Grain Technology Australia Limited v Rosewood Research Pty Ltd (No 5)

[2023] NSWSC 1141

Supreme Court

New South Wales

Medium Neutral Citation:

Grain Technology Australia Limited v Rosewood Research Pty Ltd (No 5) [2023] NSWSC 1141

Hearing dates:

15, 18 September 2023

Date of orders:

20 September 2023

Decision date:

20 September 2023

Jurisdiction:

Equity - Duty List

Before:

McGrath J

Decision:

See [70]

Catchwords:

CORPORATIONS — practice and procedure — application by Court Appointed Official Receiver and Manager (Receiver) for order that the receiver is justified in accepting terms of settlement contained in a Deed of Settlement and Release — where settlement involves dismissal of main proceedings and appeal proceedings — in circumstances where proceedings are complex, long running and hard fought involving mutual releases between the parties — HELD — Receiver justified in accepting the terms of settlement

Legislation Cited:

Corporations Act 2001 (Cth)

Court Suppression and Non-publication Orders Act 2010 (NSW)

Supreme Court Act 1970 (NSW)

Cases Cited:

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249

ANZ Banking Group Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344

Application of Macedonian Orthodox Church St Petka Inc [2023] NSWSC 918

Coshott v Principal Strategic Options Pty Ltd [2004] FCAFC 50

Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 2) [2019] NSWSC 1744

Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3) [2023] NSWSC 238

Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 4) [2023] NSWSC 822

Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368

In the matter of Gondon Five Pty Limited and Cui Family Asset Management Pty Limited [2019] NSWSC 469

Karam v ANZ Banking Group Ltd [2001] NSWSC 709

Mariconte v Batiste (2000) 48 NSWLR 724; [2000] NSWSC 288

Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465; [1987] FCA 479

Shanmugathaas & Anor v Paramanirupan & Ors [2019] NSWSC 1219

Southern Cross Community Healthcare Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1317

Warburton v County Construction (NSW) Pty Ltd [2022] NSWSC 941

Category:

Principal judgment

Parties:

Grain Technology Australia (ACN 160 044 502) (First Plaintiff)
Raymond Bruce Schwartz (Second Plaintiff)
Manildra Flour Mills Pty Ltd (Third Plaintiff)
Bakers Delight Holdings Ltd (ACN 052 528 202) (Fourth Plaintiff)
Rosewood Research Pty Ltd (Official Receiver and Manager Appointed) (ACN 071 129 943) (First Defendant)
Pathway Properties Pty Ltd (Official Receiver and Manager Appointed) (ACN 119 758 879) (Second Defendant)
Asia Pacific Technologies Pty Ltd (Official Receiver and Manager Appointed) (ACN 084 151 048) (Third Defendant)
Attorney General of NSW (Fourth Defendant)

Representation:

Counsel:
L Menzies (Plaintiffs)
P Taylor SC with D Barlin (Court Appointed Official Receiver and Manager of the First to Third Defendants)
A J Macauley (Former Fourth to Sixth Defendants)

Solicitors:
Prolegis Lawyers (Plaintiffs)
Pointon Partners Sydney Pty Ltd (Court Appointed Official Receiver and Manager of the First to Third Defendants)
Gillard Consulting Lawyers (Former Fourth to Sixth Defendants)

File Number(s):

2013/00152562

Publication restriction:

Nil

JUDGMENT

INTRODUCTION

1. Jamieson Andre Louttit, the Court Appointed Official Receiver and Manager of the first to third defendants (Receiver), has brought this application by amended notice of motion filed 18 September 2023 in which he primarily seeks a direction from the court that as receiver, he would be justified in accepting terms of settlement to dispose of these proceedings (Main Proceedings) and proceedings which have been commenced but not yet heard in the Court of Appeal of this court (Appeal Proceedings).

2. The Main Proceedings were commenced in 2013.

3. In the Main Proceedings, the first defendant is Rosewood Research Pty Limited (Official Receiver and Manager Appointed), the second defendant is Pathway Properties Pty Limited (Official Receiver and Manager Appointed) and the third defendant is Asia Pacific Technologies Pty Limited (Official Receiver and Manager Appointed). Pathway and Asia Pacific are each wholly subsidiaries of Rosewood. In this judgment, Rosewood, Pathway and Asia Pacific are together referred to as the Rosewood Companies.

