Craig v Woodland Brae Limited

[2012] NSWSC 1632

Supreme Court

New South Wales

Medium Neutral Citation:	Craig v Woodland Brae Limited [2012] NSWSC 1632
Hearing dates:	21 December 2012
Decision date:	21 December 2012
Jurisdiction:	Equity Division
Before:	Brereton J
Decision:	Until 4 February 2013 the plaintiffs be restrained from, by themselves, their servants or agents disbursing or causing someone else to disburse any funds received or receivable by them on or their behalf pursuant to the settlement agreement dated 15 September 2012
Catchwords:	INJUNCTIONS - interlocutory injunction restraining plaintiff from disbursing funds - whether defendant established seriously arguable case for final relief - balance of convenience
Legislation Cited:	(NSW) Contracts Review Act 1980
Category:	Interlocutory applications
Parties:	Loretta Kistmah Craig - First Plaintiff Vincent Desmond Craig - Second Plaintiff DLC Properties Pty Ltd - Third Plaintiff D&L Craig & Associates Pty Ltd - Fourth Plaintiff DLCF Pty Ltd - Fifth Plaintiff Woodland Brae Limited - First Defendant John Sheahan - Second Defendant Ian Russell Lock - Third Defendant
Representation:	Counsel: J C Giles - First to Fourth Plaintiffs (Respondent) A Sullivan QC w M Izzo - First Defendant (Applicant) Solicitors: Arnold Bloch Liebler - First to Fourth Plaintiffs (Respondents) Piper Alderman - First Defendant (Applicant) Clayton Utz - Second and Third Defendants
File Number(s):	2012/ 331716

Judgment (ex tempore)

1. In the substantive proceedings, the plaintiffs seek to have set aside a funding agreement with the first defendant, a litigation funder, which agreement the plaintiffs purport already to have terminated. The first defendant disputes the validity of that termination, but contends, and the plaintiffs seem to accept, that even if the agreement has been terminated, its effect is such as to secure the defendant's entitlement to reimbursement of advances made by it to date under the funding agreement. It is at least partly for that reason that an important part of the plaintiffs' case is also to have the funding agreement set aside under the (NSW) Contracts Review Act 1980, or on grounds of unconscionability. However, it also appears to be accepted by the plaintiffs that it is almost inconceivable that, even if the agreement were set aside on one or other of those bases, there would not be terms imposed that required the plaintiffs to give restitution of the amounts received by them under the agreement.

1. The plaintiffs have negotiated and concluded a settlement of the funded proceedings with some of the other parties to those proceedings, and as a result have received from those parties moneys that fall within the description of "recoveries" under the funding agreement, and, indeed, continue to do so on a monthly basis, and will continue to do so until the end of 2013. The first defendant has appointed the second and third defendants as receivers, under the funding agreement, of those recoveries. Subsequent to commencing these proceedings, the defendants have given an undertaking that they will not take any steps in pursuance of their appointment as receivers, effectively until further order; while the plaintiffs gave an undertaking not to disburse any more of the moneys that I have described as recoveries, except upon having given 48 hours' notice of their intention to do so to the defendants.

1. In very approximate terms, it seems that so far the plaintiffs have received roughly $1.3 million of recoveries, and have disbursed something in the order of $1.2 million. On 19 December 2012, they gave the defendants 48 hours' notice of their intention to disburse a further $215,877.60, $134,000 in December and $81,550 in January. By notice of motion filed in Court today, the first defendant seeks, relevantly, an order restraining the plaintiffs until further order from disbursing or causing someone else to disburse any funds received by them pursuant to the settlement agreement with the other parties in the funded proceedings.

1. The first issue is whether the defendants, as applicants on the motion, have a seriously arguable case for final relief in respect of the proceeds of the settlement agreement. Although on this application the plaintiffs in a sense undertook the onus of establishing a seriously arguable case under the Contracts Review Act to set aside the funding agreement, that is not really the question. The question is whether the defendants have a seriously arguable case that they are entitled to the moneys received by the plaintiffs as a result of the settlement.

1. In my view, there plainly is a seriously arguable case to that effect, and so much was not seriously in dispute. Essentially, even if the funding agreement has been validly terminated, provisions of the funding agreement enure to secure recoveries for the benefit of the first defendant and, even if the funding agreement were set aside under the Contracts Review Act or on unconscionability grounds, that would almost inevitably be upon terms that the plaintiffs give restitution.

1. One turns then to the balance of convenience. The fundamental, and I think unavoidable, point is that the seriously arguable case is not merely the claim of an unsecured creditor against a debtor, but a claim to a security interest in the moneys in question, for that reason having priority over unsecured creditors of the plaintiffs, in circumstances where there is every reason to suppose that the plaintiffs are impecunious and may well not be able to pay all their creditors in full.

1. The plaintiffs' proposal would see funds, to which the defendants have a prima facie proprietary claim, dissipated among their more pressing short-term unsecured creditors. There is no offer of any substituted or alternative security. So much is unsurprising, because it seems unlikely that the plaintiffs would have assets that could be offered as such security. While there is some urgency in respect of some of the proposed disbursements, such as those under instalment plans in respect of judgments in debt, nonetheless there is not evidence of a high degree of urgency in respect of the vast bulk of what is proposed to be disbursed.

1. The plaintiffs' argument on the balance of convenience gave emphasis to the jeopardy that would be occasioned to the formerly funded litigation if costs associated with it were not paid and provided for. While that is a consideration, it seems to me that it cannot outweigh the fact that, effectively, by acceding to what the plaintiffs propose, the defendants' security interest would be permanently defeated unless, at least, the funded proceedings are prosecuted to a successful outcome, a matter which can only be regarded as speculative.

1. It is no small consideration in the balance of convenience that the defendants have themselves submitted to undertakings on an interlocutory basis not to take steps pursuant to the appointment of the receivers.

1. I do not by this judgment intend to foreclose forever the possibility that some arrangement might be reached or regime established, either consensually or as a result of a further application to the Court, that might permit the plaintiffs to meet urgent liabilities and might permit the funded proceedings to be continued. However, it seems to me that, at least until the new term and unless in the meantime the parties can reach some other accommodation, the defendants are entitled to the interlocutory relief that they seek.

1. Accordingly, upon the first defendant by its counsel giving to the Court the usual undertaking as to damages, I order that until 4 February 2013 the plaintiffs be restrained from, by themselves, their servants or agents disbursing or causing someone else to disburse any funds received or receivable by them on or their behalf pursuant to the settlement agreement dated 15 September 2012.

1. Costs of the notice of motion will be the first defendant's costs in the proceedings.

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Decision last updated: 06 February 2013