Trafalgar West Investments Pty Ltd v LCM Litigation Management Pty Ltd
[2016] WASC 159
•26 MAY 2016
TRAFALGAR WEST INVESTMENTS PTY LTD -v- LCM LITIGATION MANAGEMENT PTY LTD [2016] WASC 159
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 159 | |
| Case No: | CIV:1102/2016 | 5 MAY 2016 | |
| Coram: | BEECH J | 26/05/16 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Plaintiff's claim for declaration dismissed | ||
| B | |||
| PDF Version |
| Parties: | TRAFALGAR WEST INVESTMENTS PTY LTD LCM LITIGATION MANAGEMENT PTY LTD |
Catchwords: | Contract Litigation funding agreement Order for security for costs in funded action Funding agreement terminated Whether litigation funder liable to satisfy security for costs orders Whether rights accrued unconditionally prior to termination Turns on own facts |
Legislation: | Nil |
Case References: | FPM Construction Pty Ltd v Council of City of Blue Mountains [2005] NSWCA 340 Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40 Green v Sommerville (1979) 141 CLR 594 Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716 Kidd v The State of Western Australia [2014] WASC 99 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Naaman v Sleiman [2015] NSWCA 259 Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd (2014) WASCA 28 Red Hill Iron Ore Ltd v API Management Pty Ltd [2012] WASC 323 Stuart v Hishon [2013] NSWSC 766 Trafalgar West Investments Pty Ltd as Trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [No 8] [2016] WASC 34 Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
LCM LITIGATION MANAGEMENT PTY LTD
Defendant
Catchwords:
Contract - Litigation funding agreement - Order for security for costs in funded action - Funding agreement terminated - Whether litigation funder liable to satisfy security for costs orders - Whether rights accrued unconditionally prior to termination - Turns on own facts
Legislation:
Nil
Result:
Plaintiff's claim for declaration dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr S Penglis
Defendant : Mr J C Giles SC
Solicitors:
Plaintiff : Jebb Legal
Defendant : Integra Legal
Case(s) referred to in judgment(s):
FPM Construction Pty Ltd v Council of City of Blue Mountains [2005] NSWCA 340
Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40
Green v Sommerville (1979) 141 CLR 594
Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716
Kidd v The State of Western Australia [2014] WASC 99
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Naaman v Sleiman [2015] NSWCA 259
Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd [2014] WASCA 28
Red Hill Iron Ore Ltd v API Management Pty Ltd [2012] WASC 323
Stuart v Hishon [2013] NSWSC 766
Trafalgar West Investments Pty Ltd as Trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [No 8] [2016] WASC 34
Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361
- BEECH J:
Introduction
1 In 2013, the defendant (LCM) agreed to fund the plaintiff (Trafalgar) in litigation in this court. In November 2014, in that litigation, the court ordered that Trafalgar provide additional security for costs in three stages. The first stage was provided. In September 2015, before the second stage had been reached in the action, LCM terminated the funding agreement, pursuant to an express contractual right.
2 The issue in these proceedings is whether LCM is obliged to satisfy the order for security for costs in relation to the second and third stages. For the reasons that follow, in my opinion LCM is not obliged to satisfy the second and third stages of the order for security for costs, so Trafalgar's claim fails.
The facts
3 The facts are not in dispute.
4 On 23 March 2011, Trafalgar commenced proceedings COR 59 of 2011 (the Action).
5 On 29 April 2013, Trafalgar was ordered in the Action to provide security for costs in the total amount of $150,000, payable in tranches, with the first tranche being $32,648.1
6 On 10 September 2013, Mr and Mrs Jebb, the persons behind Trafalgar, provided a bank guarantee in the sum of $32,648 in satisfaction of the first tranche of security ordered in the Action.2
7 On 14 November 2013, a litigation funding agreement was signed between Trafalgar and LCM.3 At the request of LCM, in December 2014 that agreement was replaced by a litigation funding agreement, also bearing the date 14 November 2013.4 The parties agree that their rights are governed by the replacement version of the funding agreement.5
8 I will set out relevant terms of the funding agreement later in these reasons.
9 On 23 May 2014, the solicitors for the defendants in the Action requested Trafalgar to agree to an increase in the amount of security for costs from $150,000 to $400,000.6
10 On 22 July 2014, Mr Coope, then joint managing director of LCM, sent an email to Mr Jebb, copied to Trafalgar's solicitors.7 Among other things, Mr Coope's email said as follows:
The only issue for me on the security application is whether it is worth opposing the increase in security that is sought. That involves weighing the costs/likely delay against whether we are likely to be successful and whether there is any strategic benefit in having a fight with [the solicitors for the defendant in the Action]. I haven't read [the solicitors for the defendants in the Action]'s material yet and so cannot express a view - I will try and read as soon as I can.
11 In October 2014 there were negotiations between the solicitors for the parties in the Action regarding the provision of further security for costs. Trafalgar's solicitors in that action sought the input of both Mr Jebb, of Trafalgar, and Mr Coope, of LCM.8 During this period Mr Coope said to Mr Jebb, in the course of a telephone conversation, that he (Mr Coope) did not wish to waste time on a contested application for security for costs and he was agreeable for LCM to consent to an order increasing the security for costs payable to $350,000.9
12 On 24 October 2014, Trafalgar's solicitors sent an email to Mr Coope, copied to Mr Jebb, setting out a draft email intended to capture Mr Coope's proposal to be sent to the defendants' solicitors in the Action.10 The draft email proposed that the overall amount of security be increased from $150,000 to $350,000, and that the first tranche be increased to $60,000.
