Johnson v AED Oil Limited
[2011] VSC 94
•22 March 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 2011 00956
| MICHAEL JOHNSON & ORS | Plaintiffs |
| v | |
| AED OIL LIMITED & ORS | Defendants |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 March 2011 | |
DATE OF JUDGMENT: | 22 March 2011 | |
CASE MAY BE CITED AS: | Johnson & Ors v AED Oil Limited & Ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 94 | |
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CONTRACT – Construction – Deed of settlement and release – Clause in deed prevents plaintiffs from acting against the interest of defendants – Whether clause prevents plaintiffs from conferring or communicating with legal advisors of a party who is not party to the deed.
CONTRACT – Public policy – Whether clause in deed of settlement void or unenforceable – Argument that clause interferes with the administration of justice – Civil Procedure Act 2010 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J B Davis | Freehills |
| For the First to Third Defendants | Mr N Frenkel | Corrs Chambers Westgarth |
| For the Fourth Defendant | Mr P Wallis | Monahan + Rowell |
HIS HONOUR:
A. Introduction
The plaintiffs (“Equinox Parties”) and the first to third defendants (“AED Group”) are parties to a Settlement and Release Deed dated 23 October 2009 (“the Settlement Deed”).
The Settlement Deed compromised substantial proceedings brought in this Court by the AED Group against numerous parties including the Equinox Parties (the “Main Proceeding”).
The fourth defendant (“Minter Ellison”) is also a party to the Main Proceeding. The AED Group maintains its claim against Minter Ellison and others.
On 15 December 2010, I made orders fixing the trial of the Main Proceeding. It is fixed for hearing commencing on 28 March 2011 on an estimate of six weeks.
Clause 8 of the Settlement Deed is in the following terms:
“Each and all of the Equinox Parties agree and warrant that they will not act against the interest of AED, AED Services, Puffin IS or David Dix or any other director, officer or employee of AED save as compelled by a court of Australia.”
Two of the Equinox Parties, Michael Johnson (“Johnson”) and Petter Hoie (“Hoie”), have been served (or will be served)[1] with a subpoena to give evidence at the trial of the Main Proceeding. Each subpoena was issued by Monahan + Rowell, the solicitors for Minter Ellison.
[1]In a letter dated 22 February 2011 Freehills, on behalf of Johnson and Hoie, did not agree to accept service because of clause 8.
By originating motion filed on 3 March 2011, the Equinox Parties seek declarations that clause 8 does not prevent them from communicating and conferring with the solicitors acting for Minter Ellison. They contend that they cannot afford to participate in the trial of the Main Proceeding and that in order to give relevant evidence they should be permitted to communicate and confer with Monahan + Rowell.
The application was necessary because the view was taken, correctly in my opinion, that any communication may be in breach of clause 8 of the Settlement Deed. In correspondence, the solicitors for the AED Group declined to consent to such communication. They correctly conceded however, that the issue and service of subpoenas on the Equinox Parties compelling them to give evidence in Court would not be in breach of clause 8 of the Settlement Deed and further, that the Equinox Parties would not breach the clause by complying with those subpoenas.
The originating motion was heard as a matter of urgency. On the day of the hearing I dismissed the motion and indicated that reasons would follow as soon as possible. These are my reasons.
B. Background – The Main Proceeding
It is unnecessary to set out the nature and substance of the Main Proceeding in any great detail. Other than Minter Ellison, the remaining defendants (against whom relief is sought) are Andrew Venables (formerly a partner of Minter Ellison), his wife Katherine Kaspar and Clayton Utz, a firm of solicitors.
The parties to the Settlement Deed, which include the Equinox Parties and others, remain as parties to the Main Proceeding on the basis of proportionate liability claims and contribution claims. There are also claims made against third parties.
One of the central claims in the Main Proceeding is, in general terms, that Elizabeth Back (“Back”) (as General Counsel and Company Secretary of AED Oil and formerly, a senior associate at Minter Ellison) recommended to AED Oil that it appoint or award a tender to Petroleum Development Consultants Pty Ltd (“PDC”) as installation contractor in relation to the Puffin Oil Field, a substantial oil exploration site in the southern Timor Sea.[2] It is alleged by the AED Group that PDC should not have been appointed because of, amongst other things, its lack of experience and higher pricing and that in making the recommendation Back was in breach of various duties. The AED Group allege that as a consequence of PDC’s appointment there was excessive delay and cost which caused it loss and damage in the order of tens of millions of dollars. A claim is also made against Back to the effect that the terms of the contract appointing PDC (the “Installation Contract”) failed to adequately protect the AED Group.
