MSJG Pty Ltd v Rathner
[2009] VCC 658
•24 June 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
Case No. CI-07-03967
| MSJG PTY LTD & ORS (ACCORDING TO | Plaintiffs |
| SCHEDULE ATTACHED) | |
| v | |
| GIDEON ISAAC RATHNER | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 6 May, 9 & 10 June 2009 |
| DATE OF JUDGMENT: | 24 June 2009 |
| CASE MAY BE CITED AS: | MSJG Pty Ltd & Ors v Rathner |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0658 |
REASONS FOR JUDGMENT
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Catchwords: Contract – litigation funding agreement – effect of variations to that agreement – whether amount received by insolvency practitioner pursuant to deed of settlement is payable by the defendant pursuant to the agreement as varied
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M.N.C. Harvey | Maddocks |
| For the Defendant | Mr B. Carew | South East Lawyers Pty Ltd |
| HER HONOUR: |
1 The plaintiffs are partners in a partnership known as the Litigation Lending Services Partnership No 3 (the partnership) which carries on business providing funding to insolvency practitioners to facilitate insolvency related litigation. They seek the sum of $160,000 from the defendant, who received this sum pursuant to a deed of settlement executed on 28 June 2007. The plaintiffs claim that they are entitled to the amount pursuant to the terms of a varied litigation funding agreement they entered into with the defendant.
2 The defendant claims that the plaintiffs are not entitled to the amount received pursuant to the terms of the varied funding agreement.
3 An earlier defence to the effect that the defendant entered any funding agreement as a disclosed agent only was abandoned by Counsel for the defendant, Mr Carew, in closing submissions.
4 Therefore, apart from certain matters of proof, the primary issue in this proceeding is whether or not the terms of the varied funding agreement entered into between the parties obliged the defendant to reimburse the plaintiffs in respect of the amount of $160,000.
5 This involves a consideration of:
(a) what were the terms of the varied funding agreement;
(b) whether those terms have been breached which issue involves a close consideration of the deed of settlement signed by the defendant on 28 June 2007.
6 The plaintiffs called Ms Silvers who was the chief executive and authorised officer of the partnership. The defendant called Mr Rathner who was appointed administrator of Advanced Communications Technologies (Australia) Pty Ltd (“ACTA”) by the directors of ACTA, on 18 July 2002.[1]
[1] Rathner v Lindholm & Ors [2005] VSC 399 at [20]
7 No real issues of credit arose. Instead, the case largely turned on the objective construction of documents rather than oral evidence.
8 Accordingly, the documentation will be examined in some detail with occasional references made to the oral evidence where relevant.
FACTS LEADING UP TO SIGNING OF VARIED FUNDING AGREEMENT
the parties
9 A partnership agreement of 1 April 2003 showed each of the second to ninth, and eleventh to fourteenth plaintiffs as partners in the partnership. That agreement also showed that other partners were Mr Michael and Gerry Harvey and Mr Anthony Flook.
10 Ms Silvers gave evidence that Michael and Gerry Harvey transferred their interests to the first plaintiff effective from 2007. Further, that Anthony Flook had transferred his interest in the partnership to the tenth plaintiff also in 2007.
11 The result was that the named plaintiffs are partners in the partnership.
12 As mentioned already, Mr Rathner was the administrator of ACTA.
deed of company arrangement 17 October 2002
13 On 17 October 2002 the defendant entered into a deed of company arrangement (DOCA) with ACTA (with Receivers and Managers, Sims Lockwood appointed) and also with a company Global Communications Technologies Pty Ltd (Global) and Roger May and Jason May. The Mays were also associated with Global which held a fixed and floating charge over the entire assets of ACTA.
14 Pursuant to the terms of the DOCA Mr Rathner was to establish a fund for the payment of creditors. That fund was comprised, in part, of royalties in respect of certain intellectual property, defined to include the “Spectru Cell technology” and also 50% of certain litigation proceeds. Importantly, it also comprised the proceeds from the sale of certain shares as is provided as follows:
“The Directors and Global must cause to be paid to the Deed Administrator $3.25 million on or before 28 February 2003, of which a minimum of $2.45 million must be received from the proceeds of the Sale of Shares;” (clause 7(a)).
15 The “Sale of Shares” was defined in clause 1.1 as a Sale of Shares pursuant to a sale deed dated 27 August 2002 between Asia Infotech Pte Ltd (“AIPL”), ACTA and Global, which was annexure B to the DOCA.