13 On 27 October 2014, Mr Coope sent an email to Trafalgar's solicitors, copied to Mr Jebb. In the email Mr Coope stated that he was happy for the solicitor to send the draft email as set out in her earlier email. Mr Coope said it needed to be an open communication. Mr Coope's email also stated that he would transfer the next $28,000 later that day, asking Trafalgar's solicitors to pay that amount into court as soon as it was received.11 Later the same day, Mr Jebb sent an email to Mr Coope (and not to Trafalgar's solicitors). In Mr Jebb's email he said he agreed with Mr Coope's email and suggested a modification to Trafalgar's solicitors' draft email. Mr Jebb's email concluded by saying:
Having said this I have no issue with LCM deciding how best to handle this given I'm not paying the security.12
14 The next day, on 28 October 2014, Mr Coope emailed Trafalgar's solicitors, copied to Mr Jebb.13 In the email Mr Coope stated he had just transferred the $28,000, which should be received overnight. The email also stated that Mr Jebb had persuaded him to drop his insistence on there being no further applications for security.
15 The amount of $27,352 was transferred by LCM to the trust account of Trafalgar's solicitors on or about 28 October 2014 and that amount was paid into court by the solicitors on or about 27 November 2014.14
16 On 21 November 2014, orders were made in the Action by consent that included, relevantly, pars 6 - 9 as follows:15
6. The overall amount of security for costs ordered on 29 April 2013 be uplifted from $150,000 to $350,000.
7. The first tranche of security ordered on 29 April 2013 be increased from $32,648 to $60,000, with the balance to be provided within seven days of the order by way of payment into court to be deposited into an interest bearing account with the Public Trustee.
8. Within seven days of the close of discovery and inspection, a second tranche of security in the amount of $100,000 be paid, up to an entry for trial, by way of payment into court to be deposited into an interest bearing account with the Public Trustee.
9. The balance of the security to be paid within 14 days after entry for trial by way of payment into court to be deposited into an interest bearing account with the Public Trustee.
17 On 21 November 2014, Trafalgar's solicitors sent an email to Mr Jebb and to Mr Coope reporting on the hearing which had occurred that day. The email stated that the court had made orders for security for costs as had been proposed by Trafalgar, and attached a copy of the orders.16
18 On 26 November 2014, Mr Coope sent an email to Trafalgar's solicitors requesting a copy of the receipt from the court for the $28,000 paid in late October.17
19 On 27 November 2014, Trafalgar's solicitor sent LCM's accountant an email, copied to Mr Coope, attaching, among other things, the receipt for the amount of $27,352 paid into court.18
20 In late February 2015 Mr Maloney of LCM took over responsibility for overseeing LCM's funding of Trafalgar.19
21 On 15 September 2015, Mr Maloney, on behalf of LCM, wrote to Mr Jebb, on behalf of Trafalgar, terminating the funding agreement, with effect from 8 October 2015. The termination was in the form of 15 days' written notice pursuant to cl 18.1.20
22 Trafalgar gave discovery on affidavit in the Action on 7 October 2015; the defendants gave discovery on 9 November 2015. Inspection by both parties was completed by 19 November 2015.21
23 By email of 10 December 2015, Mr Jebb sought LCM's confirmation that LCM would comply with what was described as an ongoing obligation to satisfy the orders made on 21 November 2014 in respect of the second tranche of security.22
24 In response, LCM denied it had any obligation to meet any security for costs order in circumstances where the funding agreement had been terminated with effect from 8 October 2015.23
25 It is that issue which led to the commencement of these proceedings.
The funding agreement
26 The funding agreement is evidently derived from a standard form agreement used by LCM. The need for the second version of the agreement, executed in December 2014, arose because of errors in cross-referencing between various clauses. Not all of those errors were corrected. For example, many clauses of (the second version of) the agreement refer to LCM's obligation to pay Adverse Costs, when by cl 21.2 and cl 27.2 it is clear that LCM had no such liability.
27 The agreement refers to LCM as the Funder, and Trafalgar as the Litigant. The funding agreement includes the following provisions:
1.2 'Action Costs' means the aggregate of the Funder's Costs and the reasonable costs and expenses incurred by the Litigant in the performance of this Agreement comprising the following but excluding costs or expenses incurred by or asserted against the Litigant in prosecuting a Cause of Action not being the Action or which result from the Litigant's breach of this Agreement:
1.2.1 charges of Solicitors calculated in accordance with the agreed terms of the Retainer;
1.2.2 time charges of barristers, accountants and other professionals (calculated at rates approved by the Funder);
1.2.3 court filing fees and all other incidental court fees;
1.2.4 all fees, costs and charges in respect of the Work Program and, subject to the provision of the notice from the Funder to the Litigant in clause 48.1.2, the Due Diligence;
1.2.5 any costs order payable forthwith by the Claimant in respect of an interlocutory application:
1.2.5.1 issued by the Claimant after the date of this Agreement to which the Funder has agreed pursuant to clause 12.2.2 of this Agreement; and
1.2.5.2 issued by any defendant to the Principal Cause of Action after the date of this Agreement
1.2.6 the costs associated with administering this Agreement as detailed in clause 44.2;
1.2.7 any costs incurred by the Funder in negotiating or administering the Retainer;
1.2.8 any fees and costs in respect of securing the indemnity under clause 28;
1.2.9 stamp duty pursuant to clause 45;
1.2.10 any fees, costs or charges in respect of the funding of an order for security for costs in the Action;
1.2.11 premiums or other costs associated with any policy for ATE Insurance; and
1.2.12 expert and lay witness fees and expenses.
