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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST
Einstein J
Friday 5 September 2008
50096/07 Nauru Phosphate Royalties Trust
(Receivers and Managers appointed) & Ors v Business Australia
Capital Mortgage Pty Ltd (in liquidation) & Ors
50135/07 Andrew Hugh Jenner Wily in his
capacity as liquidator of Business Australia Capital Finance Pty Ltd
& Ors v Nauru Phosphate Royalties Trust (Receivers and Managers
appointed) & Ors
JUDGMENT
Overview
1 The two sets of proceedings presently
before the Court concern the rights and obligations of various parties
who entered into a Deed of Settlement and Release dated 16 October 2006
["the Deed"].
2 The Nauruan Entities are the plaintiffs
in the NPRT Proceeding and the first defendants in the Wily Proceeding
and comprise the following entities:
(a) Nauru Phosphate Royalties Trust (receivers and managers appointed);
(b) Republic of Nauru Finance Corporation;
(c) Randwick Nominees Pty Ltd (receivers and managers appointed);
(d) Central Pacific (Downtowner) Pty Ltd (receivers and managers appointed);
(e) Spencer Investments Pty Ltd (receivers and managers appointed);
(f) Ronsi Business Pty Ltd (receivers and managers appointed); and
(g) Ronsi Holdings Pty Ltd (receivers and managers appointed).
3 The Deed sought to resolve numerous
issues between the parties including, among other matters, the amount
alleged to be due by the Nauruan Entities to Business Australia Capital
Finance Pty Limited (in liquidation) [“BACF”], Business
Australia Capital Mortgage Pty Limited (in liquidation) [“BACM”] and
Bondedge Pty Limited (in liquidation) (formerly Business Australia
Corporate Finance Pty Limited) [“Bondedge”], [together “the BA
Companies”].
4 A central issue concerns the proper construction of the Deed.
The events leading up to entry into of the deed
5 On 28 July 2004, the Nauruan Entities
commenced Federal Court proceedings numbered 1159 of 2004 [“Federal
Court Proceeding”] against each of the following parties seeking various
forms of relief:
(a) the HLBC Pty Limited [“HLBC”];
(b) each of the BA Companies;
(c) Ian David Lazar [“Lazar”].
The Heads of Agreement
6 The various and complex disputes between
the Nauruan Entities on the one hand and the BA Companies, HLBC and
Lazar on the other were resolved by the entry into of a Heads of
Agreement dated 10 September 2004.
7 During the period 10 September 2004 to
approximately May 2005, the parties to the Heads of Agreement sought to
perfect those terms in a formal deed of settlement and release. No such
deed was formalised.
8 In June 2005, Mr Wily was appointed as
liquidator to BACM and Bondedge. In November 2005, Mr Wily was
appointed as liquidator to BACF.
The Deed
9 On 16 October 2006, the following parties entered into the Deed:
(a) the Nauruan Entities;
(b) HLBC;
(c) the BA Companies;
(d) Mr Wily; and
(e) other parties not joined to either the Wily of NPRT Proceedings.
10 The Deed was entered into for the
purposes of settling the various disputes and proceedings between the
parties to the Deed, including the Federal Court Proceeding, and the
issues the subject of the Heads of Agreement which was otherwise
subsumed by the Deed.
11 One of the matters that the parties
sought to address by entering into the Deed was the resolution of claims
against the Nauruan Entities, the BA Companies and HLBC by various
alleged creditors defined in clause 1.1 of the Deed as "Priority
Creditors". The term "Priority Creditors" was used as a descriptive term
only and did not, nor does it, serve to recognise or concede the
legitimacy of claims made by those entities or that their claims have
priority ahead of any other creditor (Clause 1.1 definition of Priority
Creditors).
12 Each of the parties to the Deed
represented and warranted that prior to entry into the Deed, they had
taken independent legal advice as to the nature, effect and extent of
the Deed (Clause 8.1(a)).
13 The convenient course in orientating a reader into the essential present issues is to set out the recitals to the deed:
Background
A In January 1999 and September 2000, GE
Capital Finance by its agent GE Capital Security lent AUD$136 million
and AUD$75 million to Ronfin and Ronsi Business.
B the GE Loans were guaranteed by the Applicants and secured by way of charges and registered mortgages over the Properties.
[the Applicants were defined as NPRT,
Ronfin, Randwick Nominees, Central Pacific, Spencer investments, Ronsi
Business and Ronsi Holdings]
C The GE Loans were repayable on 5 January 2004.
D The GE Loans were not repaid on the due
date and GE subsequently appointed the Receivers who proceeded to sell
and realise Properties.
E The Applicants allege but the Respondents
deny that from about July 2003 the Respondents made various
representations to the Applicants that they were in a position to
proceed with funding arrangements to enable the Applicants to discharge
their obligations under the GE Loans.
[the Respondents were defined as all of BACM, BACF, HLBC, Lazar and Bondedge]
F The Applicants allege but the Respondents
deny that in reliance upon the representations made by the Respondents,
the Applicants and Respondents entered into the Documents.
G A dispute arose between the Applicants
and Respondents as to the amount owing by the Applicants to the
Respondents under the Documents.
H The Applicants commenced the Federal Proceeding.
I On 8 September 2004 the Applicants and
Respondents attended mediation before Sir Laurence Street which resulted
in the Heads of Agreement being signed.
J From 8 September 2004 to about May 2005
the Applicants and Respondents sought to more perfectly document the
Heads of Agreement by way of a deed.
K The terms of the deed referred to in the preceding recital were never finalised.
L In June 2005, the Liquidator was appointed as liquidator to BACM and Bondedge and in November 2005 to BACF.
M By undated further amended cross claim
filed 21 June 2006 in the Federal Proceedings, the Liquidator seeks to
enforce the Heads of Agreement.
N By second cross claim dated 30 June 2006
and filed in the Federal Proceeding, HLBC and Lazar seek to enforce the
Heads of Agreement.
O The Applicants have purported to rescind the Heads of Agreement and otherwise deny that it is enforceable.
P In July 2006 the Allegations were made, which Allegations are denied.
Q In August 2006, the BA Receivers were purportedly appointed to BACM and BACF.
R In September 2006, the BA Receivers were
removed as receivers and managers of BACM pursuant to an order made in
the Terra Cresta Proceeding.
S The BA Receivers are the receivers and managers of BACF.
T The Liquidator does not accept that there has been a proper, legitimate or bona fide appointment of the BA Receivers.
U The parties to this document have agreed
to settle their differences in accordance with the terms and conditions
set out below.
Payment of the Reserve Sum
14 The Deed provided for the sum of
$2,000,000.00 (Reserve Sum) to be paid by the Nauruan Entities into an
account to be held by Mr Nikolaidis, the solicitor for Mr Wily and the
BA Companies, and Mr Atkins, the solicitor for the Nauruan Entities, as
trustees for the Nauruan Entities, the BA Companies and HLBC (Account)
(Clause 3.2).
