Australian Funding Partners Ltd v Botsman & Ors [2019] HCATrans 102 (17 May 2019)

Last Updated: 23 May 2019

[2019] HCATrans 102

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M179 of 2018

B e t w e e n -

AUSTRALIAN FUNDING PARTNERS LTD (ACN 167 628 527)

Applicant

and

WENDY DIANNE BOTSMAN

First Respondent

LAURENCE JOHN BOLITHO

Second Respondent

BANKSIA SECURITIES LIMITED

Third Respondent

THE TRUST COMPANY (NOMINEES) LTD (ACN 000 154 441)

Fourth Respondent

RSD CHARTERED ACCOUNTANTS (ACN 60 616 244 309) (FORMERLY KNOWN AS RICHMOND SINNOTT AND DELAHUNTY)

Fifth Respondent

PATRICK JOHN GODFREY

Sixth Respondent

NICHOLAS LIVINGSTONE CARR

Seventh Respondent

PETER WILLIAM KEATING

Eighth Respondent

GEOFFREY GRENVILLE SKEWES

Ninth Respondent

GEOFFREY S A LIPSHUT

Tenth Respondent

MAXWELL BROWN & MOUNT JOY (A PARTNERSHIP)

Eleventh Respondent

LANTERN LEGAL GROUP PTY LTD T/A HARWOOD ANDREWS

Twelfth Respondent

INSURANCE HOUSE PTY LTD (ACN 006 500 072)

Thirteenth Respondent

THE CHANNEL SYNDICATE 2015

Fourteenth Respondent

THE AMTRUST SYNDICATE 1206

Fifteenth Respondent

CHAUNCER SYNDICATES LIMITED

Sixteenth Respondent

JOHN ROSS LINDHOLM AND PETER DAMIEN McCLUSKEY IN THEIR CAPACITY AS JOINT AND SEVERAL SPECIAL PURPOSE RECEIVERS OF BANKSIA SECURITIES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)

Seventeenth Respondent

BANKSIA SECURITIES LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 004 736 458)

Eighteenth Respondent

Application for special leave to appeal

NETTLE J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 17 MAY 2019, AT 11.32 AM

Copyright in the High Court of Australia

____________________

MR P.D. CRUTCHFIELD, QC: If the Court pleases, I appear with MR K.A. LOXLEY for the applicant. (instructed by Arnold Bloch Leibler Lawyers)

MR C.H. WITHERS: If the Court pleases, I appear with MR C.M. TAM for the first respondent. (instructed by Christopher Anthony Botsman)

MR R.A. DICK, SC: May it please the Court, I appear with MR J.A. REDWOOD and MR A.C. ROE for the third, seventeenth and eighteenth respondents. (instructed by Maddocks)

MR I.G. WALLER, QC: May it please the Court, I appear with MR P.G. LIONDAS and MS F.L. SHAND for the fourth respondent. (instructed by Clayton Utz Lawyers)

NETTLE J: Yes, Mr Crutchfield.

MR CRUTCHFIELD: If the Court pleases. The Court should have received an affidavit yesterday from our instructing solicitor, Mr Mengolian.

NETTLE J: Yes.

MR CRUTCHFIELD: The only purpose of putting that forward, your Honours, is so that I wanted to take your Honours to the deed because unless I can establish, at least on a reasonable basis, that the construction point is arguable I am in obvious difficulty in relation to any special leave question. So that is where I wanted to start, if the Court pleases. Could I go first to the recitals and your Honours will see recital I and you can see what the Parties have agreed to do, that is:

settle the Bolitho Proceeding and BSL Proceeding on the terms set out in this Deed, subject to the satisfaction of certain conditions, including approval by the Court.

As your Honours know, our fundamental proposition is approval orders were not obtained.

NETTLE J: Yes.

MR CRUTCHFIELD: To use the modern sense of the phrase at least, this was a curate’s egg and you could not take the good and reject the bad. You had to take it or reject it in whole. Then if you go, please, to the definitions and the approval orders, the Court will see the definition:

the making of the orders sought in the Bolitho Approval Application and BSL approval application –

Then, relevantly:

“Bolitho Approval Application” means the application by Bolitho for approval of the Settlement pursuant to ss 33V and 33ZF of the Act.

Then, your Honours, the definition of “the Parties” means:

the parties to the deed –

which included the funder, and it is relevant to observe that the funder was not a party to the proceeding before Justice Croft. The funder was joined to the proceeding at the suggestion of the Court of Appeal. Then the definition of “the Settlement” at the bottom of the page is:

“Settlement” means the settlement of the Proceedings by the Parties in accordance with the terms of this deed.

