Deloitte Touche Tohmatsu & Ors v JP Morgan Portfolio Services Limited

[2007] HCATrans 481

[2007] HCATrans 481

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S216 of 2007

B e t w e e n -

DELOITTE TOUCHE TOHMATSU

First Applicant

MOXLABIA PTY LTD

Second Applicant

GREENWOOD CHALLONER & CO

Third Applicant

ALLAN MARTIN DELANEY

Fourth Applicant

AM DELANEY NOMINEES PTY LTD

Fifth Applicant

and

JP MORGAN PORTFOLIO SERVICES LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 31 AUGUST 2007, AT 9.57 AM

Copyright in the High Court of Australia

__________________

MR L.G. FOSTER, SC:   If the Court pleases, I appear for the applicants with MR A.P. SPENCER.  (instructed by Holding Redlich)

MR J.R. SACKAR, QC:   If the Court pleases, I appear for the respondent with MR J. STOLJAR.  (instructed by Clayton Utz Lawyers)

GLEESON CJ:   Yes, Mr Foster.

MR FOSTER:   Your Honours, this application raises the question as to whether or not this Court has yet decided that the principle in Glegg v Bromley, which has been approved on at least one occasion in this Court, is still good law.

GLEESON CJ:   What is the status of the question that agitated Justice Rares about whether there was a matter?  It does not seem to have been argued and I am not sure that it is relied on by the applicant.

MR FOSTER:   It is not relied on in that way, your Honour, but in a more general way I suppose it arises because the proposition that there is no controversy in the area of an abuse of process principle is relied upon and that is a distinguishing feature of this case, we would submit.  What actually happened here was this, that the company, which is the applicant in the proceedings below, was sold out of the ‑ ‑ ‑

GLEESON CJ:   I asked the Registry to mention to the parties that I have some shares in Westpac.

MR FOSTER:   It is not a problem for us, your Honour.  Was sold out of the BT Group and subsequently the businesses that were acquired, which are the subject of the litigation, were sold out of what remained and Westpac came in much later, years later, and acquired the holding company and the BT Group.  The foundation for the current conduct of this proceeding is the letter which is at 202 and 203 in the application book and your Honours will see between lines 34 and 40 some introductory material which suggests that this agreement or arrangement was struck in fulfilment of a prior agreement.  Insofar as it suggests that, that is incorrect and I will make that good in a moment.  So the first proposition is that this agreement itself or arrangement, if that is what it is, of 1 December 2004, has no antecedents upon which it can legitimately be founded.

GUMMOW J:   Do you disagree – I suppose you do – with the summation of the commercial situation at page 45 in the majority judgment, paragraphs 57 through to 61 of the judgment?

MR FOSTER:   Yes, your Honour, and we do for a number of reasons.  Could I take your Honours back to application book 38, paragraph 17 in the judgment at line 19.  Their Honours in the majority unfortunately misunderstood the transactional documents.  They have said there:

With a view to preserving the benefit of the present causes of action for the BT Group, the Share Sale Agreement provided that the Chase Manhattan Bank assigned –

et cetera.  It did not.  That finding or holding is fundamental to everything that follows in paragraphs 55 and following.  May I make good the proposition that I just put to your Honours by going to page 117 in the application book?  This is the clause 6.4 referred to in the judgments below.  This is the clause alleged to be the genesis of the 1 December 2004 agreement and if I may simply interpolate the definitions.

Subclause (a), “The Company Group”, is the applicant, which is JP Morgan Portfolio, et cetera, and certain named subsidiaries, “hereby assigns to the Seller Group”, that is, BT Australia Pty Limited and certain related companies of it, et cetera.  Now, their Honours seemed to think in the majority that this clause justified the finding at paragraph 17, that is, that Chase Manhattan Bank assigned something.  It did not.  While we are on 117, your Honours, the second clause or subclause (b) which is relied upon by the majority is also, with respect, to them misunderstood.

The “BT Companies”, as referred to in 6.4(b), are the four named companies that your Honours will see on page 103 of the application book, that is, numbers 1 to 4 so named.  What those companies are entitled to do is “to require the Bidder”, which is Chase Manhattan Bank, to do certain things in respect of – and this is important – “their rights”, that is, those companies rights under the transaction which took place involving my clients.  Then that sentiment is reflected in subclauses (c) and (d).

The important point is that not only did 6.4(a) fail as an assignment because the requisite parties were not party to this agreement, but (b) fails to effect any contractual right in favour of the BT companies relevantly concerning the subject matter of the litigation below because it is not their rights which are being litigated, it is the applicants’ rights.  Those matters were not understood, with respect to the Full Court, and what followed then was those series of findings at 55 and following. 

What we have, in effect, your Honours, is a company, Westpac, that has a passing connection with the BT – passing connection is a bit light, I suppose, but is the holding company of the BT Group as of 2002 but which had no prior connection with this litigation other than what arises out of this agreement at 2002‑2003, the letter agreement.  It is in no different position from a stranger to the litigation entirely.  The question arises, therefore, whether in that circumstance, it having acquired whatever it acquired under this letter agreement for nothing, nothing has been paid, it having acquired what is the fruits of the action with an associated contractual entitlement to control the litigation, whether that assignment of those fruits in those circumstances is something that the Court would consider to be an abuse?

