Judgment - Application to vacate hearing date; see transcript p 28
[3]
(EX TEMPORE - REVISED 7 MAY 2018)
HIS HONOUR: The first defendant (LCM Trustee) is the trustee of a unit trust. The plaintiff (AIG), the second defendant (LCM) and the third defendant are the beneficiaries of that unit trust. In these proceedings, AIG seeks the removal of LCM Trustee, and its replacement by another corporate entity. The first two defendants oppose that relief.
The matter has been fixed for hearing today, with an estimate (as I understand it) of three days. That hearing date was fixed in August last year. On Monday last, 30 April 2018, LCM made an application for vacation of the hearing. That application was made on the basis that it had recently come into possession of information which raised the prospect of a conflict of interest, and the need to bring a cross claim. AIG opposed the application, and at that point I declined to grant it. I did, however, note that it was open to LCM to renew the application.
Perhaps not surprisingly, at the commencement of the hearing today, LCM did renew its application for vacation of the hearing date.
To understand the application and the basis of my ruling upon it, it is necessary to know a little bit about the background facts. Although they have been recounted by several judges of this Court, at trial and appellate level, in related disputes between the parties or some of them, it is probably simpler to go straight to what I see as being the relevant matters.
The asset that is the subject of the unit trust is, in substance, the fruits of some litigation funding conducted by LCM. That funding has been conducted in conjunction with an entity known as Vannin Capital Ltd (Vannin Malta) pursuant to what has been described as the Vannin joint venture, or Vannin JV. The joint venture was established in April 2013, and there are a number of relevant agreements including an administration agreement made between LCM and Vannin Malta. Under the terms of cl 4.1 of that agreement, and subject to the occurrence of what is called a "trigger event", LCM is entitled to receive performance fees and completion fees in respect of litigation that has been funded on the terms of the joint venture.
In this litigation, AIG says that LCM Trustee has breached its obligations as trustee in a number of ways. First, it says, LCM Trustee has misapplied trust funds, because it has not paid them out in accordance with the terms of the unit trust deed. Second, it says, LCM Trustee has failed to protect the trust's property, being the trust's right to receive fees relating to funded litigation (or potentially funded litigation) that has not been resolved. It is also said that a number of prospective items of litigation should have been offered to Vannin Malta on the terms of the joint venture, but were not, and that in some way this either reflects or is evidence of a breach by LCM Trustee of its obligation to protect and get in the trust assets.
Going straight to the heart of the cross claim that LCM wishes to bring, it is in substance that there have been breaches of the administration agreement by reason of which trigger events have occurred. The consequence is said to be that Vannin Malta, assuming that there has been at least one trigger event, is not entitled to share in the profits of successfully funding completed litigation, and the fruits of that litigation are to be held on trust for LCM.
Mr Williams of Senior Counsel, who appeared with Mr Hyde of Counsel for LCM, submitted in substance that if this were the correct analysis of what has happened, then in effect the allegations of breach of trust - that is to say, the primary allegations of misapplying trust assets and failing to protect and get in the trust assets - really amount to nothing, because the assets in questions would not have been held on the terms of the trust.
LCM Trustee is represented in this litigation, having been given advice that it would be proper for it to do so and to reimburse itself out of trust assets for its costs of doing so. It is not necessary to consider further the reasons why that advice was given, because LCM Trustee neither consents to nor opposes the application.
AIG does oppose the application. It submits that there has been no adequate explanation for the delay in bringing it, and that in any event there is no real risk of factual overlap between the issues that will be litigated if the case proceeds today and the issues that will be litigated pursuant to the cross claim that LCM wishes to bring.
It is correct to say, as to one element of suggested breach, that it is not present as a factual issue in this litigation. Meagher JA, sitting at first instance in an interlocutory application in these proceedings, held so. See Australian Insolvency Group Pty Limited v LCM Litigation Investment 1 Pty Limited [1] at [29], [30]. Mr Williams did not submit that I should take a different view as to that particular matter.
In relation to delay, Mr Shariff of Counsel, who appeared with Mr Kane of Counsel for AIG, stressed that the explanation given for the delay was in part unsatisfactory and in part non-existent. The unsatisfactory explanation related, in Mr Shariff's submission, to an email that LCM said it had recently become aware of (although written at some time in the past) indicating that Mr Coope, the former managing director of LCM, had sought to divert an opportunity of LCM to Vannin Malta. That is a little strange, because Mr Coope has since left the employ of LCM, in circumstances that have been considered both by Stevenson J [2] and the Court of Appeal [3] . Mr Coope is now the principal and, it is said, alter ego of AIG.
Putting aside those somewhat puzzling matters, Mr Shariff submitted that the person who gave evidence on this point, Ms Taylor, although she had said when the email actually came to her attention and she appreciated its significance, had not said that this was the first time that Mr Moloney, the present managing director of LCM, was likewise unaware of it until very recently.
As to the other matters - misapplication of trust assets and failure to protect and get in the trust assets - Mr Shariff submitted that there was no explanation at all for the delay.
I accept that AIG, like any other litigant in this Court, is entitled to have its case heard in the ordinary course of events. That means, in general terms, that when a hearing date is allocated, the parties should expect the case to be heard and thereafter decided, and must comply with the Court's directions to ensure that it can be heard and decided.
I accept, further, that there will be detriment to AIG in the event that the hearing is put off. In the present case, although there is no precise evidence of detriment, there would at least be detriment in terms of costs. Mr Shariff's submissions did not point to any specific evidence of detriment apart from costs, and on the evidence it is not easy to see that there would be any. This is commercial litigation between people who are well and truly used to fighting out their battles in court, and it is a little difficult to think that they would suffer any, let alone undue, stress by reason of postponement of the hearing and a delay in making their appearance in the witness box.