Then one goes to the conditions precedent and 2.1:

Subject to clauses 2.3 and 2.4, this Deed is subject to and conditional upon each of the following conditions being satisfied –

and the Court will see 2.1.3:

the making of the Approval Orders in the Proceedings -

Then 2.2:

In the event that any of the conditions in clause 2.1 are not met:

2.2.1 this Deed, save for this clause 2 and clause 13, shall cease to have any effect –

We say that is the proper construction of the contract of this deed. Approval orders were not obtained and therefore the deed, subject to clause 2 and clause 13, ceased to have any effect. Now, 2.4:

In the event that the precondition in clause 2.1.3 is not met, that is, the Court does not make either of the Approval Orders . . . by reason of the quantum of the funder’s commission claimed by BSLLP –

Your Honours, that is the same funder as is the applicant; it just had a name change:

pursuant to the application referred to in clause 3.10 below, the Parties must in good faith seek to negotiate an alternative –

et cetera. Now, we submit it is plain from clause 2.4 that the approval – that the quantum of the funder’s commission is part of the approval orders and

EDELMAN J: That may be difficult in light of 3.10 and 3.7 and the headings.

MR CRUTCHFIELD: One has to read it by reference to the statute, the words of the statute as well, which is 33V(1) and (2) which are set out in the application book at, for example, page 225. Section 33V says:

(1) A group proceeding may not be settled or discontinued without the approval of the Court.

(2) If the Court gives such approval, it may make such orders –

et cetera. We say the conditional “if” in 33V(2) supports the construction that this deed is contemplating a failure to get through the approval gateway - that is, 33V(1) – in the first place. If you go to clause 3, to come to your Honour Justice Edelman’s point about

EDELMAN J: I do not understand your submission about 33V(1). Why would not an order approving the BSL approval application be an approval order within the terms of 33V(1)?

MR CRUTCHFIELD: It would be, but one

EDELMAN J: But refusing the funder’s commission and legal fees.

MR CRUTCHFIELD: No, because we say that the proper construction of this deed is the approval order means the making of the orders sought in the Bolitho approval application and when you go to what the Bolitho approval application is, that is the application for approval of the settlement, and the settlement means the settlement of the proceedings by the parties. The parties includes the funder. That is supported by clause 3 where – clause 3.1:

Bolitho will provide the draft form of the Bolitho Approval Application –

Then a draft form – the draft is prepared and you will see in 3.5:

The Parties will in good faith use reasonable endeavours to ensure that the Bolitho Approval Application is filed as soon as possible -

“The Parties” there meaning parties to the deed.

NETTLE J: The whole application never really rises higher than the interpretation of this deed.

MR CRUTCHFIELD: No, it does, your Honour, because if we succeed on the proper construction of the deed, as your Honours know the Court of Appeal said even if we were correct in relation to the proper construction of the deed by reason of the statutory provisions, 33V(1) and (2) - the court did that at paragraphs 370 to 394 – the court said that notwithstanding what the deed said, the court could divide the deed up and approve the settlement and not approve the funding. That, we submit, is an issue of general importance because, as the Court knows, common fund orders are common and, in any event

EDELMAN J: Even if you did surmount the unimportant or bespoke issue of construction of a particular contract, you still would need to succeed on the second more interesting point

MR CRUTCHFIELD: That is right.

EDELMAN J: to show that the parties by their contract could confine section 33ZF of the legislation.

MR CRUTCHFIELD: That is correct, we would have to show

EDELMAN J: How could parties by their unilateral or bilateral contract constrain the operation of a legislative provision which is expressed in terms of what the court thinks appropriate or necessary to ensure that justice is done in the proceedings?

MR CRUTCHFIELD: It really comes to this, the question of whether or not parties can, pursuant to a contract and freedom of contract draft a settlement deed that makes it conditional on various things, relevantly here the funder’s commission and the calculation of that commission.

EDELMAN J: So, in other words, if the court considered that it was appropriate or necessary to ensure that justice is done in the proceedings to make a particular order, the parties could prevent the court from making that order.

MR CRUTCHFIELD: The parties could have a deed which says it is a condition precedent that the whole thing is approved and it is not open, we say, to the court in those circumstances to – it would have to be a juridical basis for the court to say, “Well, we find a provision like that offensive”. If the court finds it offensive, it just rejects the settlement in total. That is the question, whether or not it is possible for that to be done, and we say - if your Honours have the reasons, could I take your Honours just to the reasons of the Court of Appeal in relation to the statutory provision aspect of the case. It starts at application book 201, paragraph 370, where the court deals with the statutory provisions. They say that the statute provides:

an independent basis for the same conclusion.