11. Litigant's Obligations
The Litigant must:
11. diligently prosecute the Action and diligently enforce and recover any final judgment or settlement in the Action;
11.2 ensure that the Solicitors act promptly, with due expedience and carry out their instructions in the Action;
11.3 use its best endeavours to minimise the quantum of Action Costs consistent with the diligent prosecution of the Action by the Litigant;
11.4 do all things necessary to assist the Funder to obtain, keep in force and comply in all material respects with the terms of any ATE Insurance policy;
11.5 use its best endeavours to minimise the quantum of any Adverse Costs consistent with the diligent prosecution of the Action by the Litigant;
11.6 act all at times with the utmost good faith; and
11.7 not abandon or discontinue any Action without the prior written consent of the Funder.
18. Termination of funding
18.1 The Funder may terminate this Agreement wholly or in respect of one or more Actions at any time upon giving the Litigant 15 Days written notice.
18.2 If the Litigant defaults in the performance of nay of its obligations under this Agreement, the Funder may give notice in writing to the Litigant requiring it to remedy such breach within 10 days and specifying what is required to so remedy. The Funder may terminate this Agreement in respect of any one or more Actions by further written notice (such termination to take effect on the date stipulated in the notice of termination provided that such date is not earlier than the date on that notice) if the breach is not remedied within the 10 Day period notified.
19. Effect of Termination
19.1 Subject to clause 20, if this Agreement is terminated wholly or in respect of any one or more Actions by the Funder pursuant to clauses 18.1 or 29.4 or by the Litigant pursuant to clauses 40, 48.5 or 49:
19.1.1 subject to clause 19.1.2, the funder's obligation to pay Action Costs and Adverse Costs ceases immediately on the date of termination;
19.1.2 the Funder must pay all Action Costs and Adverse Costs which have been incurred up to the date of termination even if not payable until after termination and such payment must be made within 10 Days from the date such Action Costs and Adverse Costs are calculated and agreed;
19.1.3 the Litigant agrees that any amount recovered from the Recovery will be applied as a first priority without any deductions to the Funder in reimbursement of all monies expended by the Funder pursuant to the terms of this Agreement and otherwise in accordance with clause 32 (save and except only those amounts due to the funder in respect of that Action pursuant to clauses 32.3 and 32.4) as if this Agreement had not been terminated.
19.1.4 Clauses 8, 11.5 (in respect of any Adverse Costs that arise before termination), 15.1, 15.2, 28.3 and 28.5 (to the extent that any security has been provided), 28.4, 31, 37, 38 and 39 will survive termination of this Agreement.
19.2 Subject to clause 20, if this Agreement is terminated wholly or in respect of any one or more Actions by the Funder pursuant to clauses 18.2 or 22.4.2:
19.2.1 subject to clause 19.2.2 the funder's obligation to pay Action Costs ceases immediately on the date of termination;
19.2.2 the Funder shall only pay all Action Costs which have been incurred to the date of termination;
19.2.3 the termination or exercise by the Funder of its rights under this clause 19.2 will not affect its rights under any other provision of this Agreement;
19.2.4 clauses 3.8, 9, 15, 18, 31, 32, 35, 37, 38 and 39 of this Agreement survive and continue to apply after termination of this Agreement;
19.2.5 the Litigant will return to the Funder within 5 Days of termination all security provided by the Funder pursuant to clause 28 of this Agreement;
19.2.6 the Litigant will repay to the Funder, within 30 Days of the date of termination, any security for costs provided by the Funder pursuant to clause 29 prior to termination; and
19.2.7 termination of this Agreement pursuant to clause 19.2 does not affect the Funder's right to be paid from the Recoveries the amounts referred to in clauses 32.1 to 32.4 inclusive of this Agreement.
If, after termination under clause 19.1 or 19.2, this Agreement remains on foot in respect of one or more Actions:
20.1.1 this Agreement continues to operate in respect of those ongoing Actions; and
20.1.2 clauses 19.1 and 19.2 apply only to the extent applicable to the Actions in respect of which this Agreement has been terminated.
21. The Funder's Obligation
21.1 Subject to and in accordance with the terms of this Agreement, the Funder agrees to pay Action Costs.
21.2 The parties expressly agree that the Funder does not have any liability for Adverse Costs and that any Adverse Costs are the sole responsibility of the Litigant.
21.3 For the avoidance of doubt the Funder is not liable to pay any other amount due to be paid by the Litigant in respect of the Action including without limitation in respect of any Counterclaim.
…
27. Other Party Costs and Indemnity
27.1 The parties agree that the Action may expose the Litigant to a contingent liability for costs incurred in the Action by the defendants contingent upon the Action not being ultimately successful or wholly successful which a court orders that the Litigant must pay ('Adverse Costs').
27.2 The Funder is not liable for Adverse Costs in any circumstances.
28. Not Used
29. Security for Costs
29.1 The Litigant must notify the Funder in writing within 2 Days of the making of any order for security for costs in the Action.
29.2 Within 20 Days of receiving a notice under clause 29.1, the funder must notify the Litigant in writing whether the Funder will ensure that the order for security for costs is satisfied.
29.3 If the Funder advises the Litigant that it will ensure that the order for security for costs is satisfied, the Funder must ensure such satisfaction on the terms and within the period specified in the order for security for costs.