[2]PDC and AED Oil were later substituted by PDC Singapore and AED Services (and then Puffin IS).
The AED Group further allege that at about the same time, without their knowledge and consent, the Equinox Parties and Venables agreed to take over PDC. They thereby derived some benefit from the Installation Contract in breach of their duties and obligations to the AED Group.[3]
[3]It must be stressed that the Amended Substituted Statement of Claim exceeds 100 pages and the summary of the case is necessarily very general and cryptic.
There is also a claim for professional negligence made against Venables and Minter Ellison in relation to the drafting of a clause in a particular contract known as the FPSO Charter Contract. The details are not relevant for present purposes.
The AED Group make a number of other claims against Minter Ellison. They allege that Minter Ellison is liable for professional negligence in relation to advice given about the FPSO Charter Contract. Further claims are made based on accessorial liability arising out of the numerous alleged breaches of fiduciary duty and breaches of loyalty on the part of Back. It is also alleged that Minter Ellison are liable to the same extent as Venables for his various alleged breaches of duty.
The allegations made against Clayton Utz are different and discrete. They are not relevant for present purposes.
Despite the alleged conduct of Back, no claim is pursued against her because of the Settlement Deed. However, as noted above, Back and the other Equinox Parties remain parties to the Main Proceeding on the basis that proportionate liability and contribution claims are made against them.
The plaintiffs in the Main Proceeding have filed witness statements including expert reports.
The defendants in the Main Proceeding have filed witness statements and some, but not all, of their expert reports.
Despite orders to such effect made many many months ago, the Equinox Parties have not filed any witness statements or outlines of evidence. They should have done so.
Mr Davis of Counsel, who appeared on behalf of the Equinox Parties, has indicated that Johnson and Hoie are desirous of defending the contribution claims but do not have the resources to do so. To that end, they want to communicate and confer with Monahan + Rowell in relation to the evidence that they propose to give at the trial of the Main Proceeding. Johnson and Hoie do not want to simply attend Court pursuant to a subpoena and give evidence, as it were, cold.[4] They are however concerned with clause 8 of the Settlement Deed.
[4]In any case, as discussed further below, there was some suggestion that Monahan + Rowell would not call Johnson and Hoie to give evidence in such circumstances.
Freehills still act for the Equinox Parties and have done so since 2008. There has been much litigation involving the Equinox Parties over the last few years. In correspondence Freehills have indicated that due to a lack of resources, they may not continue to act on behalf of the Equinox Parties. However at present, they still remain as solicitors on the record.
In an affidavit sworn on 14 December 2010, Charlotte Jane Wallace, a solicitor employed by Freehills, deposed to the fact that she would not be able to prepare and finalise witness statements on behalf of the Equinox Parties by February 2011. She also deposed to the fact that the Equinox Parties have retained an expert in the proceeding, Mr Matthew Rawlings.
By letter dated 22 February 2011, Freehills advised a number of parties as follows:
“Our clients are unable to, and consequently will not, file witness statements in these proceedings.”
Accordingly, the present position is that the Equinox Parties, or at least Johnson and Hoie, are desirous of defending the contribution proceedings but claim that they do not have the resources to do so. Freehills have advised that they may no longer continue to act. It is therefore submitted by the Equinox Parties that the best way for them to participate in the trial and prepare relevant evidence (in order to avoid the disadvantage to everyone of witnesses giving evidence cold) is for them to communicate and confer with Monahan + Rowell despite clause 8 of the Settlement Deed. Otherwise, it is submitted, they may not be able to participate meaningfully in the trial (or may not be called or give evidence at all) and the Court will not have the benefit of their relevant evidence.
Further it is submitted that if Johnson and Hoie do participate in the trial and give evidence cold, this would involve substantial disruption to the conduct of the proceeding. Finally, it is submitted that these matters have such an effect on the administration of justice that the Court should or must come to the assistance of the Equinox Parties in the manner suggested.
As an alternative, Minter Ellison submit that an order should be made in the Main Proceeding for it to file written outlines of the evidence that it expects to adduce from Johnson and Hoie. This would have the effect of compelling Johnson and Hoie to communicate with Monahan + Rowell and the conduct would therefore fall within the exception in clause 8, “save as compelled by a court of Australia”.