Then paragraph 382:

The questions of policy nevertheless remain. It is no doubt difficult for a court to determine what might be an appropriate return on capital or appropriate reward for the risks associated with underwriting a legal proceeding that would otherwise not be brought without the support of the funder. Nevertheless, as the analysis in Money Max makes clear, the determination of whether a claimed payment is fair and reasonable is readily amenable to judicial determination.

Then at 383:

Further, a contrary approach to the powers in s 33V would entail that this settlement would fail unless the Court also approved the payment to the funder . . . In other words, the making of what is in effect a common fund order would be a condition precedent for the approval of the settlement by the Court. The Court would be unable to approve the settlement without approving the payments –

We say if that is the way in which a deed has been agreed between sophisticated parties then the course open to the Court is not to make the approval orders, and the parties will go away.

EDELMAN J: Do you accept that it would be possible for Parliament to legislate in such a way as to allow, in effect, a settlement on different terms from that which the parties agreed?

MR CRUTCHFIELD: I accept that it is possible.

EDELMAN J: What sort of words would Parliament need to use if it were not sufficient to use words such as “any order the court thinks appropriate or necessary to ensure that justice is done in the proceeding”? How much broader could you express the legislation?

MR CRUTCHFIELD: The legislation has to be construed in the context of the fact that one is dealing with a funder in a case like this that is taking commercial risk. If it applies for a common fund order early on, from that point on the effect of this judgment is that that funder cannot pull out of the settlement but is stuck with whatever the court says is the appropriate commercial value for that funder when the proceeding finally settles.

We submit that jars with commercial conduct. The courts are not equipped to come up with what is the correct internal rate of return or return on capital of a funder. If the parties reach a settlement which is conditional in that way there is nothing in the statute that says that one cannot have conditions precedent to the effectiveness of the – and that is, your Honour, we would say, if leave is granted, no doubt someone might raise a point similar to that which your Honour is perhaps hinting at, but that would be contrary to the public policy or contrary to the words of this section to be able to have a condition precedent like that. We say one should be able to. That is a question of general importance.

It is also worth noting, your Honours, if I can just go back to Justice Croft’s decision, that no one took this point. The construction that found favour with the Court of Appeal was one that the Court of Appeal raised with the parties. It was not a point that Ms Botsman, the applicant, was taking before Justice Croft or indeed in the Court of Appeal. You can see, paragraph 63 on application book 39, the way in which the matter was conducted before Justice Croft:

Approval is sought for the payment of legal fees and disbursements of $4.75 million (plus GST) from the Settlement Sum as an element of the overall approval.

Similarly, 94 and 95, where Justice Croft dealt with the funder’s commission. He said that it:

should be approved by the Court pursuant to ss 33V(2) and 33ZF –

Then in 95:

In summary, I consider that the Funder’s Commission should be regarded as reasonable and should not be regarded as any impediment to the approval of the settlement by the Court.

At paragraph 106, application book 59:

For the preceding reasons, the Approval Orders were made

NETTLE J: What do you get from that, relevantly?

MR CRUTCHFIELD: The way in which the matter was conducted before Justice Croft is consistent with our construction of the deed, that the approval orders were everything. If the funder’s commission and the legal costs were not approved, the deal was off, subject to any obligation to renegotiate.

EDELMAN J: What did Justice Croft say about 3.10 and the reference to BSLLP’s application for payment?

MR CRUTCHFIELD: I do not think he said anything about it. What we would say about it, though, is BSLLP’s application for payment, plainly when one looks at the summons as well, was all wrapped up in Mr Bolitho’s application. The funder was not even a party to the proceeding before Justice Croft so could hardly make a separate application,
and that was not contemplated. If you look at the summons, at AB123, these were the orders that were sought by the summons. The summons that was contemplated by clause 3 of the deed of settlement:

Mr Bolitho applied for the following order:

1. Pursuant to ss 33V and 33ZF . . . the settlement of this proceeding . . . including as concerns the making of the following payments from the Settlement Sum as that term is defined –

It is not irrelevant to observe at application book 125, paragraph 80:

In respect of the commission payable to the funder, the notice stated:

In conjunction with the application for approval of the proposed settlement, the Plaintiff will also apply to the Court for approval of a payment –

not an application being made by the funder. The short answer to your Honour Justice Edelman’s question is that I do not think Justice Croft said anything about 3.10.

Your Honours, they are our submissions, and we do submit that the Court of Appeal has misconstrued this deed and then that gives rise to the interesting policy questions in relation to whether or not conditions precedent of this character can be entered into as part of a deed.

NETTLE J: Thank you, we need not call on you.

The Court is not persuaded that the decision of the Court of Appeal of the Supreme Court of Victoria is attended by sufficient doubt to warrant the grant of special leave to appeal. Special leave is refused with costs.

AT 11.50 AM THE MATTER WAS CONCLUDED