Smith v Australian Executor Trustees Limited

Additional factual background

1. Sometime before 19 June 2018, the Wickham proceedings had settled with court approval and the settlement amount had been paid. The settlement of those proceedings triggered JK Litigation's obligation to pay the second instalment of the cash consideration payable under the SSPA.
2. Following the settlement, there was correspondence commencing in August 2018 between Mr Becker and Ms Diane Jones, the Chief Executive Officer of each of Law Finance, JK Litigation and JK Portfolio, concerning receipt of the settlement amount, the payment of Litigation Management's outstanding consulting fees, the payment of the second instalment of the cash consideration and other steps that needed to be taken to finalise the sale of JK Portfolio to JK Litigation. It appears from the correspondence that JK Litigation did not have the funds to pay the second instalment of the cash consideration at that time. In an email dated 16 August 2018, Mr Becker proposed that JK Litigation consent to the outstanding management fees and second tranche of the cash consideration being paid from the funder payments to be received in respect of the settlement of the LKM and GR Finance proceedings. That request was repeated in an email dated 22 August 2018 from Mr Becker to Ms Jones. Relevantly, that email said: Otherwise, Litman Holdings and Litigation Management have both verbally and in writing requested JKL and JustKapital Limited [ie Law Finance] to consent to an amount totalling $4,343,619 payable to Litman Holdings or Litigation Management to be paid from the settlement proceeds due to be received by Meridian Lawyers as follows: • the amount of $246,714 due to Litigation Management (for outstanding and deferred Consultancy Fees); and • the amount of $4,096,905 due to Litman Holdings (for Cash Payment 2 and Profit share after Completion) to be paid to Litigation Management. This schedule will be provided to Meridian Lawyers directing that payment of the total of $4,343,619 be made to Litigation Management from the LKM & GR Finance Settlement Proceeds which are due to be received by Meridian Lawyers in accordance with the terms of the Settlement Deeds. In the circumstances, please confirm in writing that JKL and JustKapital Limited consent to the course proposed by no later than 4pm on Friday, 24 August 2018. If a response is not received from you within the time prescribed, Litman Holdings and Litigation Management will take whatever steps necessary to recover all monies due and payable by JKL without further notice to you. This is likely to include a further application to the Court in each of the LKM and GR Finance proceedings.
3. On 27 August 2018, K&L Gates, who were then acting for Litman Holdings, wrote to Meridian giving notice of a dispute between Litman Holdings and JK Litigation and Law Finance and directing Meridian to hold the funder payments totalling $11,197,550 in respect of the settlement of the LKM and GR Finance proceedings pending resolution of that dispute or until Meridian received a written direction from "both Litigation Funders" concerning the distribution of the funder payments or until the Court ordered otherwise. The letter sought a response by 29 August 2018. It appears from the letter that under the terms of the settlement deeds in the LKM proceeding and the GR Finance proceeding the funder payment as that term was defined in the deeds was to be paid to "the Litigation Funders", which was defined to mean Litman Holdings and Law Finance.
4. On 29 August 2018, Meridian replied to that letter saying: We confirm that we will not distribute the Funder Payment for either the LKM proceeding or the GR Finance proceeding until such time as we either receive a written direction from the Litigation Funders as to the distribution of the Funder Payment, or pursuant to an order from the Court, or without first providing both Litman Holdings and JustKapital 48 hours written notice of our intention to make a distribution of the Funder Payment.
5. On 5 September 2018, Mr Becker emailed Mr Raftesath at Meridian with a copy to Ms Jones saying: I refer to the above Settlement Deed and in particular to the payment direction in Clause 3.4 To avoid any misunderstanding by either Meridian Lawyers or JustKapital it is Litman's understanding the payment direction applies to JustKapital's share of the Funder Payment. Litman's share will be retained by Meridian Lawyers for disbursement in accordance with Litman's written instructions which shall be provided when the respective entitlements have been agreed between JustKapital and Litman. No distribution of the Funder Payment can be made by Meridian Lawyers until both JustKapital and Litman have reached agreement and both have provided Meridian Lawyers with written confirmation of such an agreement, the amount to be distributed to each party and the written consent to distribution in accordance with the agreement. Please confirm Meridian Lawyers agreement to act in accordance with the above understanding of Clause 3.4.
