The arguments for Kapp Consulting
25 It is convenient first to address Mr Kapp's arguments as to whether proposed ASOC has any reasonable prospect of success, noting that it remains JKL's onus to demonstrate that it does not. The outcome of those arguments will determine whether leave to file the proposed AOA to add Twin Investors Pty Ltd as a second applicant properly arises.
26 Kapp Consulting submits that the proposed ASOC advances the following claims:
(1) that Kapp Consulting is entitled to the benefit of the success fee in the Term Sheet as principal of Mr Kapp, whether disclosed or undisclosed, so as to be entitled to sue on the Term Sheet; and
(2) Twin Investors, as a party to the Term Sheet, was contractually entitled to the benefit of the success fee.
27 Kapp Consulting asserts that its claims, as pleaded in [4A] to [4C] of the proposed ASOC, involves not only issues of construction of the Term Sheet but also wider factual issues of the agency of Mr Kapp and whether that agency was disclosed and/or well-known and understood at the time of entry into the Term Sheet. In substance, if not in terms, Kapp Consulting is asserting that cl 41 of the Term Sheet, which states that it "supersedes any previous correspondence, negotiation or discussion between us on its subject matter" is of no effect, for that clause is otherwise an unanswerable barrier to material external and prior to the express words of the executed Term Sheet being taken into account in discerning its meaning.
28 Kapp Consulting submits that it would not be appropriate for this Court to determine the construction issue on a final basis because evidence will be required, including as to the circumstances surrounding the entry into the Term Sheet. However, that submission begs the question as to whether it is reasonably arguable that any such evidence would be able to be used to achieve the objective of changing the meaning of the Term Sheet on its face.
29 Kapp Consulting also relies upon JKL having indicated that it considers such evidence to be relevant at trial by the nomination of a number of potential witnesses as to the factual circumstances in which the Term Sheet was executed, the alleged arrangements between Mr Kapp, Kapp Consulting and JKL, and as to the commercial background and negotiation of the relevant agreements. Kapp Consulting submits that JKL choosing not to lead any evidence from those witnesses as to why the proceedings have no reasonable prospects of success, and should be summarily dismissed, is another reason why the relief sought by JKL ought not be granted. However, that argument involves circular reasoning, because JKL will only need to lead evidence going to surrounding circumstances, if, contrary to its primary position, such evidence to be led by Kapp Consulting is able to be used in the first place.
30 Kapp Consulting further submits that, in any event, the particulars provided in [4B] of the proposed ASOC, and the documents in its tender bundle admitted on the application as Exhibit 1A, indicate the factual issues involved and that the proposed claims are reasonably arguable and therefore the prospects of success are real and not fanciful. In particular, Kapp Consulting submits that its claims to have been a disclosed or even an undisclosed principal entitled to sue on the Term Sheet have reasonable prospects, are not fanciful and are not bound to fail. The references to "not fanciful" and "are not bound to fail" may tend more of a General Steel test, and thereby suggest a higher threshold for JKL's argument for summary dismissal to prevail, rather than an absence of reasonable prospects of success, and, if so, must be read down accordingly.
31 Kapp Consulting therefore submits that it should be able to proceed on the proposed pleadings, and its claims therefore not be summarily dismissed or struck out. In support of that conclusion, Kapp Consulting sets out at [15] of its written submissions certain documents in its tender bundle that it submits indicate the following (emphasis in original, but omitting tender bundle references):
(a) in late June 2016, Kapp Consulting and JKL entered into a Consultancy Agreement by which Kapp Consulting provided the services of [Mr] Kapp for the benefit of JKL as described in Annexure A to that agreement;
(b) JKL made substantial payments to Kapp Consulting for the provision by it of [Mr] Kapp's services… shortly before the Agreement was executed;
[The term sheet was executed on 31 October 2017, such that the remaining events concern post-contractual events.]
(c) less than 2 days after the Agreement was executed, on 2 November 2017 Corrs indicated to [Mr] Kapp that it was drafting, amongst other things, a Wickham Consultancy Agreement "to reflect the Settlement Term Sheet" (ie the Agreement)…;
(d) the very next day, on 3 November 2017 Corrs sent [Mr] Kapp drafts of the Acquisition Deed and the Wickham Consultancy Agreement, again said… "to reflect the Settlement Term Sheet" (ie the Agreement).