16 The sale deed dated 27 August 2002 recited that ACTA held certain rights and interests in a company called Australon Enterprises Pty Ltd (“Australon”), including 57.5% of the shares in Australon. Further, that Australon held approximately 55% of the ordinary shares and 74,992,500 preference shares in the capital of Intermoco Ltd (“Intermoco”).
17 Pursuant to clause 3.1 of that sale deed ACTA agreed to sell and AIPL agreed to purchase “ACTA’s Interest” free of any encumbrances for the price of $6 million. “ACTA’s Interest” was defined to mean all of ACTA’s right, title and interest in Australon, including all the shares ACTA held in Australon.
events leading up to the original funding agreement
18 Mr Norman O’Bryan SC was instructed to advise Mr Rathner in August 2003 in circumstances where neither the Directors nor Global had paid any part of the sum of $3.25 million which they were obliged to pay in accordance with clause 7(a) of the DOCA on or before 28 February 2003 (and apparently extended to 4 July 2003 by orders of the Supreme Court).
19 In his advice of 19 August, 2003, Mr O’Bryan cited the provisions of the DOCA and the sale deed referred to already and said that he was “instructed that, for practical purposes, all of the parties to the Deed of Company Arrangement have treated the obligation in clause 7(a) in relation to the sale of shares as referring to a sale of the shares in the listed company Intermoco Ltd.”
20 He advised that on the material briefed to him there were good grounds to commence an action against the directors and Global for breach of clause 7(a) of the deed. Further it was possible that Mareva orders or some other proprietary remedy might be obtained in relation to at least $2.45 million arising from the sale of the Australon / Intermoco shares.
21 By correspondence dated 18 August 2003, Holding Redlich, solicitors for Mr Rathner, advised Ms Silvers that their client intended to commence a proceeding against Global and each of the directors of the company to seek orders, amongst others, that they pay the amount of $3.25 million to their client, which was to be paid under the DOCA. The correspondence refers to Mr O’Bryan’s advice and their intention:
“to commence the Proceeding this week and, if necessary, obtain Mareva orders restraining the defendants from disposing of the Company’s entitlement to shares in Intermoco Limited ...”
22 By further correspondence of 22 August 2003 from Holding Redlich to Ms Silvers there is reference to a “telephone conference between the writer, Norman O’Bryan SC ... and yourself”, and that “as discussed in the conference” their client intended to commence a proceeding against Global and the Mays for failing to comply with clause 7(a) of the DOCA. They provided an estimate of their costs for the proposed proceeding and suggested it would be opportune to have the funding agreement in place when other proceedings were returnable so approval of the Court to enter into the agreement could also be obtained.
original funding agreement
23 On or about 11 November 2003 the partnership and Mr Rathner (the “insolvency practitioner”) entered into an agreement wherein the partnership agreed to provide funding for “Proceedings” to be commenced by the insolvency practitioner in the Supreme Court of Victoria as set out in a “Proposal” (clause 1.1) (“the original funding agreement”). The “Proposal” was the document in the form and containing all the information required by the partnership by which the insolvency practitioner sought a funding agreement (clause 1.1). In oral evidence Ms Silvers stated that “the proposal” was often a mix of letters of advice, often counsel advice or an application form which varied from case to case. In this case the advice of Mr O’Bryan provided the basis on which the plaintiffs decided to enter the funding agreement.
24 Pursuant to clauses 2.1.1 and 2.1.2 of that original funding agreement, the plaintiffs agreed to provide “Funding” to the insolvency practitioner to pay the insolvency practitioner’s costs to a capped amount of $50,000 and legal costs to a capped amount of $150,000.
25 Pursuant to clause 2.2 the insolvency practitioner was only to use the “Funding” in accordance with clause 2.1 and only in connection with the “Proceedings” as defined.
26 Pursuant to clauses 3.1 and 3.2, the insolvency practitioner was to repay the Funding and the “Additional Sum” to the plaintiffs on the Repayment Date (being two working days following the date of receipt of cleared funds of the Final Amount). The Funding was that provided in clause 2. The “Additional Sum” was calculated at three times the funding up to a cap of $600,000 (clause 3.2).
27 Clause 3.3 further provided as follows:
“Notwithstanding 3.2 if the Final Amount is less than the sum of the Funding and the Additional Sum the Insolvency Practitioner shall pay to LLS the Final Amount.”
28 Payment of any amount due under clause 3.2 and/or 3.3 was to be made in priority to any other claims by any other parties (clause 3.4).
