Claims for payment on a Blue Chip litigation funding agreement by financier Terry Haydon failed. Allegations Blue Chip liquidators Meltzer, Hayward and Heath acted in bad faith were dismissed by the Court of Appeal.
Blue Chip group was put into liquidation in 2008 leaving some 3000 investors with losses in excess of $80 million. Liquidators canvassed the possibility of suing Blue Chip’s directors and auditor BDO Spicer. With no money in the kitty, they looked outside for litigation funding. Mr Haydon’s Commercial Factors Ltd agreed to provide $60,000 funding for preliminary work: getting a legal opinion and paying liquidators’ preliminary expenses. It was agreed Commercial Factors would get a fee of $15,000 plus a 24 per cent return on its advance, subject to specified conditions. Payment was conditional on another party agreeing to fund any ongoing court case or alternatively Blue Chip liquidators recovering any monies owed Blue Chip.
A legal opinion stated there were strong grounds to sue both directors and auditor. Struggling to find a further litigation funder to pony up funds for legal action, the liquidators filed legal proceedings at their own expense. Time limits for bringing legal action forced the liquidators’ hand. In the end, legal action did not proceed. It was estimated over $250,000 would be needed to reconstruct Blue Chip’s chaotic accounting records.
Commercial Factors alleged filing court proceedings triggered payment; ‘another party’ had agreed to fund the litigation. The Court of Appeal ruled that once Blue Chip went into liquidation Blue Chip and the liquidators were one and the same; it could not be said funding by the liquidators amounted to funding by ‘another party’. The evidence did not pin down exactly how much money was put up by the liquidators. Advances of $112,500 up to February 2014 were disclosed.
Commercial Factors further alleged the liquidators had acted in bad faith; it should have been repaid out of $307,900 recovered by the liquidators as debts due to Blue Chip. Liquidators were justified in using this money to first pay liquidation expenses, the Court of Appeal ruled.
The liquidators’ final report show not only was Commercial Factors left out of pocket, so too were the liquidators. Recoveries totalled $307,900; as against liquidators’ billed remuneration of $253,200 and paid legal fees totalling $182,400.
Commercial Factors Ltd v. Meltzer – Court of Appeal (16.11.18)
19.003