4. Rosewood was originally known as The Bread Institute of New South Wales Limited and then later changed its name to The Bread Institute of Australia Limited.

5. On 26 September 2014, the Receiver was appointed until further order as the receiver and manager of all of the property and undertaking of each of the Rosewood Companies by order of this court pursuant to s 67 of the Supreme Court Act 1970 (NSW). On that date, a further order was made that the Receiver may apply to the court for directions as and when the Receiver considers appropriate.

6. The other parties to the Main Proceedings are:

1. the first plaintiff, Grain Technology Australia Limited;

2. the second plaintiff, Raymond Bruce Schwartz;

3. the third plaintiff, Manildra Flour Mills Pty Ltd;

4. the fourth plaintiff, Bakers Delight Holdings Ltd; and

5. the fourth defendant (originally the seventh defendant), the Attorney General of New South Wales.

7. In this judgment, I will refer to Grain Technology, Mr Schwartz, Manildra and Bakers as the plaintiffs.

8. Originally, there were three further defendants in the Main Proceedings, who were Graham McMaster, Allan Murphy and Laurance Gullick, formerly the fourth, fifth, and sixth defendants respectively. Mr McMaster, Mr Murphy and Mr Gullick were the directors of Rosewood (Director Defendants).

9. In very general terms, in the Main Proceedings, the plaintiffs sought orders that the Rosewood Companies held their assets on trust for charitable purposes, broadly said to involve research and development to aid the manufacture of bread and related products. The Attorney is a party to, and authorises, the Main Proceedings because they concern an alleged charitable trust. In the Main Proceedings, there were also claims made against the Director Defendants for compensation for alleged breaches of trust by them.

10. The Rosewood Companies also brought a cross-claim in the Main Proceedings against the Attorney and the Director Defendants which sought similar orders to those which were sought by the plaintiffs in the Main Proceedings.

11. The main asset which is held by the Rosewood Companies is a commercial property at North Ryde, the equity in which is valued at about $40 million.

12. The application by the Receiver came before me on an urgent basis as Duty Judge on the afternoon of Friday, 15 September 2023, at which time there was only an appearance on behalf of the Receiver, who was represented by counsel, Mr P Taylor SC with Mr D Barlin. Mr Taylor SC appeared by telephone and Mr Barlin was present in person. At that time, the Receiver moved on a notice of motion filed 15 September 2023 which sought an order that the Receiver is justified to accept terms of settlement comprised in letters dated 17 August 2023 and 11 September 2023 from the plaintiffs’ solicitors.

13. At the hearing on 15 September 2023, I received evidence from the Receiver and heard submissions on his behalf, during which it became clear that the issues were sufficiently complex that the application in the notice of motion filed 15 September 2023 should be stood over for further hearing on Monday, 18 September 2023. I was also concerned that the other parties to the proceedings should be served with the notice of motion and supporting affidavit material so that they could have an opportunity to decide whether they wished to appear at the resumption of the hearing on 18 September 2023.

14. When the hearing resumed on 18 September 2023, in addition to the Receiver (for whom Mr Barlin appeared as counsel), the plaintiffs appeared by their counsel, Mr L Menzies, and the Director Defendants also appeared by their counsel, Mr A Macauley.

15. At that hearing, I was informed that the parties had held further negotiations over the weekend of 16-17 September 2023 and now wished to proceed with a different form of settlement between them, being that which was attached to the amended notice of motion filed 18 September 2023 (Draft Deed).

16. The plaintiffs and the Director Defendants indicated that they wished to enter into a settlement with the Receiver on behalf of the Rosewood Companies on the terms contained in the Draft Deed. I also heard further submissions on behalf of the Receiver which addressed the differences between the previous proposed settlement and the settlement comprised in the Draft Deed.

EVIDENCE

17. The Receiver relied on the following evidence:

1. affidavit of Jamieson Louttit sworn 14 September 2023 and the exhibit to that affidavit;

2. confidential affidavit of Jamieson Louttit sworn 14 September 2023 and the confidential exhibit to that affidavit (being the written advice of counsel for the Rosewood Companies on the proposed settlement); and

3. affidavit of Simon Della Marta sworn 15 September 2023.