29 The Final Amount was defined as follows:
“ ‘Final Amount’ means the proceeds received by the Insolvency Practitioner whether by way of settlement, orders, judgment, award or any other finalisation of the Proceedings without set-off or deduction of any amounts including but not limited to GST” (Clause 1.1)
Proceeding 8822 of 2003 and first Deed of Settlement
30 A writ and statement of claim against Global and the Mays was filed by Mr Rathner in the Supreme Court on 14 November 2003 (proceeding 8822 of 2003). It sought, inter alia, repayment of the $3.25 million pursuant to the DOCA.
31 Mr Rathner subsequently entered into a deed of settlement dated 17 August, 2004 (the “first deed of settlement”) with Global and the Mays (“RM” and “JM”).
32 Pursuant to clause 2.1 of that first deed of settlement, Global, in its capacity as mortgagee in possession of the “AEPL Shares”, and acting pursuant to the charge it held, agreed to assign “the AEPL Shares” to Mr Rathner in consideration of his agreement to settle the “Proceeding” (defined as 8822 of 2003) subject to clause 3.
33 The “AEPL Shares” were defined to mean 1150 shares in Australon held by ACTA which comprised 57.5% of the issued share capital of Australon.
34 Pursuant to clause 2.2:
“The parties acknowledge and agree that as the owner of the AEPL Shares Rathner will be entitled to ACTA’s Intermoco Shares, and the parties must do all things necessary to enable Rathner to take possession of ACTA’s Intermoco Shares by 17 February 2005.”
35 “ACTA’s Intermoco Shares” were defined to mean the shares in Intermoco to which ACTA was beneficially entitled in its capacity as owner of the Australon shares. “Intermoco Shares” were defined to mean the fully paid ordinary shares in the capital of Intermoco held by Australon at the date of the deed (clause 1.1).
36 Pursuant to clause 2.3, if Rathner had not taken possession of ACTA’s Intermoco shares by 17 February 2005 then clause 8 applied and he was entitled to judgment in default against the three defendants in the sum of $3.25 million together with interest and costs.
37 Pursuant to clause 3.1 Mr Rathner was to assign and deliver to Global any of ACTA’s Intermoco Shares in excess of 75 million shares. Further:
“3.2 For the avoidance of doubt the parties acknowledge it is their intention that the Fund is to include all of the proceeds of sale of 75 million of ACTA’s Intermoco Shares, net of any tax liability and costs associated with that sale.
3.3 Rathner undertakes to each of RM, JM and Global to sell ACTA’s Intermoco
Shares in an orderly manner but at all times subject to his sole discretion.”
38 Pursuant to clause 6.1 clause 7(a) of the DOCA was varied to provide for the establishment of the Fund in the manner contemplated by that deed.
39 Pursuant to clause 7 Proceeding 8822 of 2003 was to be adjourned until 18 February 2005. If the defendants to that proceeding complied with their obligations prior to 18 February 2005 then Mr Rathner agreed to discontinue that proceeding.
40 As is reflected in the first deed of settlement, Mr Rathner’s commercial interest was concerned with the gaining of possession of the Intermoco Shares. However, as will be seen below, a range of obstacles worked against this interest. More particularly, as has been described by Whelan J in a related proceeding:
“ between 2001 and 2005 the activities of the Mays have led to the creation of a
complex series of competing claims concerning ACTA’s shares in Australon.”[2]
[2] Rathner v Lindholm and Ors [2005] VSC 399 at [2]
41 By correspondence of 17 August 2004 from Holding Redlich to Ms Silvers a copy of the first settlement deed was attached. The correspondence also stated: “provided the Mays comply with their obligations under the Settlement Deed and the share price of the Intermoco Shares does not drop too much, it certainly represents an excellent outcome…To put it another way, we have gone from being at the back of the queue to sitting in the box office with the queue in front of us.”
42 By correspondence of 18 August 2004 from Ms Silvers she refers to “relief” at the settlement which places “Gideon and LLS in a much better position than if we had proceeded to judgment with no way of enforcing payments from the defendants from any particular asset.”
43 This correspondence, consistent with the terms of the original deed of settlement and the advice of Mr O’Bryan, confirms that the commercial aim of Mr Rathner was to “get his hands on” the Intermoco shares in order to satisfy his claims.
44 Pursuant to correspondence dated 18 August 2004 Mr Rathner enclosed a copy of an executed share transfer to the secretary of Australon requesting receipt of the original share certificates. Apparently the share certificates were held by Mr Lockwood’s then firm, Horwath chartered accountants. Horwath’s solicitors asserted an equitable lien over the assets of ACTA for the expenses incurred by Mr Lockwood in the course of the receivership. The transfer has never been registered.[3]
proceeding 2100 of 2003
[3] Rathner v Lindholm and Ors [2005] VSC 399 at [56]
45 Mr Rathner has admitted to being a defendant in a proceeding (2100 of 2003) brought by co-shareholders of Australon (Newpage Pty Ltd and Springwell Australia Pty Ltd) against ACTA and others in regard to rights and interest in the shares in Australon (paragraph 10(a) of the Defence dated 27 May 2009). He claimed in oral evidence that he did not know when he was joined as a defendant to this proceeding.