Significantly, the draft Wickham Consultancy Agreement attached was in similar terms to the June 2016 Consultancy Agreement. That is, it was between JKL and Kapp Consulting by which JKL was to engage Kapp Consulting to provide the consultancy services of [Mr] Kapp… in return for which, by clause 15, JKL would pay to Kapp Consulting a Consultancy Fee of 35% of the net proceeds of the settlement of [the] Wickham Proceedings. Those elements of the Wickham Consultancy Agreement, at least, were in substantially the same if not identical terms to clause 29 of the Agreement;
(e) on 22 and 29 November 2017, Corrs circulated further drafts of the Wickham Consultancy Agreement [by which stage it had become a "completion deliverable" in the Acquisition Deed]… Clause 2 of the draft Settlement Deed required the Acquisition Deed to be signed before the signing of [the] Settlement Deed;
(f) on 1 December 2017, [Mr] Kapp signed the Acquisition Deed and the Wickham Consultancy Agreement;
(g) on 7 December 2017, Corrs on behalf of JKL, sent [Mr] Kapp a copy of the proposed ASX announcement stating that "Entities associated with Mr Kapp have been retained under the terms of a consultancy arrangement to finalise certain claims outside the Litigation Portfolio";
(h) on 8 December 2017, [Mr] Kapp authorised Catherine Teo to apply his electronic signature to the Acquisition Deed [due to changes in version and page numbers from the earlier executed signature pages]
(i) on 8 December 2017, Corrs confirmed to [Mr] Kapp by email… that JKL would announce to the ASX… that it had finalised the sale of the litigation portfolio. The Appendix to the ASX Announcement stated that ["Entities associated with Mr Kapp have been retained under the terms of a consultancy arrangement to finalise certain arrangements outside the Litigation Portfolio. Mr Kapp and his associated entities must work in good faith with JustKapital to finalise these arrangements as quickly as possible. If achieved, the consultancy arrangement entities… [are] to receive a consultancy fee."];
(j) on 12 December 2017, Kapp Consulting sent JKL an invoice in the amount of $440,000 (inc GST);
(k) on 13 December 2017, JKL paid Kapp Consulting the sum of $440,000 in performance of the Agreement and the Settlement and Release Deed, albeit into a bank account in the name of Twin Investors;
(l) on 2 January 2018, JKL announced to the ASX that "it was pleased to announce the confidential settlement of a case it has funded" and that "As part of the arrangements, the Company appointed entities associated with Mr Kapp to negotiate a settlement of this case for 35% of the net proceeds…". The reference was to the Wickham Proceedings; and
(m) on 1 March 2018, PPB Advisory provided an Independent Expert's Report which referred to a Consultancy Fee due to Kapp Consulting in respect of the Wickham Proceedings. The statements relating to Kapp Consulting and the Wickham Fee made by PPB Advisory were based on instructions provided by JKL and JKL warranted that the statements in the report were accurate.
32 Kapp Consulting argues that the "upshot" of the facts listed above "must" be that it is reasonably arguable that it was within the knowledge and contemplation of the parties, including JKL, that Mr Kapp was acting as agent of Kapp Consulting when signing the Term Sheet. It submits that there can be no doubt that the existence of Kapp Consulting was known to JKL and was included in draft documents of the time, including drafts which were required to give effect to the Term Sheet and that those drafts provided for payment of the success fee to Kapp Consulting. Kapp Consulting submits that the strong inference is that JKL instructed solicitors before the Term Sheet was executed to draft what was known as the Wickham Consultancy Agreement with Kapp Consulting, including the same terms as cl 29 of the term sheet requiring the 35% success fee to be paid to it.
33 Kapp Consulting submits, correctly as far as it goes, that the general position in relation to a disclosed principal is that where the agent has made a contract with a third party and acts within the scope of the agent's actual or apparent authority, the principal can sue or be sued on the contract. In that context, Kapp Consulting submits that it is "manifestly arguable" that it was such a principal in this case, even if it be the case that this was not expressly disclosed, including for the purpose of entry into the Term Sheet. Kapp Consulting submits that it is sufficiently arguable that Mr Kapp, as a director of Kapp Consulting, was acting within the scope of his actual authority as a director in signing the Term Sheet on its behalf (the other director at the time being his wife). Kapp Consulting submits that questions concerning agency and the proper construction of the use of the word "Kapp" fall to be considered in those circumstances, even if factually incomplete, and that the entire or precise factual circumstances cannot properly be understood, nor resolved on JKL's strike out or summary dismissal application, such that this must be left to a final hearing.
