International Litigation Partners Pte Ltd v Chameleon Mining Nl (Receivers and Managers Appointed)

[2011] HCATrans 296

[2011] HCATrans 296

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S232 of 2011

B e t w e e n -

INTERNATIONAL LITIGATION PARTNERS PTE LTD

Applicant

and

CHAMELEON MINING NL (RECEIVERS AND MANAGERS APPOINTED)

First Respondent

CAPE LAMBERT RESOURCES LIMITED

Second Respondent

ANDREW HUGH JENNER WILY

Third Respondent

DAVID ANTHONY HURST

Fourth Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 28 OCTOBER 2011, AT 9.31 AM

Copyright in the High Court of Australia

____________________

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MS R.C.A. HIGGINS, for the applicant.  (instructed by Blake Dawson)

MR F.M. DOUGLAS QC:   May it please the Court, I appear with my learned friend, MR M. JONES, SC, for the first respondent.  (instructed by Swaab Attorneys)

MR C.R.C. NEWLINDS, SC:   If your Honour pleases, I appear with my learned friend, MR J.C. GILES, for the second respondent.  (instructed by Lavan Legal)

GUMMOW J:   Thank you.  There is a submitting appearance for the receivers, the third and fourth respondents.  Yes, Mr Walker.

MR WALKER:   May it please your Honours, this application brings for the possible attention of the Court important legislation which displays, we submit, in an important fashion, a technique of drafting that this Court might usefully give its attention to.  As I mention that technique of drafting I am conscious, as your Honours must be from the material in writing, that the technique in question, including its very considerable cross‑referencing and the piling of exceptions upon exceptions, it is either my most attractive or least attractive point.

The point of public importance is that this is an approach to legislative drafting which is not adventitious or unique.  It is a deliberate choice, as you would have seen from the judgments below, as to the way in which the legislature in combination, as experience is had with the Executive through delegated legislation, sorts out, in this case, those kinds of financial products where a licence is necessary so as, in the absence of a licence, to bring about such drastic consequences as the statutory rescission that occurred in this case. 

The definition of “financial product”, merely as a matter of English, bespeaks the importance and breadth of the subject matter that this curious legislative sifting has been attached to.  But the statutory definition of “financial product”, if I may start with that so as to show your Honours the way in which the issues we seek to ventilate in this Court fall out starts in the bundle we have provided at page 33 in section 763A.

It includes, in paragraph (1)(b), that which was germane to this case, the notion of managing financial risk.  That is the issue upon which there was unanimity in the reasons of the court below, and it is the one that we have placed first in our list of special leave points for this Court.  Your Honours will notice that the subsection has effect “subject to section 763E”.  Before I go there may I, however, go to one of the embedded and cross‑referenced definitions, 763C on page 35, which perhaps not entirely helpfully prescribes what it means for a person to manage financial risk:

a person manages financial risk if they:

(a)manage the financial consequences to them of particular circumstances happening; or

(b)avoid or limit the financial consequences of fluctuations in, or in the value of, receipts or costs (including prices and interest rates).

Hedging is the first and obvious city commercial transaction that might come to your Honours’ attention, but the generality, obviously, will encompass greatly more than that.  The notes in particular include insurance, as you will see.  Note 2, by way of an example that would not fit, is employing a security firm, that is the physical guarding against loss by theft.  Now, if I can then take your Honours to where the definition requires one to go, and that is to section 763E on page 35, and I stress the main definition is subject to this:

If:

(a)something (the incidental product) that, but for this section, would be a financial product because of this Subdivision is:

(i)an incidental component of a facility that also has other components . . . 

(b)it is reasonable to assume that the main purpose of ‑

a facility referred to in (a)(i) –

when considered as a whole . . . 

is not a financial product purpose;

the incidental product is not a financial product because of this Subdivision (however, it may still be a financial product because of Subdivision C) -

which, handily on the next page, you see is what is called “Specific inclusions”.  So we have started the general definition, we have an exception and we have an exception to the exception, which is, as it were, a re‑inclusion from, prima facie, exclusion.  