46 However, as is apparent from an order of Justice Byrne of 15 February 2005, Mr Rathner must have been joined as a seventh defendant to this proceeding at some point prior to 8 October 2004 (as he is ordered to make discovery in accordance with earlier orders made against him on that date).
VARIED FUNDING AGREEMENT 13 DECEMBER 2004
background
47 During 2003 and 2004 the plaintiffs made payments for the defendant’s costs in the sum of $60,590.99 and for the defendant’s legal costs and disbursements in the sum of $141,758.48 for acting in connection with proceeding 8822 of 2003 as set out in Schedule A to the Third Further Amended Statement of Claim. These invoices and payments were admitted by the defendant.
48 By email dated 15 October 2004 from Mr Andrews of Holding Redlich to Ms Silvers, he referred to a “without prejudice” meeting on Wednesday held, inter alia, with Newpage/Springwell interests (being the other shareholders in Australon); with ILF (being litigation funders of ACTA); and with Horwath (being the then receiver of ACTA).
49 Paragraph 5 of that email reads as follow:
“We have agreed that the Funding Agreement between Gideon and LLS dated 11 November 2003 will need to be extended, both to provide additional defence funding for the Newpage/Springwell matter, and to fund the resolution of that proceeding if Gideon is ultimately able to do a deal prior to the hearing. Subject to your expenditure to date, I propose that the Funding Agreement is amended by:
(a) adding the Newpage/Springwell proceeding to the definition of ‘Proceedings’
in the Funding Agreement;
(b) increasing the level of funding specified in clause 2.1; and
(c) making consequential changes to the balance of clause 2 and clause 3, but retaining the basic principle that in addition to repayment of the Funding, LLS will receive an Additional Sum which we propose remain capped at $600,000.”
50 Paragraph 6 reads:
“I have not undertaken a detailed examination of the Funding Agreement to ascertain what other changes may be required but I confirm Gideon’s ‘in principle’ proposal that provided LLS continues funding the defence of these matters and the ongoing negotiations towards a settlement, he wants to ensure LLS benefits as well.”
51 Paragraph 9 states that:
“The imponderable element of all this is whether, if Gideon consummates a settlement, the other (no doubt extremely irate) parties will try to force him to disgorge the Intermoco shares once he gets them, or alternatively the proceeds of sale of those shares. Given the sums involved ... it probably warrants an attack by ILF and/or Horwath. Therefore, it would be prudent to anticipate Gideon may need funding for the defence of such a proceeding, which could be covered by (for example) including in the definition of “Proceedings” in the Funding Agreement and “Anticipated Proceeding”, a separately defined term meaning “…any court proceedings instituted by any person seeking to challenge, set aside or impugn any settlement of the Proceedings by Rathner.”
52 An email from Michelle Silvers to David Andrews of 19 October 2004 followed. Paragraph 6 of that email stated that:
“LLS will agree to provide the extra funding and extend the funding agreement to include the Springwell proceedings but in return expects that the Additional sum will also increase.”
53 By correspondence of 1 December 2004 from the plaintiffs to Mr Andrews, Ms Silvers referred to the fact that extra funding was now required, because of a “change in circumstances and the addition of new proceedings”.
54 The letter confirmed an arrangement for funding to increase to between $350,000–$400,000 rather than the original cap on funding proposed at the level of $150,000 for legal costs and $50,000 for the “Insolvency Practitioner’s”costs.
55 The correspondence continued: “We also agree that in return for this increase in funding, LSS will be entitled to recovery in accordance with Clause 3 of the funding agreement as follows:
“3.1 the repayment of the funding and the additional sum to LLS on the
repayment date
3.2 In addition to repayment of the funding the Insolvency Practitioner agrees to
pay to LLS an additional sum calculated at 3 times the funding up to a cap of
$850,000.”
56 The correspondence was apparently signed by Mr Rathner on 13 December 2004 under the statement that “I, Gideon Rathner, hereby agree with and accept the amendments to the Funding Agreement specified above.”
57 The defendant generally admits that the funding agreement was varied in about December 2004 and that such variation allowed for funding of a defence to proceeding 2100 of 2003 but otherwise does not admit the effect of the variation pleaded (paragraph 9A of the Defence dated 27 May 2009).