29.4 If the Funder either advises the Litigant that it will not ensure that the order for security for costs is satisfied, or fails to respond to the notice within the time provided in clause 29.2, this Agreement immediately terminates in respect of that Action and the provisions of clause 19.1 of this Agreement will apply.
29.5 Within 10 Days of the Funder giving notice under clause 48.4 of this Agreement, the Funder will provide the sum of $32,648 to the Litigant to reimburse it for the order for security for costs satisfied by the Litigant on or about 10 September 2013 by way of bank guarantee from Westpac.
29.6 Upon any settlement or judgment in the Action the Litigant must ensure that all moneys paid by the Funder for security for costs are repaid in full as soon as possible to the Funder together with any interest earned on such moneys.
…
32. Distribution of Recoveries
If the Litigant receives any Recovery from any source the Litigant must pay or procure the payment of the Recovery into the trust account of the Solicitors to be held on trust for the Litigant and the Funder and as soon as reasonably practicable the Litigant will ensure that the Recovery is paid as follows and in the following order of priority:
32.1 in paying Action Costs or Adverse Costs incurred in prosecuting the Action (or any one or more of them) for which the Funder has a liability to pay as at the date of distribution but which have not yet been paid by the Funder, including, without limitation all or any, costs or expenses that have been incurred whether billed or not from Solicitors and their counsel, insurers and professional advisers;
32.2 to the Funder, by way of reimbursement of Action Costs or Adverse Costs incurred in prosecuting the Action (or any one or more of them) and paid by the Funder (including, for the avoidance of doubt, any GST in respect of which the Funder has not obtained or is not entitled to obtain an input tax credit);
32.3 to the Funder, in satisfaction of the liabilities of the Litigant under clause 3;
32.4 to the Funder, an amount equal to the liability of the Funder to pay GST on or in respect of the amounts to which the funder is entitled under clauses 32.1 to 32.3 inclusive, if any; and
32.5 the Litigant will retain the balance.
For the avoidance of doubt the parties acknowledge that any property other than cash recovered in or as a result of the Action will be realised and converted to cash as quickly as reasonably possible by the Litigant and then applied in accordance with this clause 32.
…
39. Notice
39.1 Notice can only be in writing signed by the party or its agent or (in the case of the Funder) the Representative addressed to the party to whom it is given.
39.2 Notice can only be given to a party:
39.2.1 personally and such notice is received at the time it is received by the recipient or (in the case of the Funder) the Representative;
39.2.2 by registered post to the recipient's office at the addresses specified for the Funder and the Litigant in Items 1 and 2 of Schedule A respectively and such notice is deemed to be received at the time at which the notice would be delivered in the ordinary course of registered post;
39.2.3 by email transmission:
(i) to the Funder marked to the attention of the Representative at the email address set out for the Funder in Item 1 of Schedule A; and
(ii) to the Litigant at the email address set out for the Litigant in Item 2 of Schedule A,
- And such notice is deemed to be received at the time the recipient acknowledges receipt of the transmitted notice.
28 By originating summons dated 21 January 2016, Trafalgar claims a declaration that on the proper construction of the funding agreement LCM remains liable to satisfy the orders for security made in the Action on 21 November 2014 requiring:
a. within 7 days of the close of discovery and inspection, a second tranche of security in the amount of $100,000 be paid, up to entry for trial, by way of payment into Court to be deposited into an interest bearing account with the Public Trustee [Order 8]; and
b. the balance of the security ($190,000.00) be paid within 14 days after entry for trial by way of payment into Court to be deposited into an interest bearing account with the Public Trustee [Order 9].
The parties' contentions
29 Trafalgar's case involves two propositions:
(1) prior to October 2015, LCM had become obliged under cl 29 of the funding agreement to ensure satisfaction of orders 6 to 9, made on 21 November 2014, on the terms and within the periods specified in those orders; and
(2) the termination by LCM with effect from 8 October 2015 of the agreement did not affect that obligation of LCM, because that obligation was unconditional.
30 LCM challenges both propositions. It submits that Trafalgar's claim fails for three reasons. First, on the proper construction of the funding agreement, further performance by Trafalgar was required before the relevant right on the part of Trafalgar was unconditionally acquired. Secondly, on the proper construction of the funding agreement, the parties agreed that the obligation to provide security for costs did not survive termination. Thirdly, the obligation to provide security for costs did not arise because that obligation would arise only after notice had been given under cl 29.1, and that did not occur.
31 The third of LCM's reasons challenges Trafalgar's first proposition. The first and second of LCM's reasons challenge Trafalgar's second proposition.
32 For the reasons below, I accept Trafalgar's first proposition, but I do not accept its second proposition. Broadly speaking, that is because I accept the first and second reasons advanced by LCM.
33 It is convenient to begin analysis by considering the merits of Trafalgar's first proposition. That involves the question of what, if any, obligations LCM had, before the funding agreement was terminated, in respect of the security for costs orders made on 21 November 2014.
Did any obligations on the part of LCM regarding security for costs arise before the agreement was terminated?
34 In the context of considering the potential application of cl 29 of the funding agreement, orders 6 to 9 of the orders of 21 November 2014 should be viewed as one composite set of orders for security for costs.
35 After the court made the orders for security for costs on 21 November 2014, Trafalgar's solicitors sent an email later that day. That email informed LCM of the orders made, including the orders for security for costs, and attached a copy of the orders.