From the evidence, it is clear that the position in which the Equinox Parties find themselves, in particular in relation to the operation of clause 8 of the Settlement Deed, was well known in 2009. Despite such knowledge, the Equinox Parties have done nothing until very shortly before the trial of the Main Proceeding. In fact, even in December last year the affidavit of Ms Wallace suggested that the Equinox Parties intended to file witness statements. They should have done so as ordered.
There is no evidence before the Court of the financial position of the Equinox Parties other than Johnson. However even in relation to Johnson, the financial information is incomplete and in my opinion, an inadequate foundation from which to conclude that he does not have the resources to, at the very least, have an outline of evidence prepared in the Main Proceeding.
Reverting back to the Settlement Deed, it is relevant to point out that the deed was negotiated over a period of about four months with a substantial number of drafts passing between the parties. The Equinox Parties were represented by legal advisers. Further, it is also relevant to note that the Equinox Parties received substantial benefits from entering into the Settlement Deed.
C. Issues
The first issue to be determined is whether declaratory relief is available. The AED Group submit that there is no justiciable controversy and the matters are hypothetical and advisory.
The second issue is whether, as a matter of construction, the Equinox Parties would breach clause 8 of the Settlement Deed if they were to communicate and confer with Monahan + Rowell.
The third issue is whether, in the event that as a matter of construction there would be a breach, clause 8 should not be enforced as a matter of public policy because it interferes with the administration of justice or does not permit the Civil Procedure Act 2010 (Vic) (“CPA”) to operate as intended.
D. Is there a justiciable issue?
The AED Group contend that the declarations sought by the Equinox Parties are hypothetical and advisory in nature and are not properly the subject of declaratory relief. In this regard, Mr Frenkel of Counsel, who appeared on behalf of the AED Group, referred me to the case of Ansett Australia Ground Staff Superannuation Fund Pty Ltd v Ansett Australia Ltd & Ors[5] (“Ansett”).
[5](2003) 179 FLR 393 per Ormiston, Callaway and Batt JJA.
The Equinox Parties contend that there is a current controversy at the very least arising out of the service of the subpoenas on Johnson and Hoie and their present desire to communicate and confer with Monahan + Rowell. They submit that on a proper reading of the correspondence between the parties, it is clear that there is an existing dispute as to whether Johnson and Hoie communicating and conferring with Monahan + Rowell as desired will be in breach of clause 8 of the Settlement Deed.
In my opinion, there is an existing controversy between the parties capable of being the subject of declaratory relief. This is certainly the position in relation to Johnson and Hoie. Having been served with the subpoenas they would have communicated and conferred with Monahan + Rowell but for clause 8. Having sought the consent of the AED parties to such course and having, in effect, been refused such consent, the controversy needs to be resolved by the Court.
Accordingly, in my opinion there is a matter presently before the Court capable of being the subject of declaratory relief. It is not a hypothetical dispute like the situation in Ansett. It is a real, existing dispute.
E. The construction issue
The Equinox Parties submitted that as a matter of construction, clause 8 is not directed to the subject matter in issue. They contend that, as a matter of construction, the clause does not preclude the Equinox Parties from communicating and conferring with Monahan + Rowell. In developing this submission, Mr Davis contended that because the Equinox Parties were able to consult fully with their own solicitors, they were obviously able to consult with other solicitors in the preparation of the case. It was contended that there was, in substance, no difference between consulting with one firm of solicitors or another. The evidence would be the evidence. Accordingly, it was suggested that as a matter of construction the clause was not aimed at the preparation of witness statements.
The AED Group contend that the very purpose of the clause is to respond in this situation and the clear wording of the clause prohibits the conduct the Equinox Parties propose to engage in, namely conferring and communicating with Monahan + Rowell. Mr Frenkel strongly emphasised the benefits obtained by the Equinox Parties in entering into the Settlement Deed and the context and history of the Settlement Deed.
In my opinion, there is much substance in the submission made on behalf of the AED Group. The clear wording of clause 8 precludes the Equinox Parties from communicating and conferring with Monahan + Rowell. In so communicating and conferring it is, in my opinion, without doubt that the Equinox Parties would be “acting against the interest” of the AED Group. Providing information, explanations and comments to Monahan + Rowell is certainly not acting in the interest of the AED Group. Nor is such conduct neutral as appears to be the suggestion. It is not helpful to the AED Group and is, in fact, against the interest of the AED Group.