The incidental question was one upon which the court below divided and our position can be stated as simply as this.  However one characterises the suite of arrangements between the parties, they were plainly entered for a purpose which must be regarded as main, namely to enable litigation to continue, the initial funding coming from us rather than from our client.  So it was the continuation of litigation which itself was for the purposes of financial gain, the consideration being the manner in which that financial gain, if it were obtained, would be shared.

If we are right in the arguments that were proposed below, and which do not seem to have suffered rejection below, if that be a proper characterisation then it would not be a financial product and the risk management aspects or components, particularly as identified by Justice Giles and Justice Young, are, we submit, plainly incidental.  The main object was to allow the litigation to go forward without the moving party putting hands in the pocket any further. 

The terms which are said to be those for managing risk are obviously incidental or ancillary to, though no doubt integral as a component of a facility that had that main purpose.  In our submission, on that second argument of “incidental”, the reasoning of Justice Hodgson has a great deal to commend it, for the reasons we have put in writing, and it raises a very important question about the style of drafting that one sees at 763E(1)(b) - may I focus on that expression first?

You see that the characteristic or aspect of the facility which triggers this exclusion is that it is reasonable to assume that the main purpose “is not a financial product purpose”.  They are difficult words.  They are words with which the Court of Appeal, with great respect, had difficulty, at least as displayed by the disparity of outcome and reasoning.  It is odd to find the word “assume” in a statutory provision which has called of course for acute legal analysis and the affixing of legal labels by way of characterising transactions.  That is ordinarily the antithesis of assumption.  It is normally a conclusion after examination and ratiocination.

The notion of “reasonable to assume” pulls up some analogy, which we offer tentatively, with other areas of the law where courts accept that opposite conclusions or approaches may be equally reasonable or at least both reasonable, leading, either in judicial review or appellate ascertainment of error to certain important consequences.  If that kind of approach is being conjured by this odd expression “reasonable to assume”, then for the reasons that Justice Hodgson has powerfully pointed out, it does not answer the application of 763E to say that another possibility, an opposite one, might also be reasonable to conclude, let alone to assume.

BELL J:   That is Justice Hodgson at paragraph 126 on?

MR WALKER:   It is indeed, and, in our submission, that is a novel question.  It is obviously very important.  It calls in aid other notions that the law has employed in different ways.  Alas, it does not reproduce to any degree exactly what one finds from established jurisprudence in those other areas, and it has a critical application to what can only be described as commercially drastic consequences by reason of the application of, supposedly, consumer protection or public interest beneficial regulatory schemes.

GUMMOW J:   This is the second group of grounds in your draft notice of appeal, is it not, at 163?

MR WALKER:   It is.

GUMMOW J:   You have three others.

BELL J:   I think of this one, your opponents say Justice Hodgson did not come to terms with the submission that Mr Bathurst is recorded at putting at 170, application book 128.

MR WALKER:   Yes.  On any view of it though, that is not a submission that could be seen as what I will call a knockout blow.  On any view of it that complicates and renders all the more important, in our submission, that this Court, in relation to 762B and 763E, should give its attention in light of the difficulties which are manifest in the reasoning of the Court of Appeal. 

Your Honours, could I touch briefly on what I then wanted to say about the first ground, managing.  We would in particular wish to emphasise, as that which deserves the attention of this Court upon a grant of special leave, the argument that is found in application book page 168 in our paragraph 24, and paragraph 27 on the next page.

The idea of managing financial risk is one which has the, at first sight, anodyne appearance of just using ordinary English.  However, the concepts are difficult, particularly as the reasoning that has held against us is reasoning which would appear to apply, subject to the exclusion notion, to any arrangement which, for example, in a contract, allocates risk between parties.  Furthermore, the first of the risks that, for example, Justice Giles identified as being managed, we have set it out in paragraph 21 on that same page of our submission, is the insufficiency of return, that is, not getting as much as one would like from the litigation.