Construction of the varied funding agreement
58 The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[4]
[4] Toll (FGCT) v Alphapharm Pty Ltd (219) CLR 165 at 179
59 By the variations in December 2004, the original funding agreement was clearly varied to include the defence of the proceeding brought by Newpage Pty Ltd and Springwell Australia Pty Ltd (2100 of 2003).
60 It was also varied to increase funding up to $400,000 and wherein the defendant agreed that the partnership would be entitled to an increased additional sum to a cap of $850,000.
61 However, the varied agreement was also struck in context wherein it was contemplated that other parties may “try to disgorge the Intermoco shares once he [Mr Rathner] gets them, or alternatively the proceeds of sale of those shares” (as referred to in the 15 October 2004 email). Thus, following on from the first deed of settlement the defendant’s commercial aim was to obtain the benefit of the Intermoco shares. He needed funding to enable him to do so.
62 In this context, in my view the “Further Proceedings” to be covered by the varied funding agreement included both proceeding 2100 of 2003 (already in existence) as well as proceedings towards a settlement in relation to the Defendant’s interest in the Intermoco shares (these are collectively described as “the Further Proceedings” in paragraph 9A of the Third Further Amended Statement of Claim).
63 Thus I accept that a varied funding agreement was made based on the original funding agreement (which funded proceeding 8822 of 2003) but which related also to “Further Proceedings” as the plaintiffs claim. More particularly that it included the following terms:
(a) The partnership would provide increased funding to pay the defendant’s costs and legal costs to a capped amount of $400,000 for acting in relation to the Claim (8822 of 2003) and the Further Proceedings;
(b) The Defendant would only use the increased funding in connection
with the Claim and the Further Proceedings;(c) The Defendant would repay to the partnership the increased funding together with the increased additional sum (calculated at three times the increased funding up to a cap of $850,000) from the proceeds received by the Defendant whether by way of settlement, orders, judgment, award or any other finalisation of the Claim and the Further Proceedings without set- off or deduction of any amounts including but not limited to GST (the Varied Final Amount).
64 Consistent with the terms of the original funding agreement, if the Varied Final Amount was less than the sum of the increased Funding and the increased Additional Sum the defendant would pay to the partnership the Varied Final Amount by way of priority.
65 The defendant did not seriously challenge this construction of the varied funding agreement and indeed made submissions on the basis that a term to the effect alleged in paragraph 63 (c) above existed.
SECOND DEED OF SETTLEMENT
Background: proceeding 2089 of 2005 and reinstatement proceeding
66 The Mays were both made bankrupt on debtor’s petitions filed in March 2005, (for Roger May) and April 2005 (for Jason May) (see Mr Rathner’s report of July 2006).
67 There also appeared to be another proceeding brought for the reinstatement of Global although there was little evidence in relation to this proceeding. There was an invoice issued by Foleys list on 22 July 2005 in relation to “Rathner- GCT Reinstatement”; Reading, research, preparation, drafting and appearance: FCA 19/7/2005” for an amount of $8,800.00 about which Mr Rathner had “no separate recollection.”
68 In any event, given the amount involved was only an amount of $8,800.00 this proceeding does not warrant further consideration.
69 However, Mr Rathner was a plaintiff in proceeding 2089 of 2005 brought in the Supreme Court against various parties claiming rights and interest in the shares in Australon (paragraph 10(b) of the Defence).
70 In a judgment dated 6 October 2005 in this proceeding Whelan J determined that subject to certain deferred issues concerning another settlement, “Mr Rathner does have an equitable proprietary interest in ACTA’s shares in Australon as a consequence of the assignment in the 17 August 2004 settlement deed.”
71 However the relief, if any, to which Mr Rathner was entitled in that proceeding “cannot be determined until the position of Newpage and Springwell is further considered by reference to [other agreements].” His honour further noted that “that relief will have to adequately reflect not only Mr Rathner’s interest as I have found it to be (subject to the deferred issue) but all of the competing claims.”[5]
[5] [2005] VSC 399
72 During 2005 the partnership claimed that it paid $237,389.60 in connection with the defendant’s costs and legal costs for acting in connection with proceeding 2100 of 2003 and proceeding 2089 of 2005 (see Schedule B to the Third Further Amended Statement of Claim).
73 The defendant generally admitted that this amount was paid but said that it was not admitted that $61,000 of this amount was actually paid in relation to particular invoices.
74 However, the invoices generally appear to relate to proceeding 2100 of 2003 and 2089 of 2005.[6] This is consistent with my findings as to the terms of the varied funding agreement, namely that payments were only to be claimed in relation to the Further Proceedings. No suggestion to the opposite effect was made by the defendant.