Accordingly, in my opinion, the conduct proposed to be engaged in by the Equinox Parties and in particular Johnson and Hoie would, as a matter of construction, fall foul of clause 8 of the Settlement Deed.
F. Public policy issues
The remaining issue to be determined is whether, as a matter of public policy and to the extent it interferes with the administration of justice, clause 8 should either be severed from the contract or not enforced by the Court.
In A v Hayden (No 2)[6] Mason J said the following:
“… Some contracts are void whereas others are valid, though the court will decline to enforce the particular provision in a valid contract in particular circumstances when enforcement of that provision would have an adverse effect on the administration of justice.”[7]
[6](1984) 156 CLR 532.
[7]A v Hayden (No 2) (1984) 156 CLR 532, 557. See also pages 571 to 572 per Wilson and Dawson JJ.
Consequently, if clause 8 of the Settlement Deed has an adverse effect on the administration of justice the Court should decline to enforce it or, in the context of the originating motion, make declarations to permit conduct that would otherwise not be permitted.
The Equinox Parties contend that they must be permitted to communicate and confer with Monahan + Rowell. They submit that to prevent such communication would have an adverse effect on the administration of justice. Accordingly, they contend that clause 8 should not be enforced.
According to the Equinox Parties, the administration of justice requires that they be given an opportunity to respond to the allegations levelled against them and conduct their case in an orderly and efficient manner. They contend further that the administration of justice requires that the Court not be restricted from discovering the truth of the issues in question.
In their written submissions, the Equinox Parties contend[8] that the administration of justice requires that they communicate and confer with Monahan + Rowell in relation to the preparation of witness statements for the following reasons:
“(a) other than via the subpoenas, the Plaintiffs have no real opportunity to defend the Contribution Claims in the Main Proceedings;
(b)without advance knowledge of what evidence the Plaintiffs would give if called, it is unlikely that Messrs Minter Ellison (or any other party) would call the Plaintiffs to give evidence, thus depriving the Court of the best evidence as to the truth of the issues in question;
(c)without advance knowledge of what evidence the Plaintiffs would give if called, the expert witnesses in the Main Proceedings will be deprived of technical and factual evidence which would result in inefficiencies and disruption to the orderly disposition of the case;
(d)without advance knowledge of what evidence the Plaintiffs would give if called, the documentary material to be relied on by the parties to the Main Proceedings would be further increased; and
(e)if the Subpoenas issued to First and Third Defendant by Messrs Minter Ellison were subpoena duces tecum as opposed to subpoena ad testificandum, Messrs Monahan + Rowell would have liberty to inspect the documents prior to trial and select the evidence that best advances their defence in the Main Proceedings” (citations omitted).
[8]At paragraph 26.
The AED Group contend that the administration of justice does not require the Equinox Parties to communicate and confer with Monahan + Rowell. They contend that the Equinox Parties have had ample opportunity to prepare witness statements or, at the very least, outlines of evidence. Further, they submit that as long as the evidence of the Equinox Parties is able to be given in Court there is no adverse effect on the administration of justice. They contend further that just like any other party, Minter Ellison will need to make a tactical decision as to whether to call on the subpoenas served on Johnson and Hoie.
In my opinion, although it may have been desirable and practical for the Equinox Parties to communicate and confer with Monahan + Rowell, a failure to do so because of the provisions of clause 8 of the Settlement Deed will not have any adverse effect on the administration of justice, as contended by the Equinox Parties. I am far from satisfied that the inability to communicate and confer with Monahan + Rowell will have the severe and adverse effects contended for by the Equinox Parties. Rather, in my opinion, the Equinox Parties will still be able to defend the contribution proceedings adequately and sufficiently and give evidence before the Court with minimal disruption to the conduct of the trial.
The Equinox Parties’ main submission concerning the adverse effect on the administration of justice that would be occasioned by enforcing clause 8 is that if the declarations are not made, they may not give any evidence in the case. It is submitted that this would be to their detriment, so far as their defence to the contribution claims is concerned, and also to the detriment of the Court so far as its ability to learn the truth from critical witnesses is concerned. The foundation for such a submission is that, having issued the subpoenas, Minter Ellison may decline to call Johnson and Hoie if they are unable to communicate and consult with them in advance. This is based on the usual practice of not calling a witness if one is unsure as to the evidence that the witness will give. The suggested corollary – which is a non sequitur – is that they will not give evidence.