Now, that is true of anybody who, with money in their pocket, or perhaps in the bank not earning a lot of money, is considering spending it somewhere by entering into a transaction, whether by way of something obviously an investment or not.  That, in our submission, would rather tend to suggest that this drafting technique has produced a reading whereby any contract that could be regarded as being an allocation of risk of inflation, risk of market movement, and that will be practically any contract that provides for delivery in the future, or payment in the future, that, in our submission, would be a most alarming outcome and certainly one sufficiently important in general terms to justify the attention of this Court to the question whether the statute really does proceed by taking a huge bite and then spitting out various bits along the way by the technique we have noticed.

GUMMOW J:   Do you know if there is any particular provenance of Chapter 7?

MR WALKER:   It comes from, if I may put it this way, a committee which deliberately recommended this form of legislation.

GUMMOW J:   As having what advantage?

MR WALKER:   I think, your Honour, my words, not theirs, practical empiricism, that is, very general words, acknowledging immediately they are too broad, and so immediately as you enact the general words you take out the cases that various lobby groups and your own imaginings say should not be in and then you have a continuing possibility to remove by regulation or administrative action.  It is a “let us see how it works” approach. 

Your Honour asked about virtue.  In our submission, it is difficult to see virtue in law making of that kind, bearing in mind that Parliament can of course always revisit its legislation.  But in any event, that is the provenance and history.  It stands in contrast to what has normally been the approach to

legislation and, in our submission, it is something which throws up, by its deliberate use of what I will call excessively general language in the primary rule, it throws up questions about how one then interprets exclusions which are equally generally and conceptually expressed.  Your Honours, could I then come ‑ ‑ ‑

GUMMOW J:   Mr Walker, before you do that, if you were successful in obtaining leave, it is put against by you by Mr Douglas at 178 and also by Mr Newlinds at 193 that something is needed to deal with security.

MR WALKER:   Yes.  I hope your Honours have been shown by the Registry a draft order which, following the message from the Court, we have instructions to propose.

HEYDON J:   That only covers costs of this appeal, though.  What about the money which the Court of Appeal ordered to be paid and the costs in the Court of Appeal itself?

MR WALKER:   That is, of course, within the power of this Court to impose as a term, yes.

HEYDON J:   Do you offer it?

MR WALKER:   Your Honour, I do not think I have instructions to say that, as it were, the money is here, but ‑ ‑ ‑

GUMMOW J:   No, no, it would be within the 14 days.

MR WALKER:   Quite, your Honour.  What I do have instructions to submit is that of course ‑ ‑ ‑

GUMMOW J:   More that it has to be cash.

MR WALKER:   Real money, yes, your Honour.

GUMMOW J:   American dollars will do.

MR WALKER:   Your Honours, Justice Heydon asked about instructions.  I have instructions that permit me to say that is a possible term against which I have nothing further to say that may be imposed.

GUMMOW J:   Yes, Mr Douglas.

MR DOUGLAS:   It is a bit of a poisoned chalice, your Honour, because if we get that last term in some way it improves our position financially.  The situation is, as we would see it, there are a number of reasons why special leave ought not to be granted.  The judgment of the Court of Appeal concerns an agreement relating to the funding of litigation in which my client is involved.  It is not an agreement in standard form and the matters which the applicants raise for consideration turn on the action.

GUMMOW J:   Hopefully, there never will be a standard form.

MR DOUGLAS:   Maybe not, your Honour, but certainly it is a document which I think all of the parties were in agreement down below, as recorded at page 145 of the application book in paragraph 256 of Justice Young’s judgment that:

All counsel acknowledge that the Funding Agreement is a very poorly drawn document which contains many patent errors and errors in cross references.  All counsel also acknowledge that whichever interpretation is put on some of its terms, there are often clear indications the other way.

That is the sort of document we are dealing with.  The second point we would wish to make is that the effect of a class order 11/555 deprives the questions sought to be raised of relevant application.  It has the effect that from the date of that order a person does not have to comply with subsections 911A and B(1) of the Act for provision of a financial service in relation to a litigation funding arrangement.  In the future, a litigation funder need not be licensed.  So, for the reasons set out in our written outline, particularly paragraphs 4 to 6, the potential operation ‑ ‑ ‑

GUMMOW J:   This question of licensing litigation funders has to be an important one.