18. At the hearing on 15 September 2023, I made an order under ss 7 and 8 of the Court Suppression and Non-publication Orders Act 2010 (NSW) that there should be a permanent prohibition on the publication of the confidential affidavit of Jamieson Louttit sworn 14 September 2023 and the confidential exhibit to that affidavit, to apply throughout the Commonwealth of Australia.

SALIENT FACTS

19. On 16 May 2013, the Main Proceedings were commenced by the plaintiffs against the Rosewood Companies, the Director Defendants and the Attorney.

20. On 24 May 2013, the plaintiffs gave the usual undertaking as to damages to the court in support of the undertakings of the Rosewood Companies to refrain from dealing with their assets (Plaintiffs’ 2013 Damages Undertaking).

21. The Main Proceedings had a prolonged mediation in 2015 and 2016, which ultimately resulted in the resolution of some (but not all) of the claims made in them. Those claims which were resolved were done so on the terms of a Deed of Settlement and Release dated 19 August 2019 between the plaintiffs, the Rosewood Companies, the Director Defendants and the Attorney (2019 Deed).

22. In summary, the terms of the 2019 Deed provided that:

1. clause 2.2: the parties provided a series of releases to each other, including mutual releases between the plaintiffs and the Rosewood Companies and the Receiver of “all debts (presently owing or not yet fallen due) and any Claim existing or arising for past or future costs in connection with the Main Proceedings” and the plaintiffs’ qualified release (“subject to clause 2.4”) of the Rosewood Companies, the Receiver and the Attorney from “all debts (presently owing or not yet fallen due) and any Claims in connection with relief claimed and the matters pleaded in the Second Further Amended Statement of Claim” in the Main Proceedings;

2. clause 2.4: the Rosewood Companies, the Receiver and the Attorney took over the Main Proceedings by continuing the cross-claim to hearing seeking agreed declarations as to the terms of the charitable trust in short minutes of order attached to the 2019 Deed, with the plaintiffs continuing as parties in the Main Proceedings at their own cost, to which the Rosewood Companies, the Receiver and the Attorney did not consent and foreshadowed an application against the plaintiffs for indemnity costs in the event and to the extent that the plaintiffs’ participation resulted in additional costs to the Rosewood Companies, the Receiver and the Attorney in the conduct of the Main Proceedings;

3. clause 4.1: contained mutual releases of the plaintiffs and the Director Defendants, including the plaintiffs’ release of the Director Defendants from all claims and costs liability in connection with the subject matter of the Main Proceedings, and the Director Defendants’ release of the plaintiffs from any claim for past or future costs in connection with the Main Proceedings;

4. clause 4.2: contained the plaintiffs’ release of the Attorney from any claims for past or future costs in connection with the Main Proceedings; and

5. clause 4.3: the plaintiffs’ claims against the Director Defendants were discontinued and the Director Defendants removed as parties to the Main Proceedings.

23. The Receiver sought orders from the court that he was justified in entering into the 2019 Deed. Parker J made those orders for the reasons set out in Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 2) [2019] NSWSC 1744 (Grain Technology (No 2)).

24. The prosecution of the cross-claim in the Main Proceedings by the Rosewood Companies against the Attorney then continued, with the hearing occurring in March 2022, further written submissions being made in April 2022, and a lengthy judgment delivered by Parker J on 17 March 2023: Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3) [2023] NSWSC 238 (March 2023 Judgment).

25. The March 2023 Judgment contains a comprehensive recitation of the facts which form the background to the disputes which led to the Main Proceedings. Time does not permit me to set out those facts but I gratefully adopt them for the purposes of this judgment.

26. In the March 2023 Judgment at [421]-[423], Parker J held that the Rosewood Companies did not hold their assets on the terms of a charitable trust and provided the parties with an opportunity to consider what other orders should be made.

27. On 3 May 2023, the plaintiffs filed an application by notice of motion seeking an order for specific performance of a “restructure agreement” alleged to arise from the terms of the 2019 Deed (Restructure Application).

28. On 19 May 2023, Parker J made orders arising as a consequence of the March 2023 Judgment and for the dismissal of the Restructure Application (May 2023 Orders). The reasons for the dismissal of the Restructure Application were contained in a judgment delivered by Parker J on 13 July 2023: Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 4) [2023] NSWSC 822 (July 2023 Judgment).