6. Ms Jones forwarded that email to Mr Lumsden at Corrs Chambers Westgarth who, at that time, was acting for Law Finance. Mr Lumsden then sent an email to Mr Raftesath saying: Our client does not consent to any funds being disbursed without reference to our client. Our client insists that you to [sic] maintain your previous position in accordance with the attached letter. The attached letter was the letter dated 29 August 2018 from Meridian.
7. Mr Raftesath replied to that email on the same day saying: It seems to me from your email below and from the correspondence from Mr Becker that both your client and Mr Becker are in agreement that I should not distribute the Funder Payment in any of the 3 matters, Provident Capital, LKM Capital or GR Finance, unless and until I receive an agreed communication from both parties as to the payment - or unless there is a Court order, or without first giving 48 hours written notice of my intention to do so. I confirm that I am content with this course and in the circumstances, confirm that I will not distribute any Funder Payment until one of the three events referred to above occurs.
8. Later that day, Mr Lumsden asked Mr Raftesath for some information about the Funder Payments. Mr Raftesath replied to that email at 4.02 pm. In response to that email, Mr Lumsden sent an email at 4.07 pm saying: I think it is important that we are all clear exactly what we are talking about. I will get some instructions and get back to you.
9. On 10 September 2018, Ms Karin Lee from K&L Gates sent Mr Raftesath, with a copy to Mr Lumsden, among others, an email stating that the parties were presently in discussions to attempt to resolve the matters in dispute and that pending resolution of all the issues "the following monies are to be withheld by your firm in each of the LKM, GR Finance and Provident proceedings". In respect of Provident, the amount included the $4,252,500.
10. At 11.57 am on 17 September 2018, Mr Raftesath sent Ms Jones a draft response to Ms Lee's email. That draft email said "I am happy to withhold the Funder Payment with respect to each of the 3 matters in the amounts stipulated in your email". The draft email went on to deal with the position of legal costs and concluded: It is these amounts for Plaintiff's Costs, that I am prepared to withhold pending the resolution of the dispute between the litigation funders.
11. Ms Jones replied to that email at 12.52 pm. After making a number of comments, the reply said: Further, I am not sure that you are holding funds until the dispute between the funders is resolved. I believe that you are holding these funds until you receive written confirmation that the funds should be released.
12. Mr Raftesath replied at 1.27 pm saying that he would "make an amendment to my email to K&L Gates to take into account your final paragraph below", which was a reference to the paragraph just quoted. The final version of the email was sent to Ms Lee at 1.38 pm. It was not copied to Ms Jones. Mr Raftesath amended the last paragraph of the email so that it read: It is these amounts for Plaintiff's Costs, that I am prepared to withhold pending receipt of written confirmation from JKL [JK Litigation] and Litman Holdings that the funds can be released.
13. On 16 October 2018, in a letter signed by Ms Jones and Mr Becker to Mr Raftesath, Ms Jones and Mr Becker gave instructions for the payment of funds held by Mr Raftesath in respect of the LKM and GR Finance proceedings.
14. Litman Holdings seeks to rely on some correspondence that occurred between the parties between 19 September 2018 and 3 October 2018. The correspondence consists of two letters from Ms Jones to Mr Becker, one dated 19 September 2018 and the other dated 3 October 2018. It also includes an email dated 21 September 2018 from Mr Becker to Ms Jones responding to the letter dated 19 September 2018. Both letters are marked "without prejudice". That correspondence is plainly written in an attempt to negotiate a settlement of the underlying dispute. For that reason it is privileged under s 131(1) of the Evidence Act 1995 (NSW), which relevantly provides: Exclusion of evidence of settlement negotiations (1) Evidence is not to be adduced of: (a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or (b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.
15. Mr Clark SC, who appeared for Litman Holdings, submitted that the correspondence fell within the exception created by s 131(2)(f), which provides that subs (1) does not apply if: (f) the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue;
16. In my opinion, that exception has no application in this case. The relevant documents are not sought to be tendered as evidence of an agreement reached between Litman Holdings and Law Finance to settle the dispute the subject of the correspondence. Rather, they are tendered as evidence of an agreement said to have been reached concerning what was to happen to the money held by Meridian pending resolution of the dispute the subject of the correspondence. Paragraph 131(2)(f) does not permit the documents to be tendered for that purpose.