36 Those orders were made by consent. Prior to the orders being made, LCM, through Mr Coope, was integrally involved in the decision to consent to the making of the orders. Mr Coope gave instructions to Trafalgar's solicitors to send a draft email by which Trafalgar agreed to consent to an order for an increase in the amount of security for costs and to orders as to the stages at which the tranches of security for costs were to be ordered.
37 In my view, the effect of the communications between LCM and Trafalgar in October and November 2014, including Mr Coope's emails of 27 October 2014 and 26 November 2014, was that LCM advised Trafalgar it would ensure the orders for security for costs contemplated in October 2014 and ultimately made on 21 November 2014 would be satisfied.
38 Consequently, in my view, from 26 November 2014, by operation of cl 29.3 of the funding agreement, LCM was obliged to ensure that the order for security for costs made on 27 November 2014 would be satisfied on the terms and within the period specified in the order for security for costs.
39 LCM submits that:
(1) no notice was given by Trafalgar in accordance with cl 29.1; and
(2) consequently, LCM's obligation to satisfy the security for costs order never arose.24
For two reasons, I do not accept these submissions.
40 First, in my view the operation of cl 29.3 is not conditioned on there first having been notification by Trafalgar to LCM under cl 29.1. Nothing in the language and structure of cl 29.3 expresses an intention that its operation is conditional on a notification in accordance with cl 29.1. It does not provide that if [after receiving notice under cl 29.1] the Funder advises ... By contrast, the operation of cl 29.2 and cl 29.4 is conditioned on earlier receipt of a notice under cl 29.1. That appears from the language of those clauses, and is also supported by the evident object of cl 29 as a whole. In my view, while that object supports construing cl 29.2 and cl 29.4 as being dependent upon the giving of notice under cl 29.1, the same is not true in respect of cl 29.3. The primary purpose of cl 29 is to permit Trafalgar, when a security for costs order is made, to require LCM as funder to elect between promising to satisfy the terms of an order for security for costs, or bringing the funding agreement to an end. That can only happen if appropriate notice is given. However, in circumstances where LCM advises Trafalgar that it will ensure the order for security for costs is satisfied, I see no reason why the creation of an obligation under cl 29.3, the content of which mirrors the advice given by LCM, is to be conditioned on there having earlier been a notice in writing in accordance with cl 29.1.
41 Secondly, and in any event, in my view by its solicitor and agent, Trafalgar gave notice by email on 21 November 2014 in accordance with cl 29.1 in a form that complied with the requirements of cl 39. That email was sent the same day as the order for security for costs was made. The email was sent to the address identified in annexure A as the email address of LCM. Thus, it met the description of an email within cl 39.2.3(i). Ms Kim's email constituted notice in writing signed by the solicitor and agent of Trafalgar, in compliance with cl 39.1. It is plain from cl 39.2.3 that notice by email transmission is contemplated. In that context, an email that had Ms Kim's name, title and contact details at the end of its text was 'signed' within the meaning of cl 39.1.25
42 In communicating with LCM as to the orders made for security for costs, Trafalgar's solicitors were agents for Trafalgar. In October 2014 Trafalgar's solicitors communicated with LCM as to the orders to be made regarding security for costs at the next directions hearing. Those communications occurred with the knowledge and evident approval of Trafalgar. Against that background, I infer that Trafalgar knew and intended that its solicitors would attend the directions hearing and then report to both LCM and Trafalgar as to the orders for security for costs made at the hearing.
43 LCM submits that the email should not be characterised as a notice for the purposes of cl 29.1 because it does not contain words to that effect and should not objectively be understood as such.26 In that respect LCM points out, correctly, that the email did not refer to cl 29, or to the consequences of LCM failing to respond to the notice by advising whether or not it would ensure the security for costs order would be satisfied.
44 For the reasons that follow, I do not accept that submission. Clause 29.1 requires no more than that Trafalgar notify LCM in writing of the making of any order for security for costs. Nothing in the text of cl 29.1 supports reading it as requiring more than written notification of the making of the security for costs order. The contract is to be construed on the footing that the parties, including in particular LCM as the funder, may be taken to be cognisant of the terms of the funding agreement and the regime created by cl 29 in relation to security for costs. Moreover, it is not generally to be expected that a litigant would wish the funding agreement to be terminated on the basis of the failure of the funder to respond to notice of the making of an order for security for costs given under cl 29.1. I think the prospect, viewed at the time of contracting, of Trafalgar as litigant wishing to take advantage of LCM as funder inadvertently allowing 20 days to elapse following a notice under cl 29.1 is not sufficiently substantial to sustain LCM's construction as to what is required in order to give effective notice under cl 29.1.
45 For these reasons I find that, prior to the termination of the funding agreement, LCM was obliged under cl 29 to ensure the orders for security for costs made on 21 November 2014 were satisfied on their terms and within the period specified in the orders.
46 With effect from 8 October 2015, LCM terminated the funding agreement. There is no issue as to the efficacy of that termination. The issue is the effect of that termination on LCM's obligations in respect of the orders for security for costs made on 21 November 2014.
47 Trafalgar submits that by the time of the termination, it had an unconditional right to require LCM, and LCM a correlative unconditional obligation, to ensure satisfaction of the security for costs order made on 21 November 2014.27 The next section of these reasons explains why I do not accept that submission.
Were Trafalgar's rights under cl 29 conditional?