29. In summary, the May 2023 Orders included the following:

1. dismissal of the Restructure Application;

2. order the plaintiffs to pay the costs of the Rosewood Companies, the Receiver and the Director Defendants of the Restructure Application;

3. order that the claim for relief in paragraph 4 of the Third Further Amended Statement of Claim be dismissed;

4. order that the undertakings to the court made by the Rosewood Companies, the Receiver and the Director Defendants restraining the use of the assets of the Rosewood Companies be released;

5. order that all orders made against the Rosewood Companies, the Receiver and the Director Defendants restraining the use of the assets of any of the Rosewood Companies be released;

6. order that the appointment of the Receiver be terminated;

7. order that any other orders for costs between the parties be reserved;

8. reserve leave for any party to make an application for costs after 24 July 2023;

9. upon the plaintiffs giving the usual undertaking as to damages, stay orders (4), (5) and (6) for 28 days and if the plaintiffs appeal the March 2023 Judgment or the May 2023 Orders, the stay will extend until the determination of the Appeal Proceedings or further order of the Court of Appeal; and

10. note the continuation of the Plaintiffs’ 2013 Damages Undertaking.

30. On 16 June 2023, the plaintiffs filed a notice of appeal commencing the Appeal Proceedings against the Rosewood Companies, the Director Defendants and the Attorney. Amongst the orders sought in the Appeal Proceedings are a declaration that Rosewood held all of its assets upon a charitable trust and, further or alternatively, a declaration that under the 2019 Deed, the Rosewood Companies are obligated to do all things reasonably necessary to achieve a restructure appointing a new trustee for a charitable trust over Rosewood’s assets having trust purposes.

31. On 17 August 2023, the plaintiffs served a Calderbank offer letter (Calderbank Offer) on all parties to the Main Proceedings and the Appeal Proceedings, the effect of which was:

1. all parties to the Main Proceedings and the Appeal Proceedings and the Receiver be released from and release the other parties and any other person or entity from, “any and all actions, suits, causes of action, claims, demands, liability for damages or compensation, costs and expenses (legal and otherwise) arising in connection with the matters that are the subject of the Main Proceedings or the Appeal Proceedings”;

2. the Rosewood Companies be released from their undertakings in the 24 May 2013 orders, the stay of the May 2023 Orders be lifted for the termination of the Receiver’s appointment, and the plaintiffs be released from all undertakings as to damages given in the Main Proceedings or the Appeal Proceedings;

3. dismissal of the Main Proceedings and the Appeal Proceedings; and

4. each party bear their own costs of the Main Proceedings and the Appeal Proceedings;

32. The Calderbank Offer was conditional upon acceptance by all parties. The Calderbank Offer was originally set to expire on 14 September 2023 but the plaintiffs gave an extension of time for acceptance until 18 September 2023, with a proposed deed incorporating the Calderbank Offer having been provided to all parties.

33. The Receiver sought a number of clarifications of the Calderbank Offer from the plaintiffs, which were then given.

34. The Director Defendants wished to accept the Calderbank Offer.

35. The Attorney indicated that he would accept the Calderbank Offer if all of the other parties wished to accept the Calderbank Offer.

36. The parties then agreed on a settlement encompassed in the Draft Deed. The principal operative provisions of the Draft Deed provide:

1. clause 1: the release and discharge by all parties of all other parties from “any and all actions, suits, causes of action, claims, demands, liability for damages or compensation, costs and expenses (legal and otherwise) arising out of or in connection with, or in any way relating to:

1. the Main Proceedings and/or the subject matter of the Main Proceedings;

2. the Appeal Proceedings and/or the subject matter of the Appeal Proceedings;

3. any undertakings as to damages given in respect of the Main Proceedings and/or the Appeal Proceedings; and

4. the costs of the Main proceedings and the Appeal Proceedings”.

2. clause 5: the consent to short minutes of order in the Main Proceedings and the Appeal Proceedings, the substantive effect of which is to:

1. in the Main Proceedings: lift the stays in the May 2023 Orders, vacate the costs orders made in the May 2023 Orders, release the plaintiffs from the undertaking as to damages in the May 2023 Orders, release the plaintiffs from the Plaintiffs’ 2013 Damages Undertaking, otherwise dismiss the Main Proceedings and there is no order as to costs between the parties to the intent that each pays their own costs; and

2. in the Appeal Proceedings: vacate the hearing of the appeal on 30 November 2023 and 1 December 2023 and dismiss the Appeal Proceedings with no order as to costs.