15 The Nauruan Entities agreed to pay the
Reserve Sum into the Account and to make those funds available to enable
Mr Wily to procure the settlement of outstanding claims identified as
Priority Creditors in the Deed.
16 The Reserve Sum was to discharge any
obligations of the Nauruan Entities to the Priority Creditors. Since
the sums claimed were sums claimed to be owed by Nauruan Entities and
not the liquidator or the BA Companies, the Liquidator required the
co-operation of the Nauruan Entities and their solicitors, Henry Davis
York [“HDY”].
The terms of clause 4
17 The terms of clause 4 of the Deed were as follows:
“4 PRIORITY CREDITOR RELEASES
4.1 The Liquidator will take all reasonable steps and use his best endeavours to procure the Priority Creditor Releases.
4.2 The Liquidator will progressively upon concluding his negotiations to procure each of the Priority Creditor Releases:
(a) simultaneously inform HDY, MD
Nikolaidis and the BA Receivers in writing that he has reached agreement
with a particular Priority Creditors [sic] to procure a Priority
Creditor Release in respect of that Priority Creditors [sic] and the
amount agreed upon for that Priority Creditor to enter into a Priority
Creditor Release;
(b) provide to HDY, MD Nikolaidis and the
BA Receivers, at the time of making the notification provided for in
clause 4.2(a) a copy of the proposed Priority Creditor Release;
(c) request Scott Andrew Atkins and Leon
Nikolaidis to withdraw funds from the Account in an amount being the
lesser of the amount referred to in clause 4.2(a) and the amount
provided in respect of that Priority Creditors [sic] in the table of the
Priority Creditor Sums contained in clause 1.1;
(d) attend a settlement at HDY whereupon
executed counterparts of each Priority Creditor Release will be
exchanged in consideration for Scott Andrew Atkins and Leon Nikolaidis
paying from the Account by bank cheque the amount withdrawn from the
Account in accordance with clause 4.2(c) together with an amount
representing interest, if any, accrued on the amount necessary to
discharge the obligation under clause 4.2(c);
(e) where the amount referred to in clause
4.2(a) exceeds the amount provided in respect of the Priority Creditors
in the table of Priority Creditor Sums contained in clause 1.1, then
such amount will be paid by BACM, BACF, HLBC and Bondedge equally;
(f) in the event that as a result of
agreements having been reached with Priority Creditors in amounts less
than the amounts respectively provided in respect of those Priority
Creditors in the table of the Priority Creditor Sums contained in clause
1.1, that amount shall be added to the surplus in the Account. The
surplus shall be retained in the Account until a Priority Creditor
Release is obtained in respect of all Priority Creditors, and until such
time, the surplus or part of it shall be applied, if the Applicants so
require, towards satisfying any judgment that may be obtained by any
Priority Creditors against the Applicants in an amount in excess of the
amount provided in respect of that Priority Creditor in the table of the
Priority Creditor Sums contained in clause 1.1; and
(g) provided that prior to complying with
his obligations under clauses 4.2(a) - (c) the Liquidator will obtain
written consent from HLBC to proceed as proposed by the Liquidator,
which consent will not be unreasonably withheld.
4.3 HDY and MD Nikolaidis will take all
reasonable steps to give effect to the agreement as out in this clause 4
including but not limited to signing all necessary documents to give
effect to the Priority Creditor Releases and the payments to be made
from the Account.
4.4 For more abundant caution and for the avoidance of any doubt, the parties agree that:
(a) any funds remaining in the Account
after the provision of all Priority Creditor Releases to HDY are to be
paid equally to BACM, BACF, HLBC and Bondedge;
(b) the entirety of the Priority Creditor
Releases are to be furnished to HDY by no later than 30 June 2007
failing which the balance of the funds then standing to the credit of
the Account are to be paid to NPRT;
(c) other than as is provided for in clause
3.2, the Applicants have no liability to pay any further amount for or
on behalf of any Priority Creditor or to satisfy any request by the
Liquidator for funds to be paid to any Priority Creditor.
4.5 The Applicants shall provide reasonable
assistance to the Liquidator in dealing with the Priority Creditors at
the Liquidator's expense and to be charged at the normal hourly rates
charged by HDY.
18 There were 11 named Priority Creditors under the Deed. Pursuant to clause 4, if Mr Wily obtained from all
Priority Creditors releases (in the form set out in the Deed) by 30
June 2007 for less than $2 million, then he was entitled to retain the
balance of the $2 million. If however all the Priority Creditor Releases were not obtained by 30 June 2007, the balance of the funds - $2 million - would revert back to the Nauruan Entities.
19 Ultimately in the events which happened
the liquidator was unable to negotiate a Priority Creditor Deed of
Release with Ernst & Young prior to 30 June 2007. These proceedings
are centrally concerned with the causes and consequences of that
failure.
Proceedings 50135/07
20 The burden of the case pursued by the BA
parties in proceedings 50135/07 is the contention that the liquidator
was unable to procure Priority Creditor Releases in accordance with the
terms of the Deed because the Nauruan Entities breached their
obligations to him under the Deed, with the result that he is entitled
to the balance of the $2 million despite not obtaining all the required
releases.
Proceedings 50096/07
21 By the other set of proceedings 50096/07
the Nauruan Entities claim the balance of the $2 million on the basis
that the liquidator failed to procure the requisite Priority Creditor
Releases by 30 June 2007.
The issues
22 A number of issues fall for determination, some in cascading fashion and some by way of alternatives:
i. What is the proper construction of the
contractual obligations (if any) of the parties under clauses 4.1, 4.3
and 4.5 of the deed?
ii. Whether the Nauruan Entities and HDY
breached their obligations under clauses 4.3 and 4.5 of the Deed in
respect of the Ernst & Young Priority Creditor claim.
[Did the Nauruan Entities provide
“reasonable assistance” (properly interpreted) to Mr Wily in dealing
with the Priority Creditors?
In particular, did:
(i) the refusal by the Nauruan Entities to
provide the form of authority sought by Mr Wily to permit Mr Wily’s
solicitors access to files in the possession of Levitt Robinson (the
Nauruan Entities former solicitors); and/or
(ii) the actions and conduct of the legal representatives of the Nauruan Entities at or outside Court on 27 and 28 June 2007,
constitute a breach of the requirements of clause 4.5?]
iii. Even assuming some breach, was the breach causative of Mr Wily’s failure to settle with Ernst & Young?
iv. Whether, in light of the answers to the
above issues, the Nauruan Entities are entitled to rely on or enforce
clause 4.4(b) of the Deed.
v. Who, in the events as they happened, is entitled to claim the balance in the funds standing in the account?