MR DOUGLAS:   At the moment it is an important one which is vested, as we would see it, by reason of the making of that class order in the Executive because the Executive is going to make up its mind to what extent licensing is required and it is probably better for the Court to wait until something happens as a result of that class order being made.  At the present time there is in fact no requirement for licensing, as we would see it.

GUMMOW J:   It would be a good idea if the Executive knew what the statute meant that it is endeavouring to administer.

MR DOUGLAS:   If your Honour is of that view ‑ ‑ ‑

GUMMOW J:   It is drafted in this loose fashion and that is the problem, I suppose.

MR DOUGLAS:   Yes.  That is a consideration which no doubt the Court would have in mind.  If that is the position of the Court then I could not argue against the importance of it in the sense of a question of statutory construction but that leads me to the argument that there are not sufficient prospects of success because the decision of the Court of Appeal is clearly correct.  The first question is whether my client managed financial risk through the facility.  The answer is clearly yes.  The applicant seeks to argue that because it had the option of settling the funding ‑ ‑ ‑

GUMMOW J:   What does the word “manage” mean?

MR DOUGLAS:   “Manage”.  It means to – “manage” means – well, in this sense ‑ ‑ ‑

GUMMOW J:   It is market speak, but what does it mean in law, in this statute?

MR DOUGLAS:   It means, effectively, dealing with future circumstances so as to ensure that you have some predicability of outcome.  It certainly does not mean, as my learned friends would put it, that the risk - if you have a risk at the inception of the agreement you can eliminate it, for example, by agreeing that each party pay its own costs or that you accept a small settlement offer.  What you had at the inception of this funding agreement was a situation in which they were proposing to, as my learned friend has put it in his submissions, hazard funds and litigation.

My client was proposing to go into lengthy and complex commercial litigation and did not wish to be subjected to the possibility of an adverse costs order or expenditure on costs which would be more than its financial resources would be able to bear.  So, in a practical sense, without giving your Honour an overall definition of what “manage” means in this context what they were trying to do was to ensure that they would manage that risk and give Mr Walker’s client a large proportion of any potential judgment sum.  That, on any view, however one looks at it, in our respectful submission, would be managing a risk.

If one moves on from that, the next point which my learned friend seeks to raise is the question of incidental purpose and he places considerable emphasis in his oral submissions upon the objective component of it, that it is reasonable to assume, et cetera.  But it is difficult, as both of the majority judges found in this case, to separate out the risk management aspect of this facility to the funding aspect of the facility.  One cannot just say that the purpose of it was for us to borrow money to go on with the litigation in circumstances where the agreement itself obviously stipulates that they have to pay our costs and any adverse costs order which is made against us, including any accrued risk as to costs at the time of determination of the agreement.

The question of whether in fact – and there is a point which was made by Justice Bell and that is the interrelationship between paragraph 126 and paragraph 170 of Justice Hodgson’s judgment because you do not really get to the “reasonable to assume” point unless you come to the view that in fact this is an agreement in respect of which there are components and that it is in fact incidental. 

We would say you are never going to get to that point about the objectivity of the analysis as to how one regards the purpose of the agreement and, moreover, it is not a point which was to the forefront of my learned friend’s arguments down below.  It was mentioned in passing at first instance, but when it came up to appeal it only arise as a result of a question which was asked by Justice Hodgson.  It was not the subject of any notice of contention or anything of that nature and so the matter has not been, if I could put it that way, the subject - at least of any formal process in the Court of Appeal although I accept that the judges, in particular Justice Hodgson, did deal with it. 

However one looks at the points, and they are obviously important points, we do not dispute that, when one looks at it one cannot see how they would be successful in arguing that the, if I could put it that way, protection which was afforded us against the risk which we were embarking upon was not an integral part of the facility.