17. On 10 December 2018, Baker McKenzie, acting for Fortress, a secured creditor of JK Portfolio, wrote to Mr Raftesath asserting that a number of Fortress subsidiaries had a proprietary interest in JK Portfolio's rights to the Funder Payment in respect of the Provident Proceeding and asserting that Meridian, as administrator, was obliged to pay the Funder Payment to (or at the direction of) JK Portfolio and seeking a confirmation that the amount would be promptly remitted to JK Portfolio.
18. Meridian responded to that letter on 12 December 2018, which it copied to Ms Jones and Mr Becker. In that letter, Mr Raftesath said that the funds had not yet been received but that when they were it was Meridian's intention to pay the moneys into Court. The letter said: Unless we receive confirmation from each of the interested parties, being Fortress, JustKapital and Litman, that they are content for us to maintain the Disputed Funds in our trust account until the dispute is resolved, we propose to take steps to pay the Disputed Funds into Court.
19. On 14 December 2018, Baker McKenzie replied to that letter. They stated that their client had received no evidence of any dispute concerning claims to the money and that their client did not consent to Meridian retaining the Funder proceeds.
20. On 7 February 2019, Ms Jones and Mr Becker sent a letter to Meridian giving directions for the disbursement of various funds held in respect of the Provident Proceeding to meet obligations owed to third parties. The letter concluded: We request that you continue to maintain the balance of $2,188,554.73 in your Trust account until further written direction from the Funder and ACN 133 560 086 Pty Ltd. Please also find attached proposed consent orders to adjourn tomorrow's hearing in the Provident proceeding.
21. Following some further correspondence and discussion between the parties, Meridian paid the $2,188,554.73 into Court on 21 February 2019.

Did the parties reach an agreement in relation to the amount held in Court?

1. Clause 3.4 of the Settlement Deed contains a clear agreement between the parties that the amount currently held in Court was to be paid to JK Portfolio. The question is whether the parties subsequently agreed by the Provident Retention Agreement to vary that agreement. Despite what cl 14.1 of the Settlement Deed says (concerning amendments to the Deed), it would have been possible for JK Portfolio and Litman Holdings to agree to an amendment to the deed insofar as it affected them: see Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 at [122]. However, where the parties have recorded their agreement in a carefully drafted Deed, it should not readily be inferred that the parties have reached some different agreement by their subsequent conduct.
2. In this case, Litman Holdings contends that some different agreement can be inferred from the following: 1. On or about 29 August 2018, Litman Holdings, JK Litigation, JK Portfolio and Law Finance agreed that, in light of the underlying dispute concerning payment and JK Litigation's inability to meet any payment obligations, the amount to be received by Meridian in respect of the settlement of the LKM and GR Finance Class Actions would not be distributed without a written direction from both Litman Holdings and Law Finance and would be used to satisfy any obligation JK Litigation had to pay Litman Holdings; 2. On or about 5 September 2018, JK Portfolio and Litman Holdings directed that Meridian retain the amount received in respect of the settlement of the Provident Class Action on the same terms as the agreement reached in relation to the LKM and GR Finance Class Actions; 3. On or about 16 October 2018, Litman Holdings and Law Finance signed a joint direction for distribution of part of the amounts received in respect of the LKM and GR Finance Class Actions and directed that the balance be retained by Meridian; 4. On or about 7 February 2019, Litman Holdings and Law Finance signed a joint direction for distribution of part of the amounts received in respect of the Provident Class Action and directed that the balance be retained by Meridian.
3. In my opinion, the Litman Holdings' description of the relevant events is a mischaracterisation of what occurred, and no agreement can be inferred from the events that occurred between August 2018 and February 2019 of the type alleged by it.
4. As at August 2018, Litman Holdings was certainly asserting an entitlement to be paid amounts due under the SSPA and Litigation Management was claiming outstanding consulting fees. Under the terms of the settlement deeds in respect of the LKM and GR Finance Class Actions, the amounts payable to the litigation funder (originally Litman Holdings) were to be paid to Litman Holdings and Law Finance. It was in that context that Litman Holdings asserted that an amount of $4,343,619 should be paid at its direction to Litigation Management from the settlement proceeds and, in the absence of agreement on that matter, that Meridian should not disburse the funds to either party. That was in a context where both Litman Holdings and Law Finance had a right under the relevant agreements to be paid the amount in question.