48 The effect of a termination pursuant to an express contractual right depends upon the terms of the contract.28 Subject to a contrary intention appearing in the terms of the contract:
(1) rights which have, by the time of termination, already been unconditionally acquired are not divested or discharged;29
(2) a party has only unconditionally acquired a right if that right is not dependent on facts or events which result from any further act of performance of the contract;30
(3) if a right to payment is contingent on an event in the future which does not involve further performance the right may be said to have unconditionally arisen.31
49 Thus, the issues in this proceeding involve construing the funding agreement. The principles relating to the construction of contracts are well-known and need not be restated.32
50 In the present case LCM's obligation to pay, and Trafalgar's correlative right to enforce payment, was contingent on an event in the future, namely the completion of discovery and inspection.
51 At the time LCM's termination took effect, discovery and inspection were not complete. The defendants in the Action did not give discovery until 9 November 2015, more than a month after the termination took effect. Inspection by both parties occurred thereafter.
52 Under the terms of the funding agreement, LCM, not Trafalgar, had the carriage of the Action. Thus, it was LCM which had to attend to the completion of discovery and inspection. In doing so, LCM had obligations under cl 11 of the funding agreement, including the obligation to diligently prosecute the Action and to ensure the solicitors act promptly with due expedience and carry out their instructions in the Action.33
53 In those circumstances, LCM was not unconditionally obliged, and Trafalgar had not unconditionally acquired the right to require LCM, to provide security for costs. LCM's obligation to provide further security was contingent on a future event, namely the completion of discovery and inspection. Performance of executory obligations on the part of Trafalgar was required before discovery and inspection were completed. Thus, Trafalgar's rights were contingent on a future event involving further performance of the funding agreement.
54 Trafalgar submits that LCM's obligation in cl 29 was not conditioned by or dependent upon ongoing performance by Trafalgar of its obligations under the agreement, including under cl 11, with the result that Trafalgar had acquired its rights under cl 29 unconditionally.34 Trafalgar relies on Green v Sommerville35 and Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd36in support of its contention that the obligations in cl 29 are not interdependent conditions with any of Trafalgar's obligations under the agreement.
55 In my view, Green v Sommerville and Geraldton Building Co v Christmas Island Resort are concerned with a different question from the question arising in the present case. Those cases are concerned with the question of whether one contractual obligation arises without the obligation on the part of the other party having first been duly performed. In that context, if obligations are construed as being interdependent, the failure by one party to perform its obligation will mean that the other party's obligation has not arisen. The present case is concerned with the question of whether an obligation that arose in the course of the parties' performance of the contract remained enforceable after the contract had been terminated. As explained by Basten JA in FPM Constructions Pty Ltd v Council of the City of Blue Mountains,37 in a passage approved by Meagher, Ward and Gleeson JJA in Naaman,38 in this context the critical distinction is between a right to payment in the future which is contingent on an event which does not involve further performance of the contract, and one which does. That distinction is not expressed in terms of whether the right arises under a clause that creates obligations which are, on a proper construction, interdependent with other obligations in the contract. Rather, following termination of the contract, it is enough to defeat a claim to enforce a right to future payment if the payment is contingent on an event which involves further performance of the contract. If it does, not everything has occurred that is necessary in order for the right to have been earned.
56 Trafalgar also points39 to the reasoning of the Court of Appeal in NSW in Naaman,40 in support of its submission that the critical question is whether the right arises under a clause which is dependent with or independent of obligations under other clauses. In Naaman the court pointed to the dependence of the obligation to pay upon performance by the other party of his various obligations under the deed. However, the court did not suggest that that was the decisive question. To the contrary, in the passages to which I have already referred,41 the court stated the test in the terms I have already referred to and adopted. Demonstrating that the obligation to pay was dependent on performance of other obligations is one way of showing that the test is satisfied.
57 For these reasons, I find that, when the funding agreement was terminated, LCM's unperformed obligations under cl 29, and Trafalgar's correlative rights, were not unconditional and so did not survive termination of the funding agreement.
58 Further and in any event, in my opinion there is a second reason why Trafalgar's claim fails. In my view, even if, contrary to my opinion, LCM's obligation to satisfy the security for costs order, and Trafalgar's correlative right to enforce that, had accrued unconditionally, on a proper construction of the funding agreement, in particular cl 19, that obligation does not continue after termination by LCM pursuant to cl 18.1. I turn to explain that conclusion.
When the funding agreement is terminated under cl 18.1, does cl 19 affect any obligation that has arisen under cl 29.3?
59 Clause 19 sets out detailed stipulations as to the effect of termination on the parties' rights and obligations. The funding agreement contains various provisions pursuant to which one or both parties are given a right to terminate. Clause 19.1 governs the effect of termination by LCM pursuant to cl 18.1 or cl 29.4, and termination by Trafalgar pursuant to cl 40, cl 48.5 and cl 49. Clause 19.2 provides a separate regime in respect of termination by LCM pursuant to cl 18.2 or cl 22.4.2.
60 LCM terminated the funding agreement pursuant to cl 18.1. Consequently, cl 19.1 governs the effect of the termination.
61 Clauses 19.1.1 and 19.1.2 make comprehensive provision as to the extent of LCM's ongoing obligations in respect of Action Costs. Thus, it is necessary to identify the relationship between LCM's obligations under cl 29 and Action Costs. As I have said, cl 1.2.10 provides that Action Costs include any fees, costs or charges in respect of the funding of an order for security for costs. That plainly encompasses things such as fees charged by a bank for providing a bank guarantee as security, or fees charged by a bank for transferring a sum of money to be provided as security. In my view, reading the funding agreement as a whole, payment of a sum paid to satisfy an order that security for costs be provided by payment of a stipulated sum of money is not within the ambit of Action Costs. That is so, in my opinion, for three reasons.