In my opinion the submission is without merit. First, if Johnson and Hoie are serious about defending the contribution claims they should not rely on being called by others. Even if Freehills cease to act on their behalf, Johnson and Hoie are fully entitled to participate in the trial of the Main Proceeding and give evidence in support of their case. In other words, it is not accurate to suggest that the only way in which they could defend the contribution proceedings is if their evidence is filed by other parties. In many cases, such as those involving litigants in person, witness statements are not provided or if provided are in less than desirable form. Johnson and Hoie can and should file outlines of evidence. Indeed, orders have been made requiring the filing of witness statements.
Secondly, as is the case where subpoenaed witnesses decline to confer with the parties calling them, Minter Ellison will need to make a tactical decision as to whether or not to call Johnson and Hoie. Further, given the volume of documents in this case, the length of the proceeding and the existence of other proceedings, I do not accept that Monahan + Rowell have no idea as to the evidence likely to be given by the Equinox Parties. In this context, it is relevant to note that the Equinox Parties did in fact originally engage Mr Rawlings as an expert and presumably gave him instructions. He is now being called by Minter Ellison.
Next, the Equinox Parties suggest that the conduct of the trial will be substantially disrupted in the event that they do not communicate and confer with Monahan + Rowell in advance, particularly if they are required to give evidence cold and this will have an adverse effect on the administration of justice. In my opinion, although there may well be some disruption it will not have any significant adverse effect on the administration of justice. Some inconvenience and perhaps the need to recall witnesses does not sufficiently impact on or adversely effect the administration of justice. What clearly would have an impact on the administration of justice is if the witnesses were precluded in some way from giving evidence. However this is not the case. They are compelled to give evidence and are, in fact, desirous of giving evidence and participating in the trial in order to defend the contribution proceedings. The AED Group have not suggested (and nor could they) that clause 8 prevents the Equinox Parties from giving evidence in response to subpoenas.
Further, the suggested delay in the trial if the Equinox Parties give evidence ‘cold’ would only arise if they were not familiar with the documents in the case, including the witness statements filed on behalf of all parties. However, I apprehend they will become familiar with the relevant documentation. Their evidence in chief is unlikely to be disruptive, particularly if they provide at the very least some form of outline of evidence prepared with or without the assistance of their solicitors. Accordingly, I am not convinced that there will be an adverse effect on the administration of justice even if witnesses give evidence cold, particularly if the relevant witnesses fully inform themselves about the allegations in, and scope of, the Main Proceeding by proper pre-trial preparation as referred to. I would be very surprised and disappointed if a party subpoenaed to give evidence declined to peruse all relevant documents in order to make his or her evidence meaningful and occur with a minimum of disruption.
So far as putting matters to the plaintiffs’ witnesses is concerned, these issues can be dealt with, if necessary, by the recall of witnesses. However, I apprehend that this will not be necessary and that the position of the Equinox Parties will either be clear from the documentation or from, at the very least, outlines of evidence to be provided by them.
Accordingly, in all of the circumstances I am by no means convinced that the failure of the Equinox Parties to communicate and confer with Monahan + Rowell will have an adverse effect on the administration of justice as that phrase has been defined. Mere disruption and the requirement that tactical decisions be made is not, in my opinion, sufficient.
So far as the CPA is concerned, I am not persuaded that the AED Group by refusing to consent to the course proposed by the Equinox Parties, are in breach of any of the provisions of the CPA. They were, in my opinion, entitled to take the position that they have and enforce a clause provided for their benefit. They correctly conceded, as indeed appears in the very clause, that the clause has no application to parties subpoenaed to give evidence. Whilst the various overarching principles referred to by Counsel for Minter Ellison may well have had some application absent clause 8, in my opinion clause 8 has a dramatic effect upon the over-arching obligations. In any event, as pointed out, I am of the opinion that the matter is able to proceed in a proper and orderly fashion.
G. Disposition
In the circumstances and for the reasons given, I propose to grant the relevant dispensation under the rules for bringing the originating motion and to dismiss the originating motion. I propose to reserve the costs of the originating motion.
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