Issue 1 - the proper construction of clause 4 of the Deed
23 As is apparent from the terms of the
deed, the extent of the parties' obligations are variously defined using
phrases such as “best endeavours”, “all reasonable steps” and
“reasonable assistance”. The meaning of such phrases was considered in
the Court of Appeal in Waters Lane Pty Ltd & Anor v Sweeney & Ors [2007]
NSWCA 200. Tobias JA, [99]–[107], with whom Giles & Santow JJA
agreed, discussed whether there was any meaningful difference in the
obligations imposed variously by phrases such as “best endeavours”, “all
reasonable endeavours” and “reasonable endeavours”. Albeit without
expressing a final conclusion, Tobias JA concluded that the various
formulations were all likely to fall within the ambit of the often-cited
obligations described by Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 62:
“…. an obligation to use ‘best endeavours’
does not require the person who undertakes the obligation to go beyond
the bounds of reason; he is required to do all he reasonably can in the
circumstances to achieve the contractual object, but no more: Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 at 452; Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 at 237”.
24 The Nauruan Entities have contended that
the obligation imposed by the Deed in requiring HDY [not a party to the
Deed but described therein as acting in their capacity as solicitors
for the Nauru Entities] to take all reasonable steps to give effect to
the agreement set out in clause 4 was plainly never
intended to require HDY to procure the actual releases. The
proposition is that the terms of both clauses 4.3 as well as 4.5 relate not to assisting the liquidator in actually obtaining the Priority Creditor Releases,
but to assist him to deal with the priority creditors, in matters such
as facilitating a dialogue between the parties: examples given by the
Nauruan Entities are the obligation to provide relevant contact details
for priority creditors or providing a letter of introduction to a
priority creditor or similar.
25 The burden of this submission is to make
the point that there was no obligation on the Nauruan Entities to
assist the liquidator to actually settle the claims which matter was his
and only his obligation under the deed. The contention was put as
follows:
i. If the parties had desired to include a
clause that the Nauruan Entities had an obligation to assist Mr Wily to
obtain the Priority Creditor Releases, or to settle the claims, then
they could easily have done so. On any reading, there is no such
obligation. Moreover, such an interpretation of clause 4.5 is contrary
to the general scheme of clause 4, because the whole purpose of the
clause was that the Nauruan Entities were outsourcing the task to Mr
Wily of negotiating the settlement of each of alleged Priority Creditor
Claims, with the incentive for Mr Wily that if he procured each of the releases by 30 June 2007, the balance standing in the account would pass to him.
ii. It is contrary to the clear objective
intent of the parties that subclause 4.5 should be construed as
requiring the Nauruan Entities to assist Mr Wily in actually negotiating
and obtaining settlement with the Priority Creditors: cf subclause 4.1.
26 I accept this submission as of substance.
27 However the submission eschews the
importance of ascertaining the reach in clause 4.5, of the obligation to
provide assistance to the liquidator in dealing with the priority
creditors. The words which the draftspersons selected, were an
obligation to provide 'reasonable assistance'
in this regard. Clause 4.3 albeit not in precisely the same terms as
clause 4.5, appears to an extent to have overlapped with clause 4.5,
there being no material distinction between use of the words 'reasonable
assistance' used in clause 4.5 and use of the words "or take all
reasonable steps" used in clause 4.3.
28 The central issues litigated presently concern:
i. whether or not the obligation to provide
reasonable assistance extended to an obligation upon the Nauruan
Entities to facilitate the obtaining by the liquidator of any and if so
what form of documentation;
ii. in particular [and upon the assumption
that the obligation extended to require the Nauruan Entities to provide
assistance in connection with the liquidator's attempts through Mr
Nikolaidis, to obtain general access
to files of the Nauruan Entities former solicitors], whether upon a
close analysis of the factual circumstances, the Nauruan Entities are
seen to have failed to provide that form of reasonable assistance.
The claim pleaded by the BA parties
29 The BA parties not only pleaded the
express terms of the Deed, but went on to contend for the following two
groups of implied obligation under the Deed:
Group 1
i. Upon the Nauruan Entities, the BA Group and HLBC and the BA Liquidator of good faith and fair dealing in the performance of the Deed.
ii. Upon the Nauruan Entities, the BA Group and HLBC and the BA Liquidator to cooperate
with each other to facilitate the performance of the Deed including to
co-operate to enable the BA Liquidator to fulfil his obligations under
Clause 4.
iii. Upon the Nauruan Entities and the BA Liquidator not to hinder each other from performing their obligations under the Deed.
iv. Upon the Nauruan Entities not to hinder the BA Liquidator from performing his obligations under Clause 4 of the Deed.
Group 2
i. If the BA Liquidator failed to furnish
copies of all the Priority Creditor Releases by 30 June 2007 by reason
of the Nauruan Entities’ breach of the terms of the Deed or by reason of
their breach of their implied obligations under the Deed the Nauruan
Entities would not under Clause 4.4(b) be entitled to the balance of the
funds standing to the credit of the Account.
ii. That a party in breach of the Deed or the obligations thereunder could not take advantage of their/its breach.
Interdependent contractual provisions
30 It is trite that a person may not claim
to have a contractual provision enforced in its favour if that person is
itself in breach of some interdependent obligation. One finds that
principle in more than one place:
i. The general principle as expressed by Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251:
"… as a general rule, … where in a
written contract it appears that both parties have agreed that something
shall be done, which cannot effectually be done unless both concur in
doing it, the construction of the contract is that each agrees to do all
that is necessary to be done on his part for the carrying out of that
thing, though there may be no express words to that effect"
ii. To similar effect in another field of
discourse is the principle which relies upon the maxim 'nullus commodum
capere potest de injuria sua propria' - 'no man can take advantage of
his own wrong': There is a long line of authority to this effect [Cf. Broom's Legal Maxims,
10th edition, Pakistan Law House, 1989 at 191 et seq., noting that this
maxim, being “based on elementary principles, is fully recognised in
Courts of law and equity, and indeed, admits of illustration from every
branch of legal procedure”.
31 A detailed examination of the alternate approaches to the derivation of the so-called duty to cooperate is to be found in State of New South Wales v Banabelle Electrical Pty Ltd [2002] 54 NSWLR 503 [at 54-69]. As the authorities there examined make clear, the principle is not in doubt, although what is reasonable will turn on the particular circumstances. Reference is also made to Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at [27] where Mason J [with whom Barwick CJ, Gibbs J, Stephen J and Aickin J agreed] observed as follows:
"It is easy to imply a duty to cooperate in
the doing of acts which are necessary to the performance by the parties
or by one of the parties of fundamental obligations under the contract.
