Pockett v Dean-Willcocks - [2004] NSWCA 192

NEW SOUTH WALES COURT OF APPEAL

CITATION: Pockett & Ors. v. Dean-Willcocks & Anor. [2004] NSWCA 192

FILE NUMBER(S):
40279/04

HEARING DATE(S): 8 June 2004

JUDGMENT DATE: 18/06/2004

PARTIES:
Tom Pockett - 1st claimant
So Sochim - 2nd claimant
Penny Winn - 3rd claimant
Mark Kelly - 4th claimant
Steven Bradley - 5th claimant
Gerard Rohl - 6th claimant
Dick Smith Electronics Pty. Ltd. - 7th claimant
Intertan Australia Limited - 8th claimant
Woolworths Limited - 9th claimant
Ronald John Dean-Willcocks and Ian James Purchas - opponents

JUDGMENT OF: Hodgson JA Tobias JA Bryson JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC6063/03

LOWER COURT JUDICIAL OFFICER: Windeyer J

COUNSEL:
Mr. J.N. West QC with Mr. R. McHugh for claimants
Mr. C.R.C. Newlinds SC with Ms. A. Seward for opponents

SOLICITORS:
Corrs Chambers Westgarth, Sydney for claimants
Kemp Strang, Sydney for opponents

CATCHWORDS:
CORPORATIONS - Voluntary administration - Summons for examination of employees of proposed defendant - Proposal for litigation funding - Whether proposed arrangement champertous - Whether summons for proper purpose.

LEGISLATION CITED:
Corporations Act 2001 (Cth) ss.596B, 596C
Supreme Court (Corporations) Rule 1999, r.11.5

DECISION:
Application for leave to appeal dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL

CA 40279/04
SC 6063/03
HODGSON JA
TOBIAS JA
BRYSON JA
Friday 18 June 2004

POCKETT & ORS. V. DEAN-WILLCOCKS & ANOR.

Judgment

HODGSON JA: On 2 April 2004, Windeyer J dismissed with costs an interlocutory process filed by the claimants on 23 February 2004. The claimants seek leave to appeal from that decision. The application for leave has been argued on the basis that, if leave is granted, the appeal will be decided without further argument.
CIRCUMSTANCES
The proceedings arise from the granting by the Registrar in the Equity Division of an examination summons and the issue of orders for production of documents in relation to a company called Etrend Pty. Limited (Etrend). That company had been in negotiation with interests associated with Woolworths Limited (Woolworths) for some time in relation to a proposed production of electronic gift cards. Those negotiations ended, and on 13 June 2003, Etrend was placed into voluntary administration pursuant to s.439A of the Corporations Act 2001 (Cth) (the Act), and the opponents were appointed as the company’s voluntary administrators.
On 2 July 2003, the opponents issued a Report to Creditors of Etrend. The report referred to the directors’ Report As To Affairs which showed assets having an estimated realisable value of $217,690.00, priority creditors of $67,356.00 and unsecured creditors of $1,009,475.00, including one director Brett Blundy allegedly owed $914,542.00. The report referred to a possible cause of action as follows:
As noted in section 1 herein a possible action against Woolworths exists with respect to the Giftpos system. Prior to our appointment the directors had taken preliminary legal advice on same and we, likewise, have now received initial positive preliminary legal advice. We have not at this stage considered the likely quantum of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2004] NSWCA 192
Decision Date: 18 June 2004

CaseChat Overview and Summary

The parties in this matter were the claimants, who sought leave to appeal, and the respondents, who were the deed administrators of Etrend Pty Limited. The dispute concerned the propriety of summonses for the examination of employees of a proposed defendant, in circumstances where the administrators were seeking litigation funding. The claimants argued that the proposed funding arrangement was champertous and that the examinations were sought for an improper purpose. The application for leave to appeal was heard by the Court.

The legal issues before the court were whether the summonses for examination were sought for a proper purpose, and whether the proposed litigation funding arrangement was champertous and contrary to public policy. Specifically, the claimants contended that the primary judge erred in failing to find that the examinations were in furtherance of a champertous arrangement, that the administrators had a proper interest in conducting the examinations, and that the purpose of the examinations was to obtain information to facilitate litigation funding. They also argued that the court should not lend its processes to such an arrangement and that the predominant purpose of the examinations was to obtain information for a third-party litigation funder, which was a collateral and improper purpose.

