Accordingly, the parties exchanged their executed counterparts of the Deed of Settlement.

The Deed of Settlement

The settlement led to the application of leave under section 240 as it was conditional upon leave being granted. The Deed remained primarily confidential between the parties, however, some of the relevant terms of the Deed were as follows:

  • The settlement sum was to be paid to the LSC proceeding Plaintiffs by Mr Mutavdzija in settlement of the claims against him
  • No money is to be paid to the Plaintiffs by the Abbotsford lenders
  • The LSC proceeding is to be discontinued with no order as to costs
  • Contained mutual release and covenants not to sue
  • And other conventional terms often seen in terms of settlement.

This Deed of Settlement was finalised and awaiting to be settled upon this Court granting leave as required under section 240 of the Corporations Act 2001.

Considerations and Judgment

Justice Connock reiterated that section 240 exists to prevent collusion between the Parties to the benefit of the applicant but might not be in the best interest of the company.[1] Accordingly, Justice Connock observed that there was no basis to be concerned with the potential for collusion or questionable conduct to occur between Ms Lantouris or any of the defendants as the settlements made reflect transactions at arms-length and there was no evidentiary basis either. Further, it was apparent that the solicitor and counsel for the Company firmly believe that settlement subject to the Deed of Settlement is in the best interest of the Company. Justice Connock in reviewing the evidence and considering the interests of Ms Lantouris and the Receiver accepted this course of action.

Further, Justice Connock acknowledged that if leave was not granted, the Company would be faced with vast expenses and cost orders if the LSC proceedings were to continue and if their claims against the defendants were to fail. He noted that such risks should not be ignored.

Proposed Orders

As a result, Justice Connock proposed that Ms Lantouris should be granted leave pursuant to section 240 of the Corporations Act 2001 for the compromise and settling of the initial proceedings against defendants one to seven.

Takeaways

Justice Connock’s judgment emphasises the importance of evaluating the options available prior to commencing or continuing proceedings. Often when a plaintiff has suffered loss or damage, it can be instinctual to want to commence proceedings. However, the plaintiff must assess the associated risks in the event that their claim may fail. Typically, such risks are primarily financial, where proceedings may result in extensive legal expenses and potential cost orders. Justice Connock notes that this is also a consideration even if the proceedings are likely to result in a successful claim, as high legal expenses can mitigate the fruits of a successful claim. Furthermore, due to the unpredictable duration of court proceedings, the plaintiff may need to invest great amounts of time and effort into their case.

This case is an important example of how Deeds of Settlement and Release can be utilised by Parties to minimise the potential risks of carrying on further proceedings. Settlement can provide the Parties with more certainty and the chance to negotiate matters on their own terms.

Ultimately, it is important to consider what is in you or your company’s, best interests and whether settlement is a better option to engage instead of initiating in potentially lengthy and expensive proceedings.

[1] Ford, Austin and Ramsay’s Principles of Corporations Law