It is not quite so easy to make the implication when the acts in
question are necessary to entitle the other contracting party to a
benefit under the contract but not essential to the performance of that
party's obligations and not fundamental to the contract. Then the
question arises whether the contract imposes a duty to cooperate on the
first party or whether it leaves him at liberty to decide for himself
whether the acts shall be done, even if the consequence of his decision
is to disentitle the other party to a benefit. In such a case, the
correct interpretation of the contract depends, as it seems to me, not
so much on the application of the general rule of construction as on the
intention of the parties as manifested by the contract itself."
32 In terms of the Deed the subject of
these proceedings one of course has the express terms binding the
Nauruan Entities to take all reasonable steps to give effect to the
agreement and to provide reasonable assistance to the liquidator in
dealing with the priority creditors. And as indicated in these reasons,
the case hinges upon the content/reach of the obligation to provide
reasonable assistance to the liquidator in dealing with the priority
creditors.
33 The Nauruan Parties whilst not taking
exception with the foundational proposition that a person may not claim
to have a contractual provision enforced in its favour if that person is
itself in breach of some interdependent obligation contend that the
principle does not apply to the present circumstances for the following
reasons:
i. Mr Wily’s ability to obtain the Priority
Creditor Releases was never “contingent upon” or “conditioned by”
assistance from the Nauruan Entities. Indeed, the definition of
“Priority Creditor Sums” was calculated based on estimates made by Mr
Wily as to the total sum of the claims, and that sum had been set-aside
in the Account (as defined) for him to use to settle with the Priority
Creditors (Wily affidavit sworn 7 November 2007 at [21]-[23]).
ii. Mr Wily was free to settle the claims
on whatever basis he wished. Mr Wily’s view that he was charged with an
obligation to determine the proper amount due to specific Priority
Creditors (Wily T163.30) is a view that is simply not supported by
anything in Clause 4.1 or 4.2 of the Deed, upon which Mr Wily had based
his view (Wily T163.43).
iii. Mr Wily’s view that he could not
settle with Ernst & Young unless he was satisfied that the amount of
settlement was a “proper” one (Wily T163.51) is simply not supported by
anything in the Deed.
34 As to proposition (i), the Nauruan
Entities seem to me to be dealing with semantics. Provided that one
does not jettison the obvious proposition that clauses 4.3 and 4.5
imposed obligations upon the Nauruan Entities to take reasonable
steps/provide reasonable assistance to the liquidator in dealing with
the priority creditors, I can accept proposition (i).
35 Propositions (ii) and (iii) are plainly of substance.
The alleged implied obligations of good faith and fair dealing
36 Scant attention was paid by the parties
in examining the provenance of the alleged implied obligation of good
faith in the performance of the Deed [let alone the alleged implied
obligation of fair dealing].
37 The New South Wales Court of Appeal has observed that the Australian authorities make no distinction of substance between the implied term of reasonableness and the implied term of good faith: Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187.
38 In Vodafone Pacific Limited v Mobile Innovations Limited [2004] NSWCA 15, Giles JA at paragraph [189] referred to Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and Burger King as
supporting the proposition that “an obligation of good faith and
reasonableness in the performance of a contractual obligation or the
exercise of a contractual power may be implied as a matter of law as a
legal incident of a commercial contract.”
39 In Overlook v Foxtel
[2002] NSWLR 17, Barrett J drew attention to a number of significant
parameters underlying the arguable nature and extent of a duty of good
faith. One is able to discern a careful search for what his Honour
considered as arguably the more substantial and separate content of the
duty of good faith itself: that is to say, an adherence to standards of
conduct which are honest, as well as being reasonable having regard to
the party's interests [at 64].
40 Barrett J [at 65] recognised that if
adherence to particular standards of conduct was indeed the predominant
component of a separate obligation of good faith in the performance of
contract, it was necessary to enquire about the extent to which
selflessness was required:
It must be accepted that the party subject
to the obligation is not required to subordinate the party's own
interests, so long as pursuit of those interests does not entail
unreasonable interference with the enjoyment of a benefit conferred by
the express contractual terms so that the enjoyment becomes (or could
become), in words used by McHugh and Gummow JJ in Byrne & Anor v Australian Airlines Ltd
(1995) 185 CLR 410, “nugatory, worthless or, perhaps, seriously
undermined”. This seems to me to be the principle emerging from
paragraph 172 to paragraph 177 of the joint judgment in Burger King where the various authorities are collected and discussed.
41 Barrett J went on [at 67] to observe
that there had been academic support for the proposition that an enquiry
as to what was not in breach of good faith permitted the conclusion
that the implied obligation of good faith underwrote the spirit of the
contract and supported the integrity of its character:
"A party is precluded from cynical resort
to the black letter. But no party is fixed with the duty to subordinate
self-interest entirely which is the lot of the fiduciary: Burger King
at paragraph 187. The duty is not a duty to prefer the interests of
the other contracting party. It is, rather, a duty to recognise and to
have due regard to the legitimate interests of both the parties in the
enjoyment of the fruits of the contract as delineated by its terms.
42 The notion that the implied obligation
of good faith could best be regarded as an obligation to eschew bad
faith had, as Justice Barrett observed, received strong backing from
Scalia J in the United States Tymshare Inc v Covell (1984) 727 F2d 1145:
“The doctrine of good faith performance is a
means of finding within a contract an implied obligation not to engage
in the particular form of conduct which, in the case at hand,
constitutes ‘bad faith’.”
Scalia J went on to say that the contract
itself will indicate the content of the duty in the sense that it is
imbued or infused with the obligation not to engage in particular
conduct.
[Scalia J had gone on to say that the
contract itself would indicate the content of the duty in the sense that
it was imbued or infused with the obligation not to engage in
particular conduct.]
43 The effect of the Court of Appeal having in Burger King collapsed
any distinction between contractual obligations of good faith and
obligations of reasonableness renders it presently unnecessary to treat
further with the duty of good faith analysis. There was no suggestion
to the Court by counsel that the implied duty of good faith should be
found to impose obligations on the Nauruan Entities above and beyond
those required by the express terms [cf: clauses 4.3 and 4.5].
Whether the Nauruan Entities and HDY
breached their obligations under clauses 4.3 and 4.5 of the Deed or
under an implied term of good faith
44 The alleged breaches of clause 4.5 were pleaded as follows:
In breach of the express terms in Clause
4.5 of the Deed and in breach of their implied obligations, the Nauruan
Entities in relation to the Priority Creditor claims by Ernst &
Young:
i. Did not cooperate or provide
reasonable assistance to the BA Liquidator in dealing with the Ernst
& Young claim or in obtaining a Priority Creditor Release at a
settlement sum which represented the true amount of the sums owed to
Ernst & Young.
ii. Sought to hinder and did hinder the BA
Liquidator in his endeavours to obtain a Priority Creditor Release from
Ernst & Young at a settlement sum which represented the true amount
of the sums owed to it.
iii. Encouraged Ernst & Young not to
provide a Priority Creditor Release to the BA Liquidator or
alternatively not to provide a Priority Creditor Release to the BA
Liquidator at a settlement sum which represented the true amount of the
sums owed to it.
