This is a class action on behalf of investors who purchased unsecured notes issued by the respondent (Virgin) pursuant to a prospectus which the applicant alleges was misleading or deceptive. In April 2020 Virgin was placed into voluntary administration, and in September 2020 entered into a Deed of Company Arrangement (DOCA). In broad terms, the effect of the DOCA was to extinguish any claims by creditors against Virgin that were ‘uninsured’ claims, but to permit creditors to continue to enforce ‘insured’ claims against Virgin (i.e. any claims in respect of which Virgin was insured) subject to provision by the creditor of an indemnity in a form required by the DOCA (and evidence of the creditor’s ability to honour the indemnity).
A dispute arose between the parties concerning the adequacy of the form of indemnity proffered by the applicant in this case, which Lee J in this judgment determined as a separate question.
The form of indemnity specified in the DOCA included the following paragraph:
I/We wish to take legal proceedings to enforce a Claim under clause 8 of the DOCA (Insured Claim) against the Company. The Insured Claim is [insert full description].
The form of indemnity proffered by the applicant in this case included the following paragraph (emphasis added):
We wish to take legal proceedings to enforce a Claim under clause 8 of the DOCA (Insured Claim) against [Virgin]. The Insured Claim is any Insured Claim included in the claim made by [the applicant] against [Virgin] in Federal Court of Australia Proceeding NSD346/2022 (Matheson Property Group Pty Ltd as trustee for the MPG Trust v Virgin Australia Holdings Pty Ltd & Ors).
As so expressed, the proposed indemnity was limited to ‘insured’ claims only, and therefore would be inoperative in the event that the applicant’s claim in fact turned out to be an ‘uninsured’ claim (in circumstances where it was not yet known whether the insurance held by Virgin would respond to the claim). In other words, if it transpired that Virgin was not covered by any insurance in respect of the applicant’s claim, then the indemnity would be of no effect (and Virgin would be left to bear its costs of defending the claim up to that point).
The applicant contended that its proposed indemnity complied with the requirements of the DOCA. Virgin, on the other hand, contended that it did not. The answer to that question depended on the proper construction of the DOCA.
His Honour held that the drafting of the DOCA was “less than ideal” and “less than pellucid”, but ultimately rejected the applicant’s contention. The purpose of the DOCA (and the indemnity it required) was to allow creditors of Virgin whose claims were, or might be, covered by insurance, to pursue those claims, but only in such a way as not to cause expense to, and thereby deplete the remaining assets of, Virgin (which would have the effect of reducing the dividends payable to other creditors). On the applicant’s construction, the indemnity would be of no effect if it ultimately transpired that the applicant’s claim was not in fact an ‘insured’ claim (which would essentially defeat the whole purpose of the indemnity). His Honour made a declaration accordingly.
Federal Court of Australia, Lee J,
20 October 2022
Applicant’s Solicitors: Corrs Chambers Westgarth
Respondents’ Solicitors: Gilbert & Tobin; Baker & McKenzie
Applicant’s Funder: N/A
Austlii Link: Available here
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