Terms of Second deed of settlement
[6] With the exception of the invoice for $8800 relating to the reinstatement proceeding
75 By a deed of settlement dated 28 June 2007 Mr Rathner (who was by then liquidator of ACTA) executed a deed of settlement with ACTA (receivers and managers appointed and in liquidation); Mr John Lindholm and George Georges of Ferrier Hodgson (the then receivers and managers of ACTA appointed by Global), ILF (litigation funders of Horwath) and BDO Kendalls Business Recovery and Insolvency Pty Ltd (being the successor to Horwath BRI Pty Ltd, the former receiver and manager of ACTA) (“the second deed of settlement”).
recitals
76 The second deed of settlement recited that on 18 August 2004, Rathner, Roger May, Jason May and Global entered into “the 17 August Deed” as a consequence of which Rathner obtained an equitable interest in the Australon shares (recital G). The “17 August Deed” was defined as the deed of settlement dated 17 August 2004 ….pursuant to which the parties settled Proceeding 8822 of 2003” (clause 5.1).
77 The recitals also stated that Lindholm and Georges had realised Intermoco shares being 50,000,000 shares previously transferred by Australon to ACTA in February 2006 and thereby created a “Share Fund.” As at 29 May 2007 this Share Fund was $1,816.976 (recital J). Further, that Lindholm and Georges had transferred ACTA’s rights in the “SpectruCell IP” (which was referred to by the parties as a “blue sky asset”) to Indo Aust Investments Pty Ltd and thereby obtained the “SpectruCell Sale Proceeds” which comprised both the Spectru Cell Deposit (of $365,000) and the Indo Aust Shares (being 567,596 shares held by ACTA in Indo Aust)(recital K).
78 The recitals described that the parties had from time to time each made claims to an entitlement to either the Share Fund, the Spectru Cell Sale Proceeds or both and that these claims had resulted in the commencement of the various Court Proceedings (which proceedings were defined to include 8822/03; 2100/03 and 2089/05) (recital M).
operative provisions
79 Pursuant to clause 2.1(a) the parties agreed that “the Combined Fund” (being the Share Fund and the Spectru Cell Deposit) would be distributed by Lindholm and Georges to the parties, by the payment, inter alia, of “$160,000 plus GST to Rathner in part satisfaction of the Rathner Claims (Rathner’s Portion) within 3 business days of the execution of the deed” (clause 2.2).
80 “Rathner Claims” included “Rathner’s claim that he is entitled to ... an equitable interest in the Intermoco Shares arising from the terms of the DOCA and the 17 August Deed” (clause 5.1).
81 The amount of the Combined Fund remaining after payment of the $160,000 (“the Residual Fund”) was to be paid to ILF, Horwath and Lindholm and Georges pursuant to clause 2.1(b)-(d).
82 Pursuant to clause 2.3, “Rathner’s Portion” was to be paid from the SpectruCell Sale Proceeds.
83 Pursuant to clause 2.11 the parties agreed that they would jointly ask the Court to make orders dismissing or discontinuing each of the Compromised Court Proceedings and, pursuant to clause 2.12, to sign any consent orders to give effect to clause 2.11. Pursuant to clause 2.13 the deed could also be produced to the Court as evidence of the parties’ consent to the discontinuance or dismissal, as the case may be, of the Compromised Court Proceedings.
84 The “Compromised Court Proceedings” included Proceeding No 2100 of 2003 and 2089 of 2005 (clause 5.1).
releases
85 Pursuant to clause 3.1 Rathner released and discharged Lindholm and Georges from any undertakings they had from time to time provided not to distribute the Share Fund and the SpectruCell sale proceeds without consent or an order of the Court.
86 Clause 3.2 relevantly read as follows:
“Subject at all times to clause 3.3 herein and with effect upon the payments referred to in clauses 2.1, 2.2 and 2.5 herein being made, the parties hereby abandon, discharge and forever release each other together with their respective employers, employees, officers, agents, predecessors, related parties, successors and assigns (if any) from and against all actions, costs orders, suits, causes of action, claims, damages, losses, demands, liabilities, costs and expenses which they now have and at any time hereafter may have or but for the execution of these terms might have had in respect of:
(a) each of the Compromised Court Proceedings; and
(b) all or any further claims, actions, suits, demands or proceedings which, save for this deed the parties may have been entitled to bring and which arise out of the Compromised Proceedings or any other matter referred to in this deed, including without limitation the Rathner Claims ...” (emphasis added)
87 Pursuant to clause 3.3(d) the parties acknowledged that the terms of clause 3.2 do not operate to release any claim which Rathner might have to the Remaining Assets and to lodge if he believed appropriate, a proof of debt in the liquidation of Global. “Remaining Assets” were defined to mean the IndoAust shares or any net proceeds received by ACTA for the Indo Aust Options and any other assets of ACTA. However, pursuant to clause 2.9 the Remaining Assets would be distributed to Rathner as a third priority only.
events subsequent to the second deed
88 In his defence Mr Rathner admitted receiving the sum of $160,000 in about 28 June 2007 “in consideration of ACTA’s interest in intellectual property known as “SpectruCell” (paragraph 10(d) of the Defence).