GUMMOW J:   What is the abuse?

MR FOSTER:   It is utilising the court system to deal with a controversy which is not being truly agitated by the party entitled to bring it forward.

GUMMOW J:   Truly agitated?

MR FOSTER:   Truly agitated, yes, your Honour, because what happened here was, six years almost went by.  JP Morgan Portfolio Services, the applicant below, never brought any action.  There is a finding below which is confirmed by the Full Court that it did not intend to do so and just before the expiry of the limitation period, Westpac, because of its relatively recent interest in the Group at the top level, enters into this arrangement of 1 December 2004.  The abuse is, to do so in circumstances where the total control of the action is in the hands of a person or corporation that has no interest in it beyond that which was acquired under the litigation agreement.

The fact that the entire fruits of action are to be transferred across, if there are any, the fact that that is to happen in circumstances where the so‑called safeguards, the watching brief, the mediation clause, are elusory or window‑dressing – and I put that because the watching brief gives no power to the solicitors watching, and the mediation arrangement is simply one that calls for the existence of a mediation but does not provide for any consequences – all of this occurs when Westpac comes to a litigant who does not want to litigate and who, in effect, has pretty much abandoned the capacity or right or entitlement to litigate.  Now, your Honours, the Glegg v Bromley principle was cited with approval in this Court ‑ ‑ ‑

GUMMOW J:   What do you mean by the Glegg v Bromley principle?

MR FOSTER:   It is this, your Honour, a party may assign the fruits of an action in circumstances where the underlying causes of action are bare causes of action with no associated property or contractual right but may not do so if, associated with that assignment, there is a passing across of control of what is to occur in the litigation.  In other words, in circumstances where control plus assignment of fruits occur, the courts have looked askance upon that. 

Now, this Court in Fostif was looking at a different set of circumstances, was looking at a litigation funding agreement where one had a litigant that was prepared to litigate and interested in litigating and was looking at that in circumstances where not the entire product of the litigation was assigned.  So the question that, we submit, arises is the one that I put to your Honours.  May I simply give your Honours a reference to Cummings v Claremont Petroleum 185 CLR 124 and just read to your Honours from 145. It is in a different context ‑ ‑ ‑

GUMMOW J:   A very different context.

MR FOSTER:   I understand that, your Honour, and it is accepted, but I only seek to get from it what I am about to read.  It is the middle of pages 145:

the fruits of litigation, when recovered, may be assigned provided that the assignee’s purpose is not to engage or participate in the conduct of proceedings.

Glegg v Bromley is cited as support for that.  So, your Honours, in our submission, there is a matter, as identified in the submission, which has not been covered by Fostif and with which this Court should deal, with respect, and that is the question of whether or not these principles relating to assignments still exist or whether Fostif has swept all that away.

GLEESON CJ:   Is the vice in this arrangement, as you identify it, the absence of retention of control by JP Morgan Portfolio Services?

MR FOSTER:   Part of it.  It is only part of it, though, because we have to accept that the question of control was addressed in Fostif.  It is a combination of factors, your Honour.  One is the fundamental one that the litigant who had the cause of action chose not to exercise it, was not prepared to exercise it and so found below.  Secondly, that control has been seeded and, although it is subject to what we would call window‑dressing constraints in the 1 December letter, it nonetheless has been seeded and, thirdly, the entire fruits of action have been assigned.  So that what one has is a combination of circumstances.  If they do not constitute an abuse in this area, then the principles of assignment which I have put to your Honours, founded on Glegg v Bromley, cited with approval in Cummings, seem to have gone perhaps without the question ‑ ‑ ‑

GUMMOW J:   Without a decent funeral.

MR FOSTER:   Without a decent funeral, yes, your Honour.  Those are our submissions, your Honours.

GLEESON CJ:   Thank you, Mr Foster.  Yes, Mr Sackar.

MR SACKAR:   It may be accepted for the purposes of the argument that the precise nature of the sale agreement may have been in part misconstrued by the Full Court.  What they looked at here, though, was and his Honour Justice Wilcox looked at what they said was the economic reality.  Can I take your Honours in the first instance to page 18 of the application book and at about line 52 or 53 Justice Wilcox said:

The economic reality is that the applicant’s right of action against the respondents, for whatever it may be wroth in dollar terms, came into existence as an asset of BT Australia, the then owner of the applicant.  An agreement was made to sell the applicant company, but not its interest in the right of action –

One thing that is made clear in the sale agreement is that the NRS business, which was the business acquired, was excluded or excluded business from the point of view of the sale.  We know the purported assignment was invalid.  However, his Honour goes on:

It was intended that this interest would remain an asset of the BT group of companies.  That group is now owned by Westpac.