5. On 5 September 2018, Mr Becker sent an email to Mr Raftesath, which was copied to Ms Jones, setting out an interpretation of cl 3.4 of the Settlement Deed which that clause plainly did not have. That interpretation was that the payment direction in that clause only applied to "JustKapital's share of the Funder Payment". But neither JustKapital (that is, Law Finance) nor JK Litigation was a party to the deed. The only party was JK Portfolio. JK Portfolio did not owe Litman Holdings or Litigation Management any money; and there was no mechanism in the deed or anywhere else for determining "JustKapital's share of the Funder Payment". Clause 3.4 made it clear that the whole of the Funder Payment was to be paid to JK Portfolio.
6. There is nothing in the subsequent correspondence between the parties that could be construed as an acceptance by JK Portfolio that cl 3.4 had the meaning for which Mr Becker contended. After Mr Becker's email was forwarded to Mr Lumsden, Mr Lumsden sent an email to Mr Raftesath (which was not copied to Mr Becker). That email is ambiguous. It is not entirely clear on whose behalf it was written. It refers to "our client", which presumably is a reference to Law Finance. Assuming that it was also written on behalf of JK Portfolio, the apparent purpose of the email was to put Mr Raftesath on notice promptly that he could not pay out any part of the money held by Meridian without JK Portfolio's consent. The email also states that "Our client insists you to maintain your previous position in accordance with the attached letter". However, it is not clear whether Mr Lumsden is insisting that Mr Raftesath apply the principles set out in the letter attached to the email to the amount received in respect of the settlement of the Provident Class Action or whether he is saying that, in addition to the requirement that Mr Raftesath not disburse any part of the Provident settlement amount without JK Portfolio's consent, Mr Raftesath must continue to comply with the acknowledgements he gave in the letter with respect to the LKM and GR Finance settlements.
7. It is apparent from Mr Raftesath's reply that he interpreted the email in the second way. But it is far from clear that that interpretation is correct. It is unclear why JK Portfolio would agree to any arrangement that gave Litman Holdings a say on what was to happen to the Provident settlement amount when cl 3.4 clearly stated that it was to be paid to JK Portfolio. The evident purpose of Mr Lumsden's email was to prevent Mr Raftesath from dealing with the settlement moneys contrary to the wishes of Law Finance, not to prevent Mr Raftesath from dealing with the settlement moneys in accordance with the Settlement Deed. In any event, Mr Lumsden's instructions to Mr Raftesath and Mr Raftesath's interpretation of those instructions cannot amount to an acceptance in some legally binding sense of an interpretation of cl 3.4 of the Settlement Deed advanced by Mr Becker.
8. The subsequent correspondence between Mr Lumsden and Mr Raftesath reinforces the conclusion of the previous paragraph. Mr Lumsden asked for some additional information about the Funder Payments, which Mr Raftesath provided. Mr Lumsden then said that "I think it is important that we are all clear exactly what we are taking about" and that he would get some instructions. Plainly, it could not be said that he agreed with Mr Becker's interpretation of cl 3.4 of the Settlement Deed on behalf of JK Portfolio. And he had certainly not communicated any agreement to Litman Holdings.
9. It is apparent that there were then some without prejudice discussions. K&L Gates, acting for Litman Holdings, proposed that Mr Raftesath continue to hold the Funder Payments including the amount held in respect of the Provident settlement pending a resolution of all issues. Mr Raftesath drafted a letter that was consistent with that proposed and showed a draft to Ms Jones. In response, Ms Jones effectively denied that Mr Raftesath was holding the funds pending the resolution of the disputes. Instead, she said she thought he was holding them "until you receive written confirmation that the funds should be released". That statement itself was ambiguous. It might have meant that Mr Raftesath was to hold the funds until he received written confirmation that the funds should be released from the person entitled to give that confirmation. In the case of the funds held in respect of the LKM and GR Finance settlements, that was Litman Holdings and Law Finance. But in the case of the Provident settlement, as things stood, it was JK Portfolio. Alternatively, Ms Jones' statement might have been understood as meaning the funds were to be held until Mr Raftesath received instructions from Litman Holdings and Law Finance.