34 Kapp Consulting accepts that terms of the Term Sheet which are inconsistent with the existence of an undisclosed principal may prevent Kapp Consulting as an asserted principal from suing, including the fact that the definition of "Kapp" as being "in his personal capacity" is arguably inconsistent with him being an undisclosed agent of Kapp Consulting. However, Kapp Consulting submits that given the factual circumstances involved, such a finding should not be made at this interlocutory stage because those circumstances make it difficult to say, without full evidence, whether that drafting made Mr Kapp the sole intended contracting party. That argument seems to suggest that the evidence proposed to be relied upon would be used to ascertain the subjective intention of the parties, or at least of Mr Kapp and Kapp Consulting. Kapp Consulting submits that it cannot be said that the terms of the Term Sheet have a "plain meaning" when considered in those circumstances, so that it could definitely be said that evidence of surrounding circumstances would be inadmissible, even if that was the current test.
35 On the question of the admissibility of surrounding circumstances, Kapp Consulting notes Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352, and compares that with Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40], the latter to the effect that interpretation "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". Kapp Consulting also draws attention to Electricity Generation Corporation v Woodside Energy [2014] HCA 7; 251 CLR 640 at [35] and Cherry v Steele-Park [2017] NSWCA 295; 96 NSWLR 548 at [57]-[59] and [128]-[132].
36 Finally, on this topic, Kapp Consulting submits that because JKL instructed the law firm Corrs to draft the Wickham consultancy agreement to which the very same 35% success fee was payable to Kapp Consulting, most likely before the Term Sheet date of 31 October 2017, and those instructions were given conformably with the obligation in cll 38 to 41 of the Term Sheet to provide more definitive documents to give effect to that agreement, or at least to reflect it as JKL argues, this reinforces the conclusion that surrounding circumstances are unavoidably relevant to the construction task required to be carried out. Kapp Consulting relies upon other statements to like effect made by JKL to the ASX and to PPB Advisory.
37 In respect of Twin Investors, Kapp Consulting submits that there is no dispute that Twin Investors was an associated entity of Kapp as at 31 October 2017; and that it is reasonably arguable that the success fee arising from cl 29 of the Term Sheet was owed to Twin Investors. This is because the obligation to pay the success fee can be performed not only by payment to Mr Kapp, but also to other parties within the meaning of the term "Kapp" in the agreement. Kapp Consulting contrasts cl 29 to clauses that it submits speak directly to Mr Kapp personally, such as clauses 3 and 23, which required Mr Kapp to resign from his positions with JKL. It also points to clauses that refer to "Kapp'" holding convertible bonds, which were in fact owned in the name of Twin Investors. Kapp Consulting again notes in respect of Twin Investors that it would not be appropriate for this Court to determine the construction issue on a final basis, because evidence will be required, including as to the circumstances surrounding the entry into the Term Sheet and the subsequent conduct of the parties.
38 It is necessary to consider in more detail the cases upon which Kapp Consulting relies, including some of those referred to either again or for the first time in its written reply submissions.
39 As noted above, Kapp Consulting asserts that this Court is precluded from considering admissibility of evidence in the determination of this application. That is only true in the limited sense of making a trial-like determination to that effect. The real issue is the limited use that may be made of such evidence: Cherry v Steele-Park at [66]. Consideration of that issue is not precluded on this application, and it is not in any event the argument that JKL advances. I do not understand JKL to be contending that a case in which there is a live possibility of evidence being able to be used to arrive at a different objective understanding as to what had been agreed, perhaps even as between whom, would not be allowed to proceed to trial (apart from the delay and change of position alternative arguments). Rather, JKL's case is that the terms in the Term Sheet are sufficiently clear to preclude the evidence pointed to by Kapp Consulting being taken into account and the authorities, properly understood, do not provide any sufficient basis to conclude that this would take place at trial.
40 Kapp Consulting's reliance on Toll at [40], Woodside at [35] and also, in reply, International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 (IATA v Ansett) at [8] must be approached with caution due to key differences between those cases and this proceeding.