45 The particulars relied upon were as follows:
(i) The failure of the Nauruan Entities to
provide to its former solicitors, Levitt Robinson, a signed authority to
enable the BA Liquidator and his legal and accounting advisers to
inspect at the offices of Levitt Robinson the files in its possession in
relation to it acting for the Nauruan Entities in respect of the
Priority Creditor claim by Ernst & Young identified in the Deed or
to otherwise cause the contents of those files to be made available to
the BA Liquidator, thereby denying the BA Liquidator the opportunity to
properly evaluate the claim or in a properly informed way be in a
position to be able to negotiate with Ernst & Young to settle the
claim.
(ii) The failure of HDY to take all
reasonable steps or provide reasonable assistance to assist the BA
Liquidator to obtain access to the documents referred to in (i) which
may be inferred was on the instructions of the Nauruan Entities.
(iii) The failure of the Nauruan Entities
or their legal advisers, including HDY, to assist BA Liquidator to
negotiate with Ernst & Young to obtain a Priority Creditor Release
or a Release at a settlement sum which represented the true amount of
the sums owed to it including the
failure to provide the plaintiff with all documents and information in
the possession custody and control of the first defendant in relation to
the Priority Creditor Claim of Ernst & Young.
(iv) That to the knowledge of the Nauruan
Entities and HDY the BA Liquidator had obtained or was likely to obtain
Priority Creditor Releases from each of the other 11 creditors and by 26
June 2007 had obtained such releases.
(v) The encouragement given to Ernst &
Young by the Nauruan Entities and their legal advisers, including HDY,
not to enter into a Priority Creditor Release or enter into a Priority
Creditor Release at a settlement sum that represented the true sum owed
to Ernst & Young. This may be inferred, inter alia, from:
(a) The actions and conduct of the
Nauruan Entities through HDY and its other legal advisers both in Court
and outside Court on 27 and 28 June 2006 in these proceedings.
(b) The facts, matters and circumstances referred to in (i), (ii), (iii) and (iv).
(c) Such additional facts, matters and circumstances particulars of which will be provided after discovery and interrogatories.
(vi) The whole of the conduct of the
Nauruan Entities and HDY in relation to the Priority Creditor claim by
Ernst & Young from which it may be inferred that, in order that the
Nauruan Entities might pursuant to Clause 4.4(b) of the Deed be entitled
to the balance of the funds standing to the credit of the account and
thereby obtain a windfall, the Nauruan Entities breached Clause 4.5 of
the Deed and the implied obligations.
46 The breach of Clause 4.3 of the Deed was pleaded as follows:
I The Nauruan Entities did not instruct HDY to take reasonable steps to give effect to the Deed; and
2 HDY did not take such reasonable steps.
The controversy with respect to the so-called 'mandate'
47 As is apparent from the allegations set
out above, the key area in which the Nauruan Entities are alleged to
have failed in their obligation to provide reasonable assistance and/or
take reasonable steps concerns the attempt by Mr Wily to settle the
claim of Ernst & Young.
48 Ernst & Young was one of the
Priority Creditors listed in the Deed. Mr Wily therefore needed to
negotiate with Ernst and Young and secure a Priority Creditor Release
from that firm before the key date of 30 June 2007 in order to take
advantage of the terms of the Deed.
49 In early October 2005, following the
liquidator’s enquiry of Ernst & Young concerning its claim for fees
in relation to the Nauruan Entities, Ernst & Young responded setting
out the relevant background said to support its claim to fees owing in
the sum of $560,347.65.
50 That letter enclosed a number of annexures comprising:
i. a signed mandate between Ernst & Young and the Nauruan Entities dated April 2004 and unsigned mandates;
ii. copies of outstanding invoices dated 12 April 2004;
iii. mandates between HLBC and the Nauruan Entities.
51 The mandate received from Ernst & Young relevantly contained the following conditions:
This mandate is subject to EY [Ernst &
Young] discharging the current Mortgage held by GE Capital by raising
funds through the refinance, or development or equity joint venture
relating to the following properties:
Nauru House, 90 Collins Street Melbourne
not less than $80,000,000.00 AUD
Raytheon Building, 2234 Bay Area Boulevard (Clear Lake), Houston, Texas not less than $6,700,000.00 USD
In regards to: 677 – 689 Bourke Street, Melbourne
Obtaining the appropriate DA and tenants for that property.
52 It also contained a handwritten ‘Special Condition’ which appeared at the end of the mandate, which read:
"Special Condition
This mandate is conditional upon HLBC
obtaining an extension with GE Capital for the Mercure Hotel conditions
as per the deed of extension. This mandate is null and void should GE
Capital appoint a receiver/liquidator."
53 Mr Wily and Ms Evans, an insolvency
manager working in the Armstrong Wily firm, were both closely examined
with regards to their response to the Ernst & Young claim. Ms Evans
gave evidence that she and Mr Wily formed the view, some time prior to
June 2007, that Ernst & Young had not satisfied a number of the
express conditions relating to the refinancing of the various
properties. Because of the failure to satisfy the terms of the mandate,
they formed the view that no money was owing to Ernst & Young [save
for disbursements of approximately $38,000].
54 Similarly, Ms Evans and Mr Wily formed
the view that the terms of the special condition had been triggered by
the appointment of a receiver and manager, and that consequently Ernst
& Young were not entitled to be paid the fees claimed.
55 Upon Ms Evans raising this concern with
Ernst & Young, that firm contended that the handwritten special
condition in the mandate did not bind them because it was written on the
document after it was signed by Ernst & Young. They contended that they had never accepted the handwritten terms;
56 Ernst & Young acknowledged that it
had not complied with the typed conditions of the mandate regarding
refinancing of properties: however it claimed that the agreement had
been subsequently varied, and that these conditions had been waived.
Over an extended period Ernst & Young contended that there was
further documentation to sustain their position but was never able to
produce that documentation.
57 Ernst & Young also relied upon a number of alternative grounds in support of its claim for $560,000 including:
i. that there were other mandate letters
which would show a later departure from the handwritten condition at the
foot of the mandate letter;
ii. a quantum meruit claim;
iii. a claim that HLBC had committed the Nauruan Entities to liability in some way.
58 Mr Wily also had some concerns about
quantum of fees claimed, and the accuracy of the invoices which had been
supplied, due to the absence of supporting material. Mr Nikolaidis,
acting on Mr Wily’s instructions, had even gone so far as to allege to
Ernst & Young that the invoices were fraudulent.
59 Prior to June 2007, Ernst & Young
had failed to produce any material which satisfied Mr Wily that they
were entitled to the amount claimed. In consequence, Mr Wily provided
Ernst & Young with a draft notice of rejection on 1 May 2007, and a
final notice of rejection in early June.