Then there is the question as to whether it is a credit facility which is the other point which my learned friend seeks to raise and thereby it is exempted from the “financial products” definition.  The point about that is there is no definite present obligation to make an unavoidable future payment.  Under the agreement there is no obligation to repay the money which is advanced.  The only obligation to repay the money which is advanced arises at the time when the judgment sum is received or the settlement amount is received.  At that point of time an immediate obligation arises to pay that money.  That can be seen from the provisions of the agreement which are at page 38 of the application book where it says:

The Funder hereby agrees to pay the Legal Costs, such payment to be made within 28 days of receipt –

There is no then term requiring repayment of it.  What it says is in clause 3.1:

Upon Resolution of the Proceedings, the Funder will be entitled to:

(a)Repayment of the Legal Costs paid by it in accordance with clause 2.1;

(b)Payment of the Funding Fee.

3.2CHM irrevocably irrevocably directs that:

(a)payment of any Resolution Sum be made to the Lawyers; and

(b)the Lawyers are to immediately pay any Resolution Sum into a separate trust account kept for that purpose.

“Resolution” and “Resolution Sum” are defined terms which you will see at the top of the page and it means:

when all or any part of the Resolution Sum is received and where the Resolution Sum is received in parts, a “Resolution” occurs each time a part is received;

“Resolution Sum” means the gross amount received by CHM or the lawyers, whether by way of settlement, judgment or otherwise of the Proceedings, including any interest and Legal Costs recovered pursuant to a Costs Order –

The point about that is, as we would see it, and as I put it just before, there is no definite present obligation to make an unavoidable future payment.  So in order for it to be a deferred debt, which is required by the regulation, if one goes to the regulation which - perhaps if I go to my learned friend’s bundle because it is more convenient, at page 67.  The relevant section which picks that up, perhaps before I go to that  – well 765A “Specific things that are not financial products”, that is at page 25 of our bundle and page 40 of my learned friend’s bundle.  It says:

a credit facility within the meaning of the regulations –

So you then go to the regulations.  The relevant regulation, 7.1.06, which is at page 66 of my learned friend’s bundle, says:

For subparagraph 765A(l) (h) (i) of the Act, each of the following is a credit facility ‑

Then you look at the definition of “credit” under subregulation 3 and it says:

credit means a contract, arrangement or understanding:

(a)under which:

(i)payment of a debt owed by one person (a debtor) to another person ( a credit provider) is deferred; or –

relevantly in this case -

(ii)one person (a debtor) incurs a deferred debt to another person (a credit provider); and

(b)including any of the following:

(i)any form of financial accommodation –

The point we make is that there is no deferral of any debt in this case.

BELL J:   Well, this is again where Justice Hodgson took a different view, is it not?

MR DOUGLAS:   Yes, but, in our respectful submission, the majority is clearly right, but he did not ‑ ‑ ‑

GUMMOW J:   Well you cannot say “clearly”, Mr Douglas.  The point is that at the level of special leave this looks likely to be a serious question, and if Justice Hodgson says something it suggests to me there probably is a serious question.

MR DOUGLAS:   Well, I have the greatest of respect for Justice Hodgson as well, your Honour, but, in our respectful submission, the majority did get it right this time.  But I can see that your Honours are interested in the point.

GUMMOW J:   It is not a question of whether they got it right.  It is a question of whether there is a serious question.

MR DOUGLAS:   I understand that, your Honour.

GUMMOW J:   You may well prevail for all I know.  What do you say about security?

MR DOUGLAS:   Well, your Honour, they should provide the full amount of security, that is the $100,000 they proffer for the costs of this appeal, together with the amount of $618,855.70 referred to in paragraph 9 of our written submissions on page 178.

HEYDON J:   And interest?

MR DOUGLAS:   And interest, yes.

GUMMOW J:   At what rate?

MR DOUGLAS:   Supreme Court rates, your Honour.

GUMMOW J:   Well, this had better be formulated on a piece of paper at some stage.  I am not going to do it myself.

MR DOUGLAS:   .....do it, please the Court.