89 In an email of 13 July 2007 purporting to respond to requests for advice in relation to settlement, Mr Rathner advised that “the funds have been disbursed in accordance with all agreements I can recall.” The evidence of Ms Silvers was that she first saw the second deed of settlement in December 2008.
90 By correspondence of 9 August 2007 Maddocks on behalf of the plaintiffs demanded payment of $154,000 from Mr Rathner. This was on the basis of the understanding of Ms Silvers of the amount of settlement funds to be received following a mediation of April 2007.
91 On 27 September 2007 Mr Pattison issued a notice of rejection of a proof of debt lodged by Mr Rathner requesting that his claim for $3.25 million be admitted. Mr Rathner has subsequently issued proceedings in relation to this rejection. However, in Mr Pattison’s Summary of the Administration Report of 26 August 2008 he says that he believes it is unlikely that there will be a dividend to unsecured creditors unless funds are recovered from the sale of the Spectrucell technology. He had not invited creditors to submit their Formal Proofs of Debt or Claim.
92 As fairly stated by Mr Carew in closing submissions: “the rejection was appealed but, obviously, any rights in that regard are academic. It is not a case where there is an insurer to make good on a claim against a company in liquidation.”[7]
[7] Defendant’s written submissions at paragraph 4
93 This proceeding was subsequently issued on 4 October 2007.
94 In the Defence to this proceeding, Mr Rathner claims, inter alia, that none of the proceedings relied on by the plaintiffs related in any way to SpectruCell and that no “Final Amount” was ever received within the meaning of the varied agreement (paragraph 10(e) and (f)).
95 It remains to be determined whether this submission is correct on a proper construction of the second deed of settlement.
CONSTRUCTION OF THE SECOND DEED OF SETTLEMENT
96 Mr Carew submitted that there had been no breach of the varied funding agreement, in particular because:
(a) there had been no “finalisation” of the relevant proceedings; (b)
the amount of $160,000 was received only in “part satisfaction” of the Rathner claims in circumstances where rights to “remaining assets” were preserved;
(c)
the money was actually received from the SpectruCell sale proceeds pursuant to clause 2.3 in circumstances where Mr Rathner’s evidence was that he believed the other claims to the share fund would exhaust the fund so that his equitable interest effectively had a “zero value.”
Finalisation of proceedings
97 In relation to this matter, Mr Carew emphasized that:
(a) the settlement of proceeding 2100 of 2003 (as a “compromised court proceeding”) was not of importance, as the defendant had made no claim; further the parties to the proceeding and the deed were different;
(b) the settlement of proceeding 2089 of 2005 (also as a “compromised court proceeding”) was also not important as there was nothing to settle in that proceeding. There were also different parties to this proceeding and the deed;
(c) that the definition of “compromised court proceeding” did not include
proceeding 8822 of 2003.
98 In my view the effect of the second deed was to “finalise” proceedings 2100 of 2003 and 2089 of 2005 as far as Mr Rathner was concerned both as a matter of form and substance.
99 As a matter of form, clause 2.13 made it clear that the parties consented to a discontinuance or dismissal of proceeding 2100 of 2003 and 2089 of 2005. Although this has not necessarily translated into final orders particularly given other parties are involved, the evident intent of the parties to the deed, including Mr Rathner, was to “finalise” those proceedings.
100 The material does not suggest that there was “nothing to settle” in relation to proceeding 2089 of 2005. The terms of his Honour’s declaration clearly left open a number of potential issues.
101 It is also of no consequence that Mr Rathner was a defendant, rather than a plaintiff, in proceeding 2100 of 2003 since there is no reason the concept of “finalisation of a claim” should not include finalisation of claims made by a defendant.
102 If this is correct it is unnecessary for there to be a “finalisation” of proceeding 8822/03 as well since in my view it is sufficient if there are proceeds received in relation to a “finalisation” of any one of the “Further Proceedings.”