Whether the alleged breaches of obligation were made out on the evidence?
60 Mr Wily’s evidence was that he was
concerned, in the period leading up to June 2007, that there might be
documents, not in his possession, which altered or varied the terms of
the Ernst & Young mandate. He was concerned that, if such documents
existed, they might entitle Ernst & Young to a substantial
settlement.
61 Specifically, Mr Wily was concerned, for
reasons which will be set out below, that relevant documents were being
held by a firm of solicitors which had previously been retained by the
Nauruan Entities: Levitt Robinson. This failure of the Nauruan Entities
to provide access to these ‘Levitt documents’ forms one of the bases
for Mr Wily’s assertion that there was a breach of the obligation to
provide reasonable assistance.
62 In order to establish whether the
Nauruan Entities failed to provide reasonable assistance, it is
necessary to examine the conduct of the relevant parties in some detail.
But even before giving that detail it is convenient to note that:
i. the ultimate finding is that the alleged breaches of obligation were simply not proved;
ii. to the contrary, the materials in
evidence demonstrate that HDY acting for Nauruan Entities spent very
considerable efforts in endeavouring to locate documents sought by Mr
Wily, their attempts in this regard being stymied by what would appear
to be a strange melange of interlocking agendas of others.
The failure to provide access to the Levitt documents
63 Without purporting to be exhaustive, it
is appropriate to consider a deal of the correspondence with passed
between the relevant actors.
64 Mr Wily gave evidence that in or about
October 2006 he had a conversation with Mr Stuart Levitt, a solicitor
who had previously advised the Nauruan Entities. Mr Wily recalls that
Mr Levitt told him that “I have in my office all of the Nauruan files
and there is material in those files that you need to see before you
finalise your determination in relation to the Ernst & Young claim.”
Mr Wily asked to see the documents, and was told by Mr Levitt that he
would need to be authorised by the Nauruan Entities before he could have
access.
65 Mr Wily then instructed M D Nikolaidis
& Co [“Nikolaidis”] to write to Henry Davis York [“HDY”] seeking
general authority to access the Nauruan Entities’ files held by Levitt
Robinson. The terms of the authority sought were as follows:
I hereby authorise and direct you to
forward to M.D. Nikolaidis & Co all papers, writing documents, file
note, file and to provide any information or assistance requested of
them in relation to all or any of the Deed Creditors identified in
paragraph 9 of the Heads of Agreement dated 10 September 2004.
66 HDY responded in a letter of 26 October 2006, which relevantly stated:
Your clients are not entitled to access our
clients’ legal files. Further, Mr Levitt has no legal basis upon which
to require our clients to provide any of the documents sought. In this
regard, it is apparent to us that Mr Levitt is in a conflict of
interest vis-à-vis our clients, having been their former solicitor.
Our clients are, however, cognisant of
their obligations pursuant to clause 4.5 of the Deed. Accordingly, we
attach documents in our clients’ possession that relate to the alleged
Ernst & Young debt.
67 HDY provided Mr Wily with a set of five
tax invoices from Ernst & Young. In a letter of 8 December 2006 HDY
confirmed that the above invoices represented “all documents in their
[clients’] possession that relate to the alleged Ernst & Young
debt”.
68 The Wily parties reiterated their
request for the Nauruan Entities to execute the authority to grant
access to the Levitt documents in letters of 6 November 2006, 9 November
2006 and 5 December 2006 and in further correspondence over the
following months.
69 In the letter of 9 November 2006 Mr
Nikolaidis noted that: “our client has at no time suggested that he is
entitled to access your client’s file. Our client however, is
suggesting that he is entitled to see all of your client’s files so far
as they relate to works responsible to the accounts rendered by Ernest
[sic] & Young so as he can properly understand the work undertaken
and assessed [sic] the proper amount to be paid to Ernest [sic] &
Young (if anything at all).”
70 On 8 January 2007, HDY wrote to Levitt Robinson as follows:
We understand… that you hold certain
documents belonging to our clients concerning work allegedly undertaken
by Ernst & Young on our clients’ behalf.Would you please immediately deliver up
those documents to our office in order that we may be able to advise our
clients in relation to a request from Mr Nikolaidis for access to
certain documents. To this end, we look forward to receiving same by no
later than 5.00pm on Friday, 19 January 2007.
71 Mr Nikolaidis wrote to HDY on 10 January 2007 to protest at the delay involved in this approach. He stated that:
As you will appreciate our client is
becoming increasingly concerned about the delay which he is experiencing
in dealing with the Priority Creditors… as a result of the Nauruan
Entity Facility [sic] to make the documents available to him in
accordance with their obligations under the Deed.
Our client is not concerned about issues
which may arise between your firm Levitt Robinson or your clients, the
Nauruans. Levitt Robinson has the files available which our client
wishes to inspect to enable him to conduct investigations and enquiries
into the Ernst & Young debt.
It is a simple matter for your client to
provide the relevant authority to enable Levitt Robinson to make the
files available to our client.
72 HDY replied by asserting that:
We were of the understanding that Levitt
Robinson had already provided to us all documents pertaining to our
clients. It is only recently that we have been informed, by you, that
this is not the case. In the circumstances, it is reasonable that we
would want to review any documents still in the possession of Levitt
Robinson to ascertain matters of relevance and privilege before granting
access to third parties.
From the files currently in our possession,
we have provided you with the relevant Ernst & Young invoices to
assist you in determining the Ernst & Young priority claim. In this
regard, we note our clients’ obligation under the Deed of Settlement
and Release to provide reasonable assistance to the liquidator in
dealing with the priority creditors. We believe that all necessary
steps are being taken in order to provide such assistance.
In any event, there is an ongoing dispute
between Ernst & Young and Australian Litigation Funders in relation
to the debt due to Ernst & Young. Whilst this dispute is on foot,
we fail to see how our request for, and intended review of, documents
supposedly held by Levitt Robinson will cause your client any delay in
dealing with priority creditors.
73 On 23 January 2007 Mr Nikolaidis wrote
to HDY noting that they had not yet received access to the Levitt files,
and seeking an extension of the time limit provided by the Deed to 30
September 2007. The letter stated that:
In the event that you do not agree to this
extension within 14 days from the date hereof we have been instructed to
make an application to the Supreme Court
(a) to enforce your client’s compliance with the Deed; and
(b) to extend the time limit in paragraph 4.4; and
(c) for an order for costs.
74 They also sent a further letter on 23 January 2007 stating that:
We repeat our demand to your client to
authorise us to access documents held by Levitt Robinson. For your
client to continue to fail to do so is clearly in breach of his
obligations pursuant to clause 4.4 (b) of the Deed [sic]; and that [sic]
he is actively preventing our client from conducting investigations and
enquiries considering the Ernst & Young debt.