LEGAL PRINCIPLES

37. The legal principles concerning the giving of directions to a court appointed receiver are not in dispute. In Mariconte v Batiste (2000) 48 NSWLR 724; [2000] NSWSC 288 at [74]-[76], Austin J said:

74   Case law on the position of a court-appointed receiver gives only limited guidance as to the circumstances in which it is appropriate for the Court to give directions with respect to the execution of the receiver's responsibilities. There is, of course, a great deal of case law with respect to judicial advice to a trustee. Some of it is no doubt applicable to the position of a receiver. For example, in Re I00F Australian Trustees Ltd [1999] SASC 461 Debelle J drew attention to the distinction between ruling as to the propriety of the trustee's contemplated exercise of discretion, and ruling as to the wisdom of such exercise. That distinction must be borne in mind, in my opinion, in the present circumstances.

75   The position of a court-appointed receiver was explored by Young J in Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (Supreme Court of New South Wales, 30 April 1998, unreported). His Honour referred to English authority to the effect that receivers are like officers of the Court, and he cited with approval some observations in Davis v Gray (1872) 83 US 203, 217-218 which described a receiver as 'virtually a representative of the Court, and of all the parties in interest in the litigation wherein he is appointed'. That being so, in my opinion the Court's power to make an interlocutory order for the appointment of a receiver under the Supreme Court Act, 1970 (NSW) must carry with it the implied power to give directions with respect to the discharge of the functions for which the appointment is made - at any rate, where (as here) such directions are necessary in a practical sense to enable the receiver to carry out those functions without exposing himself to a real risk of litigation. The power to do so is reinforced by s 23 of the Supreme Court Act.

76   Where a receiver is appointed under statutory provisions, the function of the Court on an application for directions is analogous to its function with respect to a provisional liquidator: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115; Law Society of New South Wales v Milios (1999) 33 ACSR 396. In performing that function, it is appropriate for the Court to give directions in order to provide guidance to the receiver, not only on matters of law but also on the propriety or reasonableness of the contemplated exercise of discretion.

38. These principles have been cited with approval In the matter of Gondon Five Pty Limited and Cui Family Asset Management Pty Limited [2019] NSWSC 469 at [88], Shanmugathaas & Anor v Paramanirupan & Ors [2019] NSWSC 1219 at [38], and Grain Technology (No 2) at [12]-[13] and [20].

39. A similar power is provided in s 424(1) of the Corporations Act 2001 (Cth) on application by a receiver. The same considerations arise for the court in exercise of that statutory power.

40. It must be emphasised that in the exercise of these powers, the court is not supplanting a particular commercial judgement by the Receiver and it does not constitute the court’s approval of the settlement: see Grain Technology (No 2) at [20]-[27].

41. As recognised in these authorities, the position of the court in giving directions to a court appointed receiver is analogous to that of the court in giving judicial advice to trustees. In that context, in relation to a trustee obtaining judicial advice on the settlement of proceedings, in Application of Macedonian Orthodox Church St Petka Inc [2023] NSWSC 918, Meek J said at [51]-[57]:

51   The question of whether proceedings may be appropriately settled is a well-recognised category of judicial advice.

52   Mr Walker, in his detailed and helpful submissions, drew my attention to the decision of Sackar J in Robert Peter Campbell ATF the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust [2016] NSWSC 1751.

53   His Honour there considered whether the trustee was justified in settling proceedings commenced by him on terms contained in a deed of settlement.

54 Sackar J noted that while there is a distinction between questions as to whether, on the one hand, it is in the best interests for the trust estate for litigation to be conducted and, on the other hand, whether the trustee should be entitled to indemnity out of the trust property for its reasonable costs of litigation, the two questions are interrelated: at [34].

55   In addressing questions regarding settlement of litigation, Sackar J drew upon the decision of Palmer J in Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247. Palmer J there addressed the issue as to whether a trustee was justified in proceeding with litigation.

56   The considerations referred to by Palmer J which were cited by his Honour included the following matters (at [35]):

(1)   the nature of the case and the issues raised;

(2)   the amounts involved, including likely costs;

(3)   whether the likely costs to be incurred by the trustee are proportionate to the issues and the significance of the case;

(4)   the consequences of the litigation to the parties concerned; and

(5)   in the case of a charitable trust, any relevant public interest matters.