62 First, the language of cl 1.2.10 does not comfortably encompass a sum paid as security for costs. It involves some straining of language to characterise that payment as a 'cost in respect of the funding of an order for security for costs'.
63 Secondly, elsewhere in the funding agreement different language is used to refer to a sum paid by LCM to satisfy a security for costs order. Clause 29.6 uses the phrase 'monies paid by [LCM] for security for costs'. Clause 19.2.6 refers to 'any security for costs provided by [LCM] pursuant to cl 29'.
64 Thirdly, the specific provision in cl 29.6 as to what occurs upon settlement or judgment in respect of monies paid by LCM for security for costs would be unnecessary if such monies were Action Costs. Clause 29.6 provides that upon settlement or judgment Trafalgar must ensure such monies are repaid in full. Clause 32 governs the distribution of monies recovered by Trafalgar by judgment settlement sum or otherwise in or as a result of or in respect of the Action. Such monies are defined as Recoveries. Clause 32 provides that any Recoveries be held on trust to be paid, among other things, to LCM by way of reimbursement of Action Costs paid by LCM. If a sum of money paid as security for costs were within the ambit of Action Costs, there would be no need for the specific provision in cl 29.6 because the position, to the same effect, would have been governed by cl 32.2.
65 For these reasons, I construe the funding agreement as meaning that a sum of money paid as security for costs is not, itself, part of Action Costs, although fees, costs or charges in respect of the funding for an order for security for costs are, by cl 1.2.10, Action Costs.
66 Clause 19 is to be construed in this light.
67 The effect of cl 19.1 may be summarised as follows:
(1) LCM's liability to pay Action Costs incurred, even if not yet payable, up to the date of termination is preserved (cl 19.1.2);
(2) otherwise, LCM's obligation to pay any further Action Costs ceases on the date of termination (cl 19.1.1);
(3) upon termination, a regime is created as to LCM's ongoing rights in respect of any Recovery by Trafalgar. In short, any Recovery will be applied as a first priority to LCM in reimbursement of all monies it expended pursuant to the agreement and otherwise in accordance with cl 32 (cl 19.1.3);
(4) specific clauses continue to operate after termination (cl 19.1.4).
68 Clause 19.2 provides a separate and in certain respects different regime governing the parties' rights and obligations in the event of a termination of the funding agreement by LCM under cl 18.2 or cl 22.4.2. Those clauses involve, respectively, termination for breach and termination following an abandonment or discontinuance of the action by Trafalgar.
69 Although not worded identically, the substance and effect of cl 19.2.1 and cl 19.2.2 is materially indistinguishable from that of cl 19.1.1 and cl 19.1.2, as I have summarised it.
70 Clause 19.2.6 makes specific provision obliging Trafalgar to repay to LCM, within 30 days of the date of termination, any security for costs provided by LCM pursuant to cl 29. There is no corresponding provision in cl 19.1. When cl 19.1 operates, if LCM has made any payment for security for costs, no immediate liability on the part of Trafalgar to repay such sum is created. Rather, if and when the action is determined or settled, LCM has the rights created by cl 19.1.3 and cl 29.6. Upon any settlement or judgment, any Recovery is to be applied as a first priority in reimbursement of monies expended by LCM. That includes monies expended by LCM by payment for security for costs.
71 It can be seen that, in its terms, cl 19.1 does not deal with the question of whether an obligation that has arisen under cl 29.3 continues after termination of the funding agreement of a kind governed by cl 19.1. In my view, for the reasons that follow, cl 19 as a whole reveals an intention that such an obligation does not continue after such termination.
72 Clause 19.1 provides that LCM's liability for Action Costs that are not already incurred ceases upon termination of the funding agreement. Any fees, costs or charges in respect of the funding by LCM of an order for security for costs are within the ambit of Action Costs.42 If, at the time of termination, LCM has not taken any step to make a payment or otherwise satisfy an order for security for costs, it will not have incurred any fees, costs or charges in respect of the funding of that order for security for costs. In my view, the effect of cl 19.1 is that in such circumstances it is not liable to do so. For example, if an order were made that security for costs be provided by way of bank guarantee, and at the time of termination LCM had taken no step to provide a bank guarantee, by cl 19.1.1 LCM is not liable to incur and pay the further Action Costs constituted by the bank fees and charges associated with providing that bank guarantee, and so is not liable to provide that security for costs. In the case of an order for security for costs by payment of a stipulated sum, the intention revealed by cl 19.1.1 is that LCM is not liable to incur and pay any bank fees associated with the transfer or other means of payment of the order for security for costs. In my view, more generally, cl 19.1 reveals an intention that upon a termination to which it applies, LCM is not liable to provide any security for costs that has not already been provided by it.
73 In my opinion, that reading of cl 19.1 is reinforced by consideration of cl 19.2. As I have said, under cl 19.2.6, if the funding agreement is terminated by LCM pursuant to cl 18.2 or cl 22.4.2, Trafalgar is obliged to repay to LCM within 30 days any security for costs provided by LCM. Given that provision, cl 19.2 could not be read as obliging LCM to continue to perform, after termination, an obligation to provide security that had arisen prior to termination. The provisions within cl 19.2 dealing with the question of the extent to which LCM's obligations continue after termination are cl 19.2.1 and cl 19.2.2. Those clauses are materially indistinguishable from cl 19.1.1 and cl 19.1.2. In my view, cl 19.2.1 and cl 19.2.2 on the one hand, and cl 19.1.1 and cl 19.1.2 on the other hand, are to be read as having a congruent operation in respect of the effect of termination upon any obligations that have arisen under cl 29 to ensure satisfaction for an order for security for costs. I think both cl 19.1 and cl 19.2 reveal an objective intention that upon termination LCM is not liable to ensure compliance with any order for security for costs that has not already been satisfied.