75 On 15 February 2007, HDY again wrote to
Levitt Robinson, noting that they had received no response to their
letter of 8 January, or to their numerous telephone messages. They
further noted that:
You are… undoubtedly aware of the significance and importance attached to you providing our clients’ files to us immediately.
We are being threatened by MD Nikolaidis
& Co, on a weekly basis, with the commencement of legal proceedings
against our clients due to our inability to provide them with the
documents which are apparently in your possession. If you do in fact
possess such documents, then we point out that these belong to our
client and, as a matter of professional responsibility, you are obliged
to provide these to us. Given the seriousness of the matter, we
consider your failure to respond to our request as tantamount to
unprofessional conduct and our clients reserve their rights to report
your conduct to the Law Society of New South Wales.
We request that you provide us with an immediate response to our letter of 8 January 2007.
76 At the same time, HDY informed Mr
Nikolaidis that “Levitt Robinson have refused (and we can only presume
deliberately) to respond to our repeated requests for access to the
documents”.
77 Levitt Robinson replied on 15 February 2007 in the following terms:
Firstly, do you continue act [sic] for PPB
as Receivers and Managers appointed by GE Capital to the assets of the
Nauru Phosphate Royalties Trust?
As you know, we did not act for any party
in the Federal Court proceedings of which we became apprised, between
the Nauruan interests and the BA Group interests, represented by Mr Wily
as Liquidator.
Given that our files were created when we
acted for NPRT against PPB and GE Capital and when you represented them
rather than the Nauruan interests, we would need to have NPRT, plus each
separate company under Nauruan control, among our quondam clients,
execute separate authorities and directions to release these papers, in
compliance with their respective Articles/Constitutions, with
supporting evidence of such compliance.
78 Correspondence then passed between HDY
and Levitt Robinson [on or about 15 or 16 February] in which HDY
requested Levitt Robinson to deliver up all documents and files to
Jacobsons Lawyers, who took over carriage of the matter from Levitt
Robinson in 2005. Levitt Robinson responded by seeking evidence that
the matter was transferred to Jacobsons Lawyers, denying any
recollection that this had occurred.
79 On 17 February 2007, Mr Jacobson of Jacobsons Lawyers wrote to Levitt Robinson in the following terms:
You will recall that immediately after
Levitt Robinson determined in about September 2005 to cease acting for
the Nauru Parties to the BACF Heads of Agreement (by reason that you
were also acting for creditors of BACF) -
1. the Nauru parties directed that Levitt Robinson deliver to our offices all files and documents held on behalf of the Nauru Parties; and
2. Accordingly Levitt Robinson delivered to us numerous boxes of documents held on behalf of the Nauru Parties.
I am now informed by Henry Davis York,
Sydney that it has been suggested that Levitt Robinson might have
retained some documents belonging to some or all of the Nauru Parties.
Whilst I would be surprised if this was the case, I have been instructed
by the Nauru Parties as a priority to request that you immediately
deliver to us all files and documents – if any – retained by Levitt
Robinson. Of course we shall be pleased to pay all costs associated
with delivering any such documents to our offices in Melbourne.
I would be grateful to received your prompt
advice whether Levitt Robinson continue to hold any documents on behalf
of the Nauru parties.
80 On 6 March 2007 HDY wrote to Levitt Robinson noting that:
Despite requests made by both Jacobsons
Lawyers and us for your firm to deliver up the files in your possession,
you have failed to do so.
In our view, there is no basis for your
continued refusal to deliver up these files. We cannot see any
foundation for you to assert that either Jacobsons Lawyers or our firm
lacks the appropriate authority to take delivery of the files. Further,
you do not appear to have any right to maintain possession of the
files.
In this regard and without prejudice to our
clients’ rights generally, we refer you to Practice Rule 8 of the
Revised Professional Conduct Rules 1995 and the authority of Wentworth v De Montfort (1988)
15 NSWLR 348, which we believe support the validity of the requests
made by both Jacobsons Lawyers and our firm for our clients’ files to be
delivered up. Of course, consistent with that authority, you may
retain those documents in the files created for your own professional
purposes and not for out clients’ benefit or use.
In the circumstances, our clients reserve
their rights to commence proceedings against your firm in the event that
the files are not delivered up to either Jacobsons Lawyers or our firm
by 12.00pm on Thursday, 8 March 2007. We confirm that we will rely on
this letter in relation to the issue of indemnity costs, which we will
seek from you.
81 In response to this letter, Levitt
Robinson replied by letter presumably misdated 15 February 2007 [but
received on 6 March 2007] that:
After further review, it now appears that
we sent all of the files to Andrew Jacobson, pursuant to his authority
and request, in September, 2005…
82 HDY replied to this letter on 12 March 2007 as follows:
We are not aware of any particular
documents or records that you hold which have not already been delivered
up as required. We can therefore only assume that Mr Nikolaidis’
suggestion that you hold documents belonging to our clients relevant to
the alleged Ernst & Young debt was an enquiry, rather than an
assertion of fact. We are satisfied that your letter addresses Mr
Nikolaidis’ query.
83 Despite being forwarded the letter from
Levitt Robinson, Mr Wily continued to maintain that HDY had an
obligation to provide the relevant authority to enable him to access the
Levitt documents. In a letter of 19 March 2007 Mr Nikolaidis noted
that, while Levitt Robinson had affirmed that it had delivered up the
original file to Jacobson Lawyers, Levitt Robinson continued to hold
copies of those files, which could potentially be inspected.
84 HDY was then informed by Mr Nikolaidis
that Mr Levitt claimed to have conducted a review of the Nauruan files
to extract those documents considered by him to be relevant to the
alleged Ernst & Young claim. HDY sought permission from Levitt on
20 March 2007, and again on 27 March 2007, 24 May 2007 and 13 June 2007
to attend the office of Levitt Robinson to inspect those documents. On
14 June 2007, in response to further demands from Mr Nikolaidis to make
the documents available, HDY invited Mr Nikolaidis to contact Levitt
Robinson directly to arrange a time for HDY to inspect the documents.
85 Mr Nikolaidis wrote to Levitt Robinson on 15 June 2007 and again on 21 June 2007 requesting an inspection be arranged.
86 On 26 June 2007 Mr Nikolaidis served HDY
with a summons seeking a declaration that the Nauruan Entities “do all
things reasonable and proper to produce to (the Wily parties) the
Nauruan files presently held by Levitt Robinson solicitors”. The
plaintiffs failed in their attempt to obtain this order as urgent
interlocutory relief.
87 The Levitt documents were ultimately
produced to the Wily parties under subpoena on 30 July 2008. The same
documents were also subsequently discovered from the files of the
Nauruan Entities.