10. The first interpretation is preferable. That interpretation reflects the actual position at the time, and, in particular the agreement recorded in cl 3.4 of the Settlement Deed. It should not readily be inferred that Ms Jones was intending to abandon JK Portfolio's rights under cl 3.4 of the Settlement Deed. Moreover, it is difficult to see what point of substance Ms Jones was making if she accepted that the funds should be held until both parties agreed to their release. It was plain that Litman Holdings did not agree to the release of any funds until the disputes were resolved. Consequently, on the second interpretation there was no difference in substance between what Mr Raftesath proposed and what Ms Jones said was the correct position.
11. Despite that, consistently with his earlier mistake in relation to the correspondence with Mr Lumsden, Mr Raftesath interpreted Ms Jones' email in the second way and in the final version of his reply to the email from K&L Gates he said that the funds he was prepared to withhold "pending receipt of written confirmation from JKL and Litman Holdings that the funds can be released" included the funds he held in respect of the Provident settlement. Again, however, the fact that that was Mr Raftesath's view does not mean that it was JK Portfolio's view or that there was any acceptance by JK Portfolio of what Litman Holdings proposed.
12. The direction given on 16 October 2018 by JustKapital (that is, Law Finance) and Litman Holdings in relation to the funds held in respect of the LKM and GR Finance settlements adds nothing. That direction was consistent with what had been agreed in a context where the relevant settlement deeds provided for the funders' share of the settlement proceeds to be paid to both of them.
13. Nor do I think anything follows from the direction given by both parties on 7 February 2019. It is true that in that direction Ms Jones and Mr Becker requested Meridian to "continue to maintain the balance of $2,188,554.73 in your Trust account until further written direction from the Funder [JK Portfolio] and [Litman Holdings]". But by that stage Meridian had made it plain (on 12 December 2018) that it intended to pay the money into Court unless it received confirmation from "each of the interested parties, being Fortress, JustKapital and Litman, that they are content for us to maintain the Disputed Funds in our trust account until the dispute is resolved" and that confirmation had not been forthcoming. Indeed, Fortress had made it plain that it would not give the confirmation. Consequently, the request that Meridian continue to maintain the balance in its trust account could only have intended to be a request until the money was paid into Court.
14. It follows that there was no agreement reached or representation made by JK Portfolio of the type alleged by Litman Holdings. Whatever else might be said, there was no communication by or on behalf of JK Portfolio that it accepted the interpretation of clause 3.4 of the Settlement Deed advanced by Mr Becker in his email dated 5 September 2018. Yet it is that email and the alleged acceptance of what it said by JK Portfolio that is critical to Litman Holdings' case.
15. It is not clear that Litman Holdings advances its subsidiary argument based on the interests of justice and Law Finance's financial position as an independent ground on which the Court should make the orders it seeks. However, if it does, in my opinion the argument must be rejected. In effect, Litman Holdings seeks an order akin to a freezing order. However, it makes no attempt to satisfy the requirements set out in Uniform Civil Procedure Rules 2005 (NSW) Part 25 Division 2. It leads no evidence in relation to Law Finance's current financial position. It leads no evidence that, absent such an order, there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. It seeks, in effect, to freeze money belonging to JK Portfolio to secure a potential judgment that it may obtain against JK Litigation. However, it advances no reason why such a course of action would be appropriate, particularly in circumstances where it appears that JK Portfolio has other secured creditors.

Orders

1. It follows that the orders of the Court are: 1. The amount paid into Court on 21 February 2019 of $2,188,554.73, together with any interest thereon, be paid to the trust account of Roberts and Partners Lawyers BSB xxxx Account No xxxx; 2. ACN 133 560 086 Pty Limited pay JustKapital Portfolio Pty Limited's costs of JustKapital Portfolio Pty Limited's notice of motion filed on 5 March 2019; and 3. The notice of motion filed on 6 March 2019 by ACN 133 560 086 Pty Limited be dismissed with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 June 2019