74 In my view, cl 19.1 is intended to be a comprehensive statement of the parties' ongoing rights and liabilities under the funding agreement in the event that the contract is terminated under one of the clauses mentioned in the chapeau to cl 19.1.
75 Trafalgar submits that a construction that means that an unconditional obligation to ensure an order for security for costs is satisfied comes to an end upon termination of the contract has consequences that are objectively unlikely to have been intended, militating against adoption of the construction.43 Trafalgar submits that such a construction would mean, having elected to ensure satisfaction of an order for security for costs, LCM could effectively elect to bring that obligation to an end by terminating the funding agreement. That, the submission continues, gives LCM as funder two separate opportunities to elect whether it wishes to satisfy the order for security for costs.44
76 I do not think these submissions weigh heavily in the construction analysis. LCM points to reasons why Trafalgar's construction should be seen as producing outcomes unlikely to have been intended.45 What comprises commercial common sense, and what is commercially unlikely, may be a topic on which minds may differ and in respect of which an imputed consensus may be impossible.46 In any event, in my view the textual considerations I have identified sustain the construction I have adopted notwithstanding these submissions of Trafalgar as to what is objectively unlikely.
77 For these reasons, in my opinion, on a proper construction of the funding agreement, any obligation under cl 29 that arose prior to termination did not continue after the termination of the funding agreement.
Conclusion
78 In summary, I have found that:
(1) by 26 November 2014 Trafalgar was obliged under cl 29.3 to ensure satisfaction of the orders for security for costs made on 21 November 2014;
(2) however, that obligation did not survive the termination of the funding agreement on 8 October 2015 because:
(a) Trafalgar's rights were not relevantly unconditional, because they were contingent on a future event (completion of discovery and inspection) that involved further performance by Trafalgar of its obligations under cl 11 of the funding agreement; and
(b) further and in any event, cl 19 of the funding agreement reveals an intention that any obligation under cl 29 that had arisen before the termination of the funding agreement did not survive after termination.
80 I will hear from the parties as to costs.
1 Affidavit of Patrick Gerard Gladwyn Jebb sworn 21 January 2016 (Jebb affidavit) [5].
2 Jebb affidavit [6].
3 Jebb affidavit [7]; annexure PGJ 4.
4 Jebb affidavit [8], [9]; annexure PGJ 4.
5 ts 16.
6 Jebb affidavit [10]; annexure PGJ 5.
7 Jebb affidavit [11]; annexure PGJ 6.
8 Affidavit of Patrick John Maloney sworn 24 March 2016 (Maloney affidavit), annexure PM2.
9 Jebb affidavit [12].
10 Maloney affidavit; annexure PM2.
11 Jebb affidavit; annexure PGJ 7.
12 Jebb affidavit; annexure PGJ 7.
13 Maloney affidavit; annexure PM3.
14 Maloney affidavit [11].
15 Jebb affidavit [14]; annexure PGJ 8.
16 Affidavit of Patrick Gerard Gladwyn Jebb sworn 13 April 2016 (Jebb second affidavit); annexure PGJ 17.
17 Jebb second affidavit; annexure PGJ 18.
18 Jebb second affidavit; annexure PGJ 19.
19 Maloney affidavit [4].
20 Jebb affidavit; annexure PGJ 12.
21Trafalgar West Investments Pty Ltd as Trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [No 8] [2016] WASC 34 [17] - [19], [40].
22 Jebb affidavit; annexure PGJ 13.
23 Jebb affidavit; annexure PGJ 14.
24 Defendant's submissions [33] - [36].
25Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716 [33]; Stuart v Hishon [2013] NSWSC 766 [34].
26 Defendant's submissions [35].
27 Plaintiff's submissions [20]; plaintiff's responsive submissions [5].
28Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361, 379; Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40, 51.
29McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 476 - 477; Naaman v Sleiman [2015] NSWCA 259 [53].
30Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (379 - 380); Naaman v Sleiman [56] - [57]; FPM Construction Pty Ltd v Council of City of Blue Mountains [2005] NSWCA 340 [192].
31 See cases in preceding footnote.
32 See, for example, Red Hill Iron Ore Ltd v API Management Pty Ltd [2012] WASC 323 [106] - [112]; Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd [2014] WASCA 28 [55]; Kidd v The State of Western Australia [2014] WASC 99 [116] - [127].
33 cl 11.1, cl 11.2.
34 Plaintiff's responsive submissions [2] - [8].
35Green v Sommerville (1979) 141 CLR 594, 608 - 609.
36Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40, 51.
37FPM Constructions Pty Ltd v Council of the City of Blue Mountains [192].
38Naaman v Sleiman [57].
39 ts 24.
40Naaman v Sleiman [58] - [59].
41 See [48] and footnotes 29 - 30 above.
42 cl 1.2.10.
43 Plaintiff's responsive submissions [13(d)]; ts 37.
44 ts 38.
45 Defendant's submissions [30] - [31].
46Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 [43].
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