Did this constitute ‘failure to provide reasonable assistance’?
88 It was submitted for the Wily parties
that there was a strict obligation on the Nauruan Entities to provide
access to the documents which the liquidator required. Mr Hale SC put
the submission as follows [at T245.3]:
Our proposition is whether it is reasonable or not reasonable,
an arrangement had to be made, they had to do what was necessary to
give the liquidator access to the documents. That could have been done
by agreeing amongst other things to a limited authority, like that which
was originally proposed, but at the end of the day it was the
obligation of the Nauruans to give the liquidator access to the
documents so that he could make an assessment or make arrangements to
give the liquidator access to the documents pertaining to the Ernst
& Young claim upon Nauru so that the liquidator could make his
assessment.
89 In fact, the obligation in clause 4.5 of
the Deed was to provide ‘reasonable assistance’ to the Liquidator in
dealing with the Priority Creditors. The central issue is therefore
whether the Nauruan Entities failed in this obligation to give
‘reasonable assistance’ by failing to:
i. provide the authorisation in the broad terms requested by the Wily parties; or
ii. take steps over and above those outlined above to allow the Wily parties to access the Levitt documents.
90 On the issue of whether it was
reasonable for the Nauruan Entities to refuse to provide authority for
general access to the Levitt files, Mr Hutley’s submissions are as
follows [at 40-42]:
The terms of the authority requested is
drafted in the most general terms possible. In particular, it was not
(as the particular above indicates) limited to files relating to the
Priority Creditor claim by Ernst & Young, but included “all papers,
writing, documents, file notes, file and to provide any information or
assistance requested of them in relation to all or any of the Deed
Creditors…”.
This request, in the circumstances was
clearly unreasonable. As noted in the particular itself, Levitt
Robinson were the former solicitors of the Nauruan Entities but moreover
had, up until around July 2005, acted as solicitors for the Nauruan
Entities in the Federal Court Proceedings against the very companies
which Mr Nikolaidis represented and of which Mr Wily was by then the
appointed Liquidator.
In those circumstances it was
inevitable that any such files would include privileged and confidential
information and that the Nauruan Entities would refuse to provide the
requested authority without having first reviewed the files. Mr Wily
agreed that the decision to refuse to provide such access was reasonable
(Wily T158.15), as is clearly correct.
91 Mr Hutley SC further submitted that [at 45]:
Notwithstanding these concerns, HDY made
all reasonable efforts to obtain access to the Levitt Robinson files so
that the Ernst & Young files could be inspected and assessed. The
correspondence between HDY and Levitt Robinson escalated up to threats
by HDY to report the matter to the Law Society and litigation. HDY’s
wholly bona fide
attempts to obtain the Levitt Robinson file commenced by 8 January 2007
and continued beyond 13 June 2007. The failure of Levitt Robinson to
grant to the Nauruan Entities access to their own legal records despite
all reasonable attempts by the Nauruan Entities to obtain access to
those files does not constitute a breach of any obligation, express or
implied under the Deed. It is simply the case that their reasonable
attempts were unsuccessful.
92 Each of these submissions is accepted as of substance.
93 It is not possible for the Court to know
what moved Levitt Robinson in its sundry actions through the relevant
period. Mr Hutley SC drew the court's attention to the materials in
evidence showing that a deal of the correspondence with Levitt Robinson
was going to that firm to the attention of Mr Cassis, who apparently
acted for at least one creditor in the liquidation, the proposition
being that his interest was to assist Mr Wily. Mr Hutley's submission
was as follows:
So we have this odd situation at the outset
that Levitt Robinson, a former solicitor, tells the liquidator, and can
I tell your Honour the terms in which he tells the liquidator, which is
paragraph I think 34 of the first affidavit of Mr Wily, that is, 7
November 2007. This is a former solicitor of ours.
"Immediately after I executed the deed
of settlement and release and the matter settled I had a discussion with
Stuart Levitt, a former solicitor."
Why he's having this discussion with him is unclear.
"He said to me words to the following
effect: `You will now have to determine what is properly due and
payable to Ernst & Young.'"
Mr Levitt seemed to have a view as to his obligations, which for some reason Mr Wily fell in with.
"There is a dispute as to the quantum
of the Ernst & Young claim. You should be aware that there is a
dispute and there has been a dispute for some time. I have in my office
all of the Nauruan files and there is material in those files that you
need to see before you finalise your determination in relation to the
Ernst & Young action."
An extraordinary statement. What possible
business is a former solicitor to discuss with the liquidator those
matters? But anyway, that happens.
That excites the interest of Mr Wily to
start, through his solicitors, correspondence with my client and their
solicitors, Henry Davis York. I am not going to traverse the
correspondence. My solicitors took the perfectly reasonable attitude to
receiving a blanket request for access to files in the possession of
the former solicitor is we'll look at them and we'll get back to you.
Then what took place what can only be
described as, in this correspondence, Mr Levitt playing ducks and
drakes. Namely, refusing in substance to give us access to the material
bringing up all manner of complaints. Silly things like how do we know
that you're acting for the Nauruans and things of that variety…
Why Mr Levitt is doing this we don't know. We can't know. It is absurd.
One thing we can point to is that all this
correspondence seems to be going to Mr Levitt, via Mr Cassis, who is
acting for a creditor in the liquidation. That is, in the interests of
Mr Wily, the companies for whom Mr Wily acts. That is not to say Mr
Wily is a participant to some nefarious goings on. Clearly Stuart
Levitt is in some conflict position. What it precisely is we don't
know. Mr Levitt has not been called, he is not our solicitor any more.
He seems to have acted in effect to frustrate our position.
[Transcript 267-268]
94 Regardless of precisely what moved
Levitt Robinson to take the obstructionist attitude demonstrated by the
evidence, for present purposes it is quite clear that far from HDY [on
behalf of the Nauruan Entities] failing to take all reasonable steps/to
provide reasonable assistance to the liquidator in dealing with the
priority creditors, HDY is seen to have expended considerable effort
over many months in endeavouring to extract any documents which might
have related to the Ernst & Young issue.
95 Collapsing some of the more important agenda’s thrown up by the aforementioned evidence, the following may be observed:
Mr Wily
i. Mr Wily was concerned to take all
reasonable steps and to use his best endeavours to procure the
identified Priority Creditor Releases and to do so by no later than 30
June 2007. However his view was that he could not settle with Ernst
& Young unless he was satisfied that the amount of the settlement
was a "proper" one. Nothing in the deed supported that proposition.
As the Nauruan parties have submitted:
The fact that Mr Wily’s view was at odds
with what he, or at least his solicitors (Mr Wily could not recall being
consulted about these issues (Wily T164.46)) regarded as the correct
position under the Deed is demonstrated by the fact that by 13 February
2007, Mr Nikolaidis was writing to HDY in an attempt to have the