41 In Toll, a party who had signed a contract but had not read what turned out to be a critical term was not allowed to escape the bargain entered into. The point in issue was not the creation of legal relations, but the nature of the legal relations that had been created: Toll at [38]. Yet, Kapp Consulting seeks to use the passage in Toll at [40] to effect the creation of legal relations in the sense of who they were created between. This dispute is not presently concerned with the nature of the legal relations, here the payment of a sum of money consequent upon an event having occurred, but rather with the creation of legal relations so as to determine to whom the benefit agreed upon should flow. Kapp Consulting has to demonstrate that, on the face of the Term Sheet, it was at least arguably a party to it, and that the door was therefore open to rely upon evidence in aid of such a conclusion.
42 In Woodside, again there was no dispute as to who were the parties to the contract in dispute. Rather, the disagreement centred on what was the scope of a reasonable endeavours clause to achieve a contractual objective, following an explosion that deprived the seller of gas the ability to provide supplies as contracted. Thus, the issue again was as to the meaning to be given to the clause in question in the sense of the nature of the legal relations that had been created, based not on subjective intention, but on objective meaning to be derived from the text in its surrounding circumstances and the commercial purpose or objects in play. The position was stated by Gageler J, in dissent on the result, but with clarity as to the principle (at [53]):
Commercial parties contracting at arm's length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant.
43 Once again, the reasoning sought to be relied upon by Kapp Consulting (from the majority in Woodside at [35]) is therefore directed not to the creation of legal relations, but to the nature of the legal relations that had been created. Viewed in that way, Woodside does not assist Kapp Consulting in relying on external evidence to determine whether legal relations have been created between it and JKL, contrary to the clear words in the Term Sheet precluding that conclusion.
44 In IATA v Ansett, the dispute concerned the meaning of a set of multilateral agreements operating between airlines to address credits and debits accruing between them, creating rights between each and a clearing house, rather than between individual airlines. The effect was to result in those airlines with a net credit at the end of the month receiving a payment from the clearing house, and those with a net debit being required to make a payment to the clearing house. An airline, Ansett, went into voluntary administration, with the administrators denying the efficacy of the agreements to make the clearing house a creditor, an argument that ultimately failed in the High Court. The evidence of circumstances and objects went to the meaning of the contracts in question as to whether the administrators were liable to make good certain net debit amounts. Once again, the reasoning sought to be relied upon (from the majority at [8]) is therefore directed not to the creation of legal relations, but the nature of the legal relations that had been created. Kapp Consulting's reliance on that case is therefore again misplaced.
45 Kapp Consulting seeks to take this line of authority further, by relying upon the following authorities in which, at first blush, the principles discussed above may be seen to have travelled further.
46 In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 636-7, McHugh JA, writing for the New South Wales Court of Appeal, said "even if parol evidence is only admissible to clarify meaning when a term in a document is ambiguous, that rule has no application when the issue is whether the person sued or suing is a party to the contract". However, Kapp Consulting's reliance on that quote overlooks the fact that this observation arose in the context of his Honour's earlier reasoning, at 634-5, that, because "the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances… [i]f the terms of the document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction". That is, the express terms of the contract cannot be affected by surrounding circumstances if there is no proper room to doubt that the words used should be taken to mean what they say, here by particular reference to cl 29 and cl 41 of the Term Sheet.
47 There is a more fundamental problem with Kapp Consulting's list of events reproduced at [31] above. As the addition I have inserted in square bracket after subparagraph (b) makes clear, virtually all of the conduct relied upon is post-contractual. Yet evidence of post-contractual events may not be used to establish the parties to a wholly written contract, except in unusual circumstances not in play here, such as a mistake in the name of such a party: see BH Australia Constructions Pty Ltd v Kapeller [2019] NSWSC 1086 (Leeming JA) at [90] to [103]; see also [58] as to the distinction between the admissibility of such evidence and its use.