103 However, the parties themselves refer to proceeding 8822/03 as having been “settled” pursuant to “the 17 August Deed.” The second deed of settlement thereby effectively acknowledged the “finalisation” of the 8822 proceeding. Although the proceeding has not been actually dismissed, as fairly conceded by Mr Carew, any claims to the money against Global are effectively fruitless. The Mays are also bankrupt.
104 More significantly, I accept the submissions of Mr Harvey, Counsel for the plaintiffs, that the commercial context in which the funding was given was to enable Mr Rathner to make or defend his claims to an equitable interest in Intermoco shares in all of these proceedings.
105 Insofar as 8822 of 2003 was concerned, Mr Rathner’s claims had effectively been replaced by a claim to an entitlement to Intermoco shares as a result of the first deed of settlement. Each of proceedings 2100 of 2003 and 2089 of 2005 were then issued (either by or against Mr Rathner) in a context wherein Mr Rathner was attempting to make or defend his claims to an equitable interest in Intermoco shares.
106 Moreover, any satisfaction did not need to be “satisfaction wholly” of such claims since it was apparent at the time of the making of the varied funding agreement that Mr Rathner may “do a deal” or settle such claims. Accordingly, any “satisfaction” wholly or partly in relation to his claim to Intermoco shares was in my view contemplated by the concept of “finalisation”. Such satisfaction was clearly given by the making of the payment in part satisfaction of Mr Rathner’s claims to an interest in the Intermoco shares (clause 2.1(a)).
107 Although an objective exercise is called for, it is consistent with this finding that Mr Rathner himself accepted under cross examination that he could make no further claim in relation to the Intermoco shares.
Part satisfaction
108 For reasons already given, the concept of “finalisation” includes satisfaction wholly or partly of a claim.
109 Further, a key consequence of the deed was that Mr Lindholm and Mr Georges were given a release in relation to any claim by Mr Rathner over the Share Fund held by them (clause 3.1 and 3.2(b)).
110 In this way Mr Rathner received “satisfaction” from the only people who held Intermoco shares and/or funds from the sale of such shares. In return he released those people from any further claims.
111 Indeed the only claim remaining to Mr Rathner pursuant to clause 3.3 appeared to be a third priority claim to the “Remaining Assets” and to lodge a proof of debt in the liquidation of Global. There was nothing to suggest that the former was of any value, while for reasons already expressed, the latter was effectively worthless.
Source of settlement monies
112 The judgment of Whelan J confirmed that Mr Rathner did have an equitable claim with respect to ACTA’s shares in Australon regardless of Mr Rathner’s views as to its value.
113 I further do not regard the fact that the $160,000 was to be paid from the SpectruCell sale proceeds as significant. Rather, the more important matter was whether there was a finalisation of a claim so that that claim was satisfied or released.
114 For reasons given already, Mr Rathner’s claims to the Intermoco shares were satisfied by reason of the second deed of settlement.
Summary
115 By reason of the $160,000 received pursuant to the second deed of settlement Mr Rathner’s claims in relation to the Intermoco shares were “finalised.” There was also a “finalisation” of proceedings 2089 of 2005 and 2100 of 2003 as well as 8822 of 2003.
116 The sum of $160,000 is less than the sum of the total funding received[8] and should have been paid to the plaintiffs pursuant to the terms of the varied funding agreement. Such payment has not been made despite demand.
CONCLUSION
[8] Of over $400,000
117 The plaintiffs are entitled to judgment in the amount of $160,000.
118 I will hear from the parties as to the appropriate form of final orders including the question of interest and costs.
SCHEDULE OF PARTIES
| MSJG PTY LTD | First Plaintiff |
| PETER BRENT | Second Plaintiff |
| 12-14 MARSDEN STREET PTY LTD | Third Plaintiff |
| PRESSTEEL PTY LTD | Fourth Plaintiff |
| JRA ENTERPRISES PTY LTD | Fifth Plaintiff |
| MINETT & PARTNERS FINANCIAL | Sixth Plaintiff |
| SERVICES PTY LTD | |
| STUART TURNER | Seventh Plaintiff |
| OWBOND PTY LTD | Eighth Plaintiff |
| DOMSON PTY LTD | Ninth Plaintiff |
| DETIKI PTY LTD | Tenth Plaintiff |
| HAPPY INVESTMENTS PTY LTD | Eleventh Plaintiff |
| HELLISON CAPITAL PTY LTD | Twelfth Plaintiff |
| DAVID AND DIAN ROSS | Thirteenth Plaintiff |
| ELRYG NOMINEES PTY LTD | Fourteenth Plaintiff |
| and | |
| GIDEON RATHNER | Defendant |
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