HEYDON J:   The costs of the Court of Appeal, have they been taxed or ‑ ‑ ‑

GUMMOW J:   You were given notice of this and I hope you turn up here with something specific.

MR DOUGLAS:   We will, your Honour.

GUMMOW J:   Very well.  Your juniors had better apply themselves.  Yes, Mr Newlinds.

MR NEWLINDS:   Your Honour, we would submit that managing financial risk for the purpose of this statute means controlling, limiting or smoothing financial risk so that a person who enters into an insurance policy paying the premium is managing the financial risk of whatever the insurable risk is.  A person who enters into a contract with a foreign currency component, who enters into a hedging contract is managing the risk of the currency values moving against that person.  That is the answer to Justice Gummow’s question. 

Your Honour, may I say this.  It may be accepted that the question of whether a litigation funding agreement per se meets the criteria of managing financial risk for the purpose of this statute is a matter of general import and will be a question, if answered, that will apply, one would have thought, to all litigation funding agreements.

However, the same cannot be said for the two other points in the case, which is whether, if there is management of financial risk, that is an incidental component of the agreement or, the other exception, which is if the litigation funding agreement is a credit contact.  Both of those questions will always come down to the agreement in question.  They will always be agreement specific.  What follows from that, in my respectful submission, is

that there is no general question available for this Court to answer in simple terms, do litigation funding agreement businesses require a licence or not? 

That leads us to our next submission that the matter being before the Executive, the government can decide whether they like the construction placed on this legislation by the Court of Appeal or not.  If they do like it well presumably they will leave things as they are.  If they do not like it they can change it.  As we have said in our written submissions it is quintessentially a matter of policy for the Parliament to decide whether litigation funding agreements ‑ ‑ ‑

GUMMOW J:   The Parliament has not decided.  It has left it to Executive, Mr Newlinds.  That is the problem.

MR NEWLINDS:   I am so sorry.  But it is quintessentially a matter for the Executive Government, in my submission.  The answer to Justice Gummow’s question, of course, well they need to know what the courts say the section means, of course leaves open for this ‑ ‑ ‑

GUMMOW J:   No, they need to know what it means, and what it means is what the Court says it means.  It is as simple as that.

MR NEWLINDS:   Of course, and the Court of Appeal has said what it means.  Now, of course this Court can intervene and say what it thinks it means, but the Executive knows what an intermediate appellate court thinks the legislation means, and as I say, it can either leave things lie there or take their own course.  So, in our respectful submission, for those reasons, special leave should be refused.

GUMMOW J:   Mr Walker, we do not need to hear you in reply.

There will be a grant of leave in this matter, but conditioned as to a provision for security.  The proposed forms, if they cannot be agreed, may require some adjudication by us on the spot, so we will stand the matter in the list for further mention this morning to sort out this question of security on the actual terms if it has to be sorted out.

MR WALKER:   We will attempt to do it shortly, your Honour.

GUMMOW J:   Yes, this morning, in Court.

MR WALKER:   Yes, this morning.

AT 10.06 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.59 AM:

MR WALKER:   Your Honours, agreement has been reached first for an aggregate sum and second as to a form of order.

GUMMOW J:   Yes.

MR WALKER:   It is contained in handwriting.

GUMMOW J:   Just hand it up and I will read it onto the transcript. 

As indicated earlier this morning there will be a grant of special leave in this matter.  Further, pursuant to Part 59 of the High Court Rules, as a condition of the grant of special leave to appeal, the applicant is to provide security within 14 days of the making of this order in a form to be agreed or, absent agreement, within seven days as ordered by the Registrar, the sum of $850,000 for:

(a)the costs of the first and second respondents in the New South Wales Court of Appeal in proceeding 267410/2010;

(b)the costs of the first and second respondent of the appeal to this Court; and

(c)order 7 made in the court below on 3 June 2011 and interest accruing thereon.

I will initial that document and place it with the papers.

MR WALKER:   If it please the Court.

GUMMOW J:   We will take a short adjournment.

AT 11.02 AM THE MATTER WAS CONCLUDED