48 In Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2015] FCA 1453; 331 ALR 108, Edelman J, as a member of this Court, granted leave to serve an originating application and statement of claim overseas. The applicant disputed that it was a party to a supply contract which contained an arbitration clause, that contract being entered into between a related overseas intermediary used by the applicant and the overseas supplier. This gave rise to an agency issue in relation to that contract. In that context, his Honour held, for the limited purpose of the overseas service application, that the applicant was not a party to the overseas contract, because it was not named as a party, but rather as a guarantor, thus relying on the face of the contract. That conclusion was also reached because the contract expressly provided that no right was intended to be conferred on anyone who was not a party, and because the reason that the applicant was not named as a party, derived from surrounding circumstances, was to avoid GST liabilities, such that the applicant could not be a party: see [8]. The more detailed reasons explaining those conclusions was at [107] to [141]. Kapp Consulting relies upon what was said at [133] to the effect that a survey of authority conducted in the preceding paragraphs indicated that:
… the question of whether a written agreement contradicts the alleged terms of an agency is one which often requires a very close examination of the written terms of the contract as well as the terms of the agency. Different cases have reached different results on similar facts. Context is very important. It is far from clear in this case that the terms of the Supply Agreement are consistent with an agency agreement.
49 The last set of authorities considered by Edelman J in Jasmin Solar prior to the above quote were all to the effect that a person cannot claim to be a principal to a contract if that would be inconsistent with the terms of that contract. His Honour considered Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 864; Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33 at 40, endorsed by Campbell J in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441; 200 FLR 125 at [80]; and also Carberry v Gardiner (1936) 36 SR (NSW) 559 at 574 and Integrated Asset Management Pty Ltd v Trans Communications Pty Ltd [2015] NSWSC 984 at [132]. His Honour's reasoning in the quote reproduced above and relied upon by Kapp Consulting, and that further authority, works against Kapp Consulting and not in its favour, because to find that Kapp Consulting was a principal would be inconsistent with the terms of the Term Sheet on its face.
50 Nor does Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; 89 NSWLR 633, also relied upon by Kapp Consulting, assist. Leeming JA, writing for the Court of Appeal, by holding at [74] that very often nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text, was stating that clarity of the contractual text will greatly limit the scope to go further. That provides vital context for the passage that Kapp Consulting relies upon from [77]: "to say that a legal text is "clear" reflects the outcome of that process of interpretation. It means that there is nothing in the context which detracts from the ordinary literal meaning. It cannot mean that context can be put to one side …" However, that highlights the hurdle that Kapp Consulting needed to surmount by pointing to something in the surrounding evidence that could properly be sought to be relied upon at trial that would have any reasonable prospect of being able to be successfully used to supplant the text, noting the general prohibition on the use of post-contractual evidence for this purpose identified in Kapeller at [90] to [103], cited above at [47]. In this case, there is nothing in the context evidence that Kapp Consulting has identified that it would seek to rely upon that is of a nature, or alternatively of sufficiently unambiguous force, which would have a reasonable prospect of disturbing the meaning of the Term Sheet on its face as to who the contracting parties were, even if the hurdle against use could be overcome.
51 It is also important to note first that none of Toll, Woodside or IATA v Ansett overrule or, properly understood, even relevantly qualify, as opposed to develop and better understand and apply what was said by Mason J in Codelfa . Leeming JA in Cherry v Steele-Park at [68] quoted Mason J in Codelfa at 352 as follows (reading "admissible" in the sense of being able to be used):
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.
52 There has been a fertile debate as to just what is meant by ambiguity in this context, leading to a preference to avoid that term, not least because it is a conclusion: see Leeming JA in Cherry v Steele-Park at [71] and [76] to [78] and following. However, that does not detract from the primacy of the text in a written agreement, being the language chosen by the parties to record and reflect the bargain they have reached. There is therefore ordinarily "limited scope for any evidence of surrounding circumstances to detract from the contractual text": Leeming JA in Cherry v Steele-Park at [73], to be read with his Honour's more recent observations in Kapeller.
53 It will not suffice for Kapp Consulting simply to assert that surrounding evidence is capable, as a matter of reasoning and analysis, to change the clear meaning of the Term Sheet, assuming or asserting, rather than demonstrating, that it has a sufficiently good prospect of being permitted to be used in that way. Patent clarity in the language of a contract may leave little work to be done by pre-contractual evidence of text and context, especially if nothing is identified to cast doubt on the objective meaning of the words on their own. The more blunt and clear the words, the less room there is to seek to give them a contrary meaning by resort to surrounding circumstances, and the greater the hurdle to be surmounted by a party seeking to change its case to achieve such a result.