57   Clearly, those matters and other matters are also applicable to the question of whether a trustee ought to be advised that the trustee is justified in settling litigation. I accept the submissions of Mr Walker in this regard.

DETERMINATION OF APPLICATION

42. I turn now to apply these principles to the present case. In doing so, I have read and considered the confidential written advice of counsel for the Rosewood Companies, which comprehensively analyses the various issues to be considered by the Receiver in determining whether to enter into the Draft Deed on behalf of the Rosewood Companies.

43. The Main Proceedings which are the subject of the Draft Deed are complex, long running and hard fought disputes involving a valuable commercial property worth in excess of $40 million. The March 2023 Judgment runs to 424 paragraphs and the July 2023 Judgment runs to 104 paragraphs. They involve facts dating back to 1948. The Main Proceedings have been running for in excess of 10 years. The mediation of the disputes which gave rise to the Main Proceedings took nearly 4 years until a resolution of most (but not all) of the issues in the 2019 Deed.

44. Although I have no direct evidence of the costs, I am not in any doubt that the Main Proceedings have been very costly to all parties.

45. The issues which have been raised in the Appeal Proceedings canvas those which were dealt with in the March 2023 Judgment, the May 2023 Orders and the July 2023 Judgment. Again, although I do not have any direct evidence of the costs, I am satisfied that the Appeal Proceedings are also likely to be costly to all parties (although not nearly as much as the Main Proceedings).

46. While the Rosewood Companies currently have the benefit of the May 2023 Judgment, the May 2023 Orders and the July 2023 Judgment, on their face, the issues raised by the plaintiffs in the Appeal Proceedings are seriously arguable. Absent settlement of the Appeal Proceedings, there remains a risk that the plaintiffs would succeed in the Appeal Proceedings, with the result that the May 2023 Judgment, the May 2023 Orders and the July 2023 Judgment would be set aside.

47. Whether the Receiver would be justified in accepting the settlement contained in the Draft Deed involves a comparison between the position which will arise if the Draft Deed is executed by the Receiver, and the position which will arise if it is not.

Acceptance of the Draft Deed

48. The effect of the settlement proposed in the Draft Deed is that the parties mutually release each other from all claims (including for costs), each party will bear their own costs, and the Main Proceedings and the Appeal Proceedings will be dismissed.

49. But the 2019 Deed itself already contains mutual releases between the plaintiffs and the Rosewood Companies and the Receiver in respect of “any Claim …for past or future costs in connection with the Main Proceedings” (clauses 2.2(a) and (b)). The only exception to this was a foreshadowed claim for indemnity costs against the plaintiffs for “incurring additional costs” in the conduct of the Main Proceedings (clause 2.4(d)).

50. The general principles which apply to the construction of contractual releases were conveniently summarised in Karam v ANZ Banking Group Ltd [2001] NSWSC 709 at [406] by Santow J (appeal allowed on other issues: ANZ Banking Group Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344) as follows:

The principles applicable to construing releases or purported releases can conveniently be set out in a series of propositions:

(1)   In construing a release, here embodied in a letter of variation to the terms of lending, the Court should ascribe to the release the meaning that the release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time that they signed the document containing the release: ICS v West Bromwich BS [1998] 1 All ER 98 per Lord Hoffman at 114.

(2)   In order for the Court to give effect to what in an objective sense the contracting parties intended, it is clear that a party may agree to release claims or rights of which it is unaware and of which it could not be aware, provided clear language is used to make plain that that is its intention: see Salkeld v Vernon (1758) 1 Eden 64, 28 ER 608 per Lord Keeper Henley.

(3)   Consistent with this emphasis on intention, general words in a release are limited to what was specifically in the contemplation of the parties at the time when the release was given: Grant v John Grant and Sons (1954) 91 CLR 112 per Dixon CJ, Fullagar, Kitto and Taylor JJ; Iletrait Pty Ltd v McInnes (NSWCA, 17 April 1997, unreported) per Priestley JA with whom Grove AJA and Handley JA agreed).