There is also the fact that, if the hearing is vacated, court time will be wasted. Time has been set aside for this hearing. Had it not been allocated, the time could have been given to other litigants. Their claims, no doubt at least as meritorious as the claims of AIG in this case, could have been advanced and dealt with.
On the other hand, Mr Williams submitted that there is not just a risk but the certainty that the factual arguments to be dealt with in this case will in part at least overlap with those to be dealt with on his cross claim. Thus, he submitted, that there will be all the usual problems and risks of double handling. They include the fact that two judges of the Court will be required to give time to considering the same factual disputes, and the risk that there may be inconsistent considerations of credibility or findings of fact. That is always something to be avoided if at all possible.
As to prejudice in terms of costs, Mr Williams submitted that this could be dealt with by an order for costs, and accepted that his client must suffer such an order.
Although Mr Williams put submissions that the delay was in part explicable, and that it could be understood, I do not think that any really satisfactory explanation has been given for all the matters relied upon. I do accept that in substance Ms Taylor's evidence explains the delay in relation to the diverted opportunity, which was referred to as the "Cannaday" opportunity by reference to the name of the person who sought litigation funding. I accept Ms Taylor's evidence that she did not become aware of the significance of the email until very recently, when (in response to a notice to produce served by AIG) she was forced to reconsider the contents of various of LCM's email folders.
Mr Shariff pointed out, correctly, that those same folders had been the subject of consideration in earlier proceedings. It does not follow that their significance, particularly in relation to the occurrence of a trigger event, should have been noted at that time.
Mr Shariff pointed also to some inconsistencies between the oral evidence given by Ms Taylor on 30 April and her affidavit relied upon today. Although there are some discrepancies, I think that they do no more than reflect the fact that when giving oral evidence, Ms Taylor was seeking to recall what had been said in the relevant documents whereas, in her affidavit, she put the actual documents into evidence.
Finally, although Mr Shariff submitted that Ms Taylor's evidence did not fully cover the position of Mr Moloney, I think that it is in substance a sufficient explanation, and I accept that the better inference, on the whole of her evidence, is that Mr Moloney did not become aware of the significance of the Cannaday emails until Ms Taylor pointed them out to him very recently.
That leaves the other factual matters. Despite Mr Williams' tempting submission, I am not entitled to infer that there is some explanation for the delay in putting those before the Court when those who could have given the explanation, by swearing or affirming the appropriate affidavit, did not do so.
Thus, there is a clear question as to why the right of a litigant to have its case heard in the ordinary course of events should be intercepted because an opposing litigant, for reasons that are by no means fully explained, has realised that there may be other arguments open to it and that it needs, among other things, to bring a cross claim to ventilate those arguments fully. If the matter went no further than that, I would conclude that the interests of justice do not require favouring the tardy over the ready, and I would dismiss the application. However, matters do go further. That is because, as I have pointed out, there is a submission that at least some of the factual material will require double handling if there is no adjournment.
When one looks at the statement of the real issues that Mr Shariff propounded, they fall, as Mr Williams submitted, into two substantial categories. One category relates to the alleged misapplication of trust assets. The other relates to the alleged failure to protect and get in the trust assets. In the first category, AIG says that LCM Trustee has breached its duties as trustee because it has applied cl 4.1 proceeds other than in accordance with the terms of the unit trust deed. That complaint relates to litigation that has been completed, and in respect of which the cl 4.1 fees have been paid.
The second category relates to litigation that has not been completed. The argument that AIG wishes to raise is in substance that LCM Trustee should have taken steps to ensure that the relevant opportunities were offered to Vannin Malta, so that in due course fees could flow through which would be for the benefit of the unit holders.
I should note that there is also a third category of suggested breaches, including conflict (of interest and interest or interest and duty) and what might be called more minor breaches. As Mr Williams submitted, if his position is correct and there are no assets in the trust, those suggested breaches do rather fall away.
Dealing with the substantive breaches, it does seem to me that there will be a very significant factual overlap between the issues to be proved in these proceedings as they presently stand and the issues that will be dealt with if LCM does bring its cross claim. That is because, in substance, LCM wishes to argue that there has occurred at least one trigger event (and maybe two), the effect of which is to deprive Vannin Malta of its right to share in the profits of litigation funding. If that is correct then no cl 4.1 fees became payable and, as I understand the position, LCM is entitled in its own right to the whole of those proceeds.
In my view, it is not appropriate that different judges of this Court should deal with that dispute in different proceedings. What is appropriate is that all factual issues should be dealt with by one judge in one proceeding. That relates as much to the factual issues underlying AIG's claim of breach of trust as it does to the factual issues underlying the cross claim that LCM wishes to bring. It is obvious, looking at the history of dispute between the parties, that any factual disputes will be closely and no doubt fiercely fought. There may very well be questions of credit raised. But even if there are not, there will be the need in each case for a judge to consider the facts, make appropriate findings, and then see what follows from them. That should be done once, not twice.
Leaving aside the unsatisfactory features of the application to which I have referred, it remains the position that the only real evidence of prejudice is that of costs. That, as I have said, can be dealt with by an order for costs. Once that is realised, the interests of justice (and in the efficient administration of litigation) seem to me to favour the vacation of the date.
For those reasons I order that the hearing date be vacated. I order the second defendant to pay the plaintiff's and the first defendant's costs of and incidental to and thrown away by reason of the vacation of the date. I direct that those costs be assessed on the indemnity basis. I grant leave to proceed forthwith to assessment notwithstanding that the proceedings have not been determined. I list the matter for directions on Friday 11 May 2018.
[4]
Endnotes
[2016] NSWSC 471.
LCM Litigation Fund Pty Ltd v Coope [2015] NSWSC 992.
Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524.
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Decision last updated: 14 May 2018