Stopping there, the Full Court picked up this notion of economic reality at page 45, paragraph 59.  They simply repeat what Justice Wilcox had said, but they go on to say:

That is the economic and commercial reality.  It was always intended that the cause of action would remain –

and so on.  One thing that was also intended by the sale agreement, although, as my learned friend points out, in part misconstrued by the Full Court, was who could oblige Chase to pursue the action.  But one thing is plain in terms of just looking at contractual intention at least.  If your Honours would go to page 117, clause 6.4(b), “The BT Companies” – that is not a defined term as is the company group, the seller group and the bidder – which were the companies described as such at page 103, they were the companies who entered into the sale agreement with Chase, retained at their election the right to require the bidder, Chase, to pursue this cause of action.

The letter agreement of December, again, even assuming it is not strictly in accordance with the precise interpretation or proper construction of the sale agreement, it is plain and obvious that Chase is prepared to facilitate the prosecution of this claim and this claim is an arguable cause of action.  There has been no attempt to strike it out as being inarguable in any General Steel sense.  It asserts, correctly, that the plaintiff, then BT Portfolio Service and now JP, either alleges a breach of contract or seeks to call in aid certain misrepresentations.  It is also plain and obvious that the economic reverberations, according to the economic reality, were in fact that of the BT Group, now owned by Westpac.

Even at that general level we say there is no abuse because if the basal question is, what is the tendency to corrupt, and if Fostif stands for the proposition that one has to look at that question, then the objective of a person seeking an extraordinary remedy such as a stay has to point to what the likelihood of corruption is and we say, after Fostif, it can no longer be pointed to as merely an attempt to assign a bare cause of action.  One has to see what the funder is doing, and we know what the funder is doing in this case.  First of all, the Full Court correctly recorded that the funder – if your Honours go to page 40, paragraph 29:

on 21 March 2005, about three months after the commencement of the proceedings, the solicitors on the record wrote to the respondent’s solicitors stating that Westpac considered itself bound by the ordinary obligations on litigants, including:

·… an obligation to abide by the implied undertakings . . . 

·an obligation to discover any discoverable documents in its possession –

When one looks at the facilitation arrangements in the letter agreement, it is true that absolute control vest in Westpac but we say, with respect, that that issue, whilst relevant, cannot determine whether there is an abuse of process.  Even if it be argued that even at a general level there is no commercial interest and Westpac stands simply in the shoes of a funder third party, we say, with respect, that in and of itself does not point to corruption or tendency to corrupt. 

It is plain and obvious here, we say, with respect, that the BT group of companies, one member of which paid over moneys for a business that it now asserts via Westpac’s urging, I accept, led to losses being incurred, with great respect, again does not point, on any view of it, to an abuse of process.  We say, with respect, that the discretions exercised by Justice Wilcox and the Full Court majority were correct and there has been no error that would invite your Honours to interfere.

GLEESON CJ:   Thank you, Mr Sackar.  Yes, Mr Foster.

MR FOSTER:   Your Honours, the finding that I took the Court to at page 38 is the source of the other findings at page 45 following.  May I quickly point out what the error has done to their Honours’ reasons.  At paragraph 57, line 40 on page 45 of the application book their Honours hold:

The benefit of the cause of action was retained within the BT group when it sold its shares in JP Morgan –

That is not so because the assignment was invalid and subclause (b) simply did not deal with JP Morgan PSL’s rights.  Paragraph 58, infected with the same problem.  Then we get into this loose reasoning, “economic and commercial reality”, ignoring what the precise legal state of affairs was.  That continues on into the next several paragraphs.  What has really happened here is that we have starkly thrown up the company being sold out of the BT Group, the businesses being sold out of the BT Group, Westpac coming along later entering into an arrangement without consideration which itself is void as against public policy and seeking to rely upon the earlier agreement in a way that the earlier agreement does not permit.  So the propositions that I put to your Honours as to what the abuse was really are very strongly and starkly made out.

GLEESON CJ:   What was the commercial explanation of the plaintiff’s willingness to enter into the arrangement?

MR FOSTER:   No doubt, your Honour, but there had been a previous transaction.

GLEESON CJ:   Does that mean that paragraph 57 would have been accurate if it had said it was the intention of the parties to the transaction that the benefit of the cause of action would be retained within the BT Group?

MR FOSTER:   Not necessarily, your Honour.  It may simply mean that, as at December 2004, JP Morgan, which had merged with Chase Manhattan, had no interest in taking a position which was other than one which allowed Westpac to do what it wanted.  There is no evidence as to what occurred behind the 1 December letter.  It was just the letter.  Those are our submissions in reply.

GLEESON CJ:   We are of the view that, even if the applicant’s complaints as to a misunderstanding by the majority of the Full Court concerning the relevant documents were substantiated, there would still be insufficient prospects of success on the issues of principle regarding abuse of process which is said to arise to warrant a grant of special leave and the application is dismissed with costs.

AT 10.21 AM THE MATTER WAS CONCLUDED