(4)   Although there are no special rules of construction, such as a contra proferentem requirement, in the absence of clear language courts have been slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware: BCCL v Ali [2001] 1 All ER961 at 966 per Lord Bingham, (contrast Lord Nicholls in BCCL v Ali (supra) at 971-972 who was of the view that for the purposes of construction a general release is simply a term in the contract).

(5)   Although each release should be considered against its own matrix of facts, an example of this line of "cautionary principle" (Lord Bingham's phrase) is the frequently cited judgment of the High Court of Australia in Grant v John Grant & Sons Pty Ltd (supra), where Dixon CJ, Fullagar, Kitto and Taylor JJ (at 125) referred with approval to the proposition put by Sir Frederick Pollock in his "Principles of Contract" (Stevens: London, 1950) 13th ed at 412, that "in equity a release shall not be construed as applying to something of which the party executing it was ignorant."

(6)   Despite the fact that, strictly speaking, releases are subject to no special rules of construction, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features: BCCL v Ali at 984 per Lord Hoffman.

(7)   In such circumstances it may well be appropriate to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realises might not be known to the other party: BCCL v Ali at 984 per Lord Hoffman, for such an obligation is consistent with a concern to protect parties from sharp practice, by preventing advantage being taken of the known ignorance of the conceding party; BCCL v Ali per Lord Nicholls at 973. (The Bank made no such disclosure here.)

(8)   Most recently in this Court in Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd v CSR Ltd [2001] NSWSC 324, Bergin J adopted the principles of construction broadly as outlined above, including the "cautionary principle" and taking into account the purpose of the contract and the circumstances in which made.

51. These principles (2-5 and 8) were cited with approval by Black J in Warburton v County Construction (NSW) Pty Ltd [2022] NSWSC 941 at [130].

52. It is clear that the objective determination of the proper construction of the various releases in the 2019 Deed would focus on the plain words used in it.

53. In my view, any potential costs order in the Main Proceedings in favour of the plaintiffs against the Rosewood Companies or in favour of the Rosewood Companies against the plaintiffs is likely to be interpreted as a claim for past or future costs “in connection with the Main Proceedings” which was released in cll 2.2(a) and (b) of the 2019 Deed. The words “in connection with” are words of very wide operation and satisfied by subject matter association or relationship in the sense of “having to do with”, but always to be interpretated in the context in which they are used: see Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465; [1987] FCA 479 at 29-31; Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 at [169]-[173]; Southern Cross Community Healthcare Pty Ltd v Chief Commissioner of State Revenue [2021] NSWSC 1317 at [266].

54. There was clearly an intention in cll 2.2(a) and (b) of the 2019 Deed for the parties to give a wide release of any claim for costs that had already been incurred (“past costs”) as well as costs which had yet to be incurred (“future costs”).

55. Similarly, there is an available argument that any potential costs order in the Appeal Proceedings might also fall within the respective releases in cll 2.2(a) and (b) because they could potentially be classified as a claim for future costs in connection with the Main Proceedings. But such costs do not yet appear to have been incurred and will not be incurred if the Draft Deed is accepted by the Receiver.

56. Accordingly, the operation of cl 1 of the Draft Deed which contains the mutual releases of claims for costs arising out of or in connection with or in any way relating to the Main Proceedings and/or the subject matter of the Main Proceedings, the Appeal Proceedings and/or the subject matter of the Appeal Proceedings and the costs of the Main Proceedings and the Appeal Proceedings is very unlikely to release anything more than had already been released in the 2019 Deed. This means that the Rosewood Companies would not be giving up anything of particular value by agreeing to cl 1 of the Draft Deed insofar as it concerns claims for costs in the Main Proceedings and the Appeal Proceedings.

57. The only exception to this is the extent to which the Rosewood Companies could establish that they had a claim against the plaintiffs for “additional costs” in the conduct of the Main Proceedings, which would fall within cl 2.4(d) of the 2019 Deed. In my view, those costs would not be considered to form part of what was released by the Rosewood Companies in cl 2.2(b) of the 2019 Deed. I am, however, satisfied that identifying and quantifying such “additional costs” would be a problematic exercise in the scheme of this highly complex and long running litigation.

58. The costs of the Appeal Proceedings might be regarded as “additional costs” which the Rosewood Companies might seek to claim against the plaintiffs, but as they are not yet incurred, they are not a consideration in a scenario in which the Receiver accepts the Draft Deed.

