Advice excuse ineffective as indemnity costs ordered

Two SV Partners directors will need to find funds to pay indemnity costs after a court ruled that their reliance on flawed legal advice was no excuse for stonewalling a secured creditor trying to recover its property.

Failing a successful appeal the lawyers advising the pair may notice a diminishment of referrals going forward.

“On 24 September 2024, ClarkeKann sent an email to Wallmans requesting details of Sloans’ legal representatives. In response, Wallmans unhelpfully directed ClarkeKann to correspond with one of the Liquidators directly in his capacity as a liquidator of Sloans.” Justice Ian Jackman.

In a statement provided to iNO this morning the liquidators said they were disappointed “at the findings and the approach adopted. Whilst we are still in the process of reviewing the judgment, we do not agree that our conduct of the matter justified this order”.

“Whilst we will respect the Court’s ultimate findings, we are currently considering whether to appeal, and will be able to comment in greater detail once that process has concluded,” the liquidators said.

In their capacities as liquidators of South Australian quarry business Trenel Pty Ltd, Matthew Ormsby and Stuart Otway had chosen to oppose attempts by secured creditor Porter Finance Australia Pty Ltd (PFA) to recover property on the basis of advice from their lawyers suggesting PFA’s security was no longer valid.

That resistance first manifested in May this year after PFA wrote to the liquidators seeking their cooperation in recovering the property, comprising vehicles and other heavy equipment items.

At the time PFA first brought to the liquidators’ attention its claims, the SV pair were in the middle of trying to sell Trenel’s assets.

iNO notes that in the liquidators’ statutory report to Trenel creditors dated October 23, 2024 Otway and Ormsby said they remained unconvinced of the validity of PFA’s claim.

In correspondence in reply to PFA the liquidators’ lawyers Wallmans expressed doubt about whether PFA’s security interests had survived perfected after the property was assigned to Trenel from Sloans Sands Pty Ltd (Sloans), a related entity also in liquidation, in October 2023.

Those doubts coalesced in a refusal to allow PFA to take possession, a refusal to undertake not to sell the property and delivery of the property to Pickles in anticipation of an auction in mid-June.

PFA’s lawyers ClarkeKann then provided material in support of its client’s contention that the security interests had survived the assignment intact.

When that failed to elicit the sought after reaction ClarkeKann gave Wallmans a copy of the originating process and supporting affidavits PFA would rely on if it chose to seek orders restraining the liquidators from proceeding with the sale.

Despite the clear warning no undertaking or indication that the liquidators would change their position was received and on July 30 PFA commenced proceedings.

In their defence the liquidators argued that the assignment of the equipment from Sloans to Trenel was in essence a novation which released Sloans from its obligations under the original contract with PFA.

They also resisted attempts by PFA to have Sloans joined to the proceedings as a defendant and Wallmans declined to provide ClarkeKann with details of Sloans’ legal representatives Lynch Meyer, suggesting it correspond with the liquidators directly.

The matter came before Federal Court judge Ian Jackman for case management on October 30 and was listed for final hearing on November 13.

On November 6 the liquidators threw in the towel and two days later orders were made allowing PFA to recover its gear. The only question remaining related to costs, which PFA said should be paid on an indemnity basis up to November 6 and the ordinary basis from there.

Sitting as they were on a suite of assetless administrations and with no indemnity, the liquidators resisted, arguing that they had based their decision making on the legal advice provided by Wallmans.

That reliance however cut no ice with Justice Jackman, who said in Porter Finance Australia Pty Ltd v Trenel Pty Ltd (in liq), in the matter of Trenel Pty Ltd (Administrators Appointed) [2024] FCA 1359 that whether or not the liquidators followed the legal advice was neither here nor there.

What mattered was whether that advice was “contrary to common sense and ordinary notions of fairness”.

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