The court dismissed the application for leave to appeal, finding no substance in the primary arguments. It held that litigation funding for an administrator of an insolvent company could be lawful, provided the administrator did not dispose of a cause of action otherwise than in a bona fide exercise of their power. The court reasoned that it should not be assumed that the administrators would enter into an unlawful agreement and that they were not required to prove the specific terms of any funding agreement at that stage. The primary judge's finding that the administrators' purpose was to obtain information about the strength of the cause of action was upheld, and it was determined that this was a proper purpose. The court further held that the mere possibility of submitting this information to a litigation funder did not make the purpose improper or constitute an abuse of process. While acknowledging the brevity of the primary judge's reasons on discretion, the court found that his findings regarding the purpose of assessing the claim's strength and the absence of a collateral purpose were sufficient. The court also found that the affidavit relied upon sufficiently demonstrated that the administrators lacked information regarding key matters, such as the reasons for Woolworths' withdrawal from negotiations and the potential quantum of damages, which were relevant to assessing the claim's strength.

The application for leave to appeal was dismissed with costs.

Orders

Orders of the court

Application for leave to appeal dismissed with costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Certainly, Mr. West submitted, the primary judge had not appropriately addressed the matters going to the exercise of the Court’s discretion. DECISION In my opinion, there is no substance in the first two submissions. As regards the first submission, it is clear that litigation funding of an administrator of an insolvent company can be provided in such a way as to be lawful; and indeed, it appears that it will be lawful unless the administrator disposes of a cause of action otherwise than in bona fide exercise of the power to dispose of the property of the company. In my opinion, it should not be assumed that the administrators in this case would, in performance of the terms of the deed, enter into an unlawful agreement; and in my opinion, there was no need for the administrators to prove to the Court at this stage what the terms of any funding agreement would be. On the second point, the primary judge found that the administrators had the purpose of getting information as to the strength of the cause of action, and certainly he did not find that their predominant purpose was to provide information to a proposed litigation funder. No basis is shown to suggest that those findings were in error. The purpose of getting information as to the strength of the cause of action would be a proper purpose. The circumstance that the administrators may also have proposed to submit this information to a litigation funder could not make their purpose improper, or make the obtaining of the examination summons an abuse of process. On the third matter, the primary judge’s reasons addressed to the exercise of discretion were brief. However, he did find that the purpose of the examination was to assess the strength of the company’s claim against the Woolworths interests, and that no collateral purpose had been shown; and in circumstances where those findings had been made, the other factors referred to by the primary judge did not carry such weight as to require detailed consideration. Particular submissions were advanced to the effect that the material put to the Registrar, and put before the primary judge once access to that material had been obtained, did not show what information the administrators lacked, particularly where they had written records concerning alleged representations, the co-operation of directors, and in general terms all the information that the company would have had if it was not in administration. In my opinion, the affidavit relied on before the Registrar sufficiently showed that the administrators considered that information was lacking as to a number of relevant matters, including the reasons why Woolworths withdrew from the negotiations (which could be relevant to reasonable grounds under the Trade Practices Act, and to possible claims by the company based on estoppel or breach of contract); to what extent, if any, Woolworths disputed the making of representations; and the potential quantum of damages. The administrator who made that affidavit was not cross-examined in relation to those matters; and the only submission concerning them that was made was as follows:Until the Administrators identify the information which they seek and articulate their need for that information, it is difficult for the court to assess the weight to be given to this factor in the exercise of its discretion.

Ratio Decidendi

Legal Principle Established

Before the primary judge, the claimants argued that the purpose of the examination was to obtain evidence to place before a funder with a view to entering into a champertous arrangement with the funder. It was submitted that this was an improper purpose, and reliance was placed on Trendtex Trading Corporation v. Credit Suisse [1982] AC 679 and Emanuel Investments Pty. Limited (In Liq); Saint v. Macks [1999] SASC 264. The primary judge held that there were exceptions to the general principle with made champertous agreements unlawful, particularly in cases of insolvency: see Re William Felton Pty. Limited (1998) 28 ACSR 228, Re Movitor Pty. Limited (1996) 19 ACSR 440. He held that it was not shown the contemplated funding agreement would be unlawful in this case. He distinguished Emanuel on the basis that, in that case, the purpose of the examination was to obtain information about insurance which the defendants to the proposed litigation may have had; whereas here, there was the basis for a claim against the Woolworths interests, and the administrators were justified in seeking information to assess the strength of that claim. The primary judge also rejected submissions concerning the exercise of discretion, in particular that the examination would give the administrators an unfair forensic advantage; that the litigation was in the interests of just one creditor, Mr. Blundy; that the examinees were not directors or officers or employees of Etrend; and that the deed administrators were not officers of the Court. PROPOSED GROUNDS OF APPEAL The claimants seek leave to appeal on the following grounds: 1 His Honour erred:(a)in failing to find that the examinations and the orders for production are in furtherance of an arrangement which is champertous;(b)in holding that because the opponents had been appointed deed adminsitrators (sic) to Etrend Pty Limited ("Etrend") clause 12.3 was not void as an agreement to traffic in litigation contrary to the rule of public policy identified by the House of Lords in Trendtex Trading Corporation v Credit Suisse [1982] AC 679, 694-695 because the Adminsitrators (sic) have a proper interest in conducting the examinations;(c)in failing to hold that the examination orders were sought by the opponents to facilitate the object embodied in clause 12.3, which is to procure litigation funding, having first examined the applicants about the likely proceedings against Woolworths;(d)in finding that the purpose of the examinations was to assess the strength of the claim against Woolworths [para 8] and only then to approach funders to provide the funding to institute action against Woolworths [para 6];(e)in failing to hold that such an arrangement is contrary to public policy; and(f)in failing to hold that the Court should not lend its processes to such an arrangement.2 His Honour erred:(a)in failing to find that the predominant purpose of the examinations and orders for production is to obtain information to place before a third party litigation funder, and(b)in failing to hold that such a purpose is collateral and improper.3 The Court's exercise of discretion miscarried in that:(a)the Court mistook the facts, being the matters stated at grounds 1(a) and 2(a) above and grounds 4 and 5 below;(b)the Court acted on wrong principles, being the matters stated at grounds 1(e) and (f) and 2(b) above;(c)the Court's exercise of discretion was manifestly unreasonable and unjust in all the circumstances;(d)the Court failed to consider, or alternatively failed to give any weight to, or alternatively failed to give sufficient weight to the following relevant matters:(i)The express purpose of the examinations is to benefit a third party funder;(ii)The examination will give an unfair forensic advantage to Etrend and the Deed Administrators;(iii)The fact that the Administrators have access to all the information of Etrend and its directors such that the Administrators are under no disadvantage which would justify the use of coercive powers of examination and production;(iv)The litigation is largely in the interests of a particular director, the largest creditor;(v)The examinees are employees of the Woolworths interests, not directors or officers of Etrend;(vi)The fact that the matters likely to be the subject of the examinations are remote from the examinable corporate affairs of Etrend itself; and(vii)The deed administrators are not officers of the Court.4 His Honour erred in finding that the purpose of the examinations is for the Administrators to assess the strength of Etrend's claim against Woolworths and that there is no collateral purpose to the examinations.5 His Honour erred in failing to find:(a)that the Administrators have access to all the information of Etrend and its directors such that the Administrators are under no disadvantage which would justify the use of coercive powers of examination and production;(b)that the litigation is largely in the interests of a particular director, the largest creditor; and(c)that he (sic) matters likely to be the subject of the examinations are remote from the examinable corporate affairs of Etrend itself.6 His Honour erred in declining to grant to the Appellants orders under Supreme Court (Corporations) Rules Rule 11.5 discharging the summonses issued under section 596B of the Corporations Act to each of the first through sixth Appellants.7 His Honour erred in declining to grant to the Appellants orders setting aside the Orders for Production issued pursuant to Part 36 rule 12 of the Supreme Court Rules issued to each of the first through ninth Appellants and any of Douglas Carlson, Ken Douglas, Bill (William) Wavish and Rob Edgar.SUBMISSIONS