59. Ultimately, it is a commercial matter for the Receiver to decide whether the pursuit of a claim for “additional costs” that have already been incurred would be a worthwhile exercise.

60. By entering into the Draft Deed, the Receiver is also agreeing to the release of the Plaintiffs’ 2013 Damages Undertaking, which was specifically continued in the May 2023 Orders. The general position is that the Rosewood Companies could enforce such an undertaking subject to the discretion of the court, the onus of proof for which would fall on the Rosewood Companies and the damages that might be recovered from the enforcement of it would be limited to loss which is the natural consequence of the interlocutory order: see Coshott v Principal Strategic Options Pty Ltd [2004] FCAFC 50 at [18], applying Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249.

61. An important matter to emphasise is that in the enforcement of the Plaintiffs’ 2013 Damages Undertaking, it would be necessary for the Rosewood Companies to demonstrate that they have suffered loss from the interlocutory injunction remaining in place (which would be recoverable) rather than as a consequence of the litigation itself (which would not be recoverable).

62. It is said by the Receiver that the Rosewood Companies have incurred additional interest of $300,000 for each 1% of any interest margin on liabilities of about $30 million as at 30 June 2020. The analysis of the additional interest costs would have to be carried out across more than 10 years since the Plaintiffs’ 2013 Damages Undertaking was given. The issue has some complexity because the Receiver was appointed in September 2014, more than a year after the Plaintiffs’ 2013 Damages Undertaking. I am satisfied that identifying and quantifying the interest costs from the appointment of the Receiver separately from the Plaintiffs’ 2013 Damages Undertaking would be a complex, costly, and uncertain exercise.

63. Any claim to enforce the Plaintiffs’ 2013 Damages Undertaking by the Rosewood Companies against the plaintiffs might also be defeated on the basis that it has already been released by the operation of cl 2.2(b) of the 2019 Deed. That provision contains a release by the Rosewood Companies in favour of the plaintiffs “from all debts (presently owing or not yet fallen due)”. I am satisfied that this potential argument adds to the uncertainty surrounding the enforcement of the Plaintiffs’ 2013 Damages Undertaking.

64. In any event, the exercise of identifying and quantifying such damages so as to decide whether it would be worthwhile seeking to enforce the Plaintiffs’ 2013 Damages Undertaking is a commercial consideration for the Receiver.

Rejection of the Draft Deed

65. The Receiver must also give careful thought to the likely outcome if the Rosewood Companies did not enter into the Draft Deed. There are several considerations which arise.

66. First, the Appeal Proceedings will continue, which means that the Rosewood Companies will have to incur the costs of them and (for the reasons already given above in relation to the releases in the 2019 Deed) they may be unlikely to recover those costs from the plaintiffs even if the Rosewood Companies succeed, unless they are considered to be “additional costs”. For the same reasons, if the plaintiffs succeed in the Appeal Proceedings, it is unlikely that the plaintiffs would be able to recover the costs of them from the Rosewood Companies.

67. Secondly, the continuation of the Appeal Proceedings means that the outcome of them will be uncertain until the Court of Appeal delivers judgment. The plaintiffs’ appeal is seriously arguable. If the Rosewood Companies were unsuccessful in the Appeal Proceedings, it would be adverse to their interests because there would be significant restrictions on their freedom to manage their affairs if they were subject to a charitable trust.

68. Thirdly, even if the Rosewood Companies succeed in the Appeal Proceedings, (for the reasons already given above) it is doubtful that they could enforce the Plaintiffs’ 2013 Damages Undertaking against the plaintiffs.

CONCLUSION

69. In my opinion, it is reasonable for the Receiver, acting with the benefit of professional advice concerning the settlement, to enter into the Draft Deed.

ORDERS

70. I make the following orders:

1. Direct that the receiver of the first, second and third defendants would be justified in accepting the terms of settlement with respect to these proceedings and the Court of Appeal proceedings number 2023/168743 in the Deed of Settlement and Release in the form attached to the amended notice of motion filed 18 September 2023.

2. The costs of the receiver of the first, second and third defendants of the notice of motion filed 15 September 2023 and the amended notice of motion filed 18 September 2023 be paid from the assets of the first, second and third defendants on an indemnity basis.

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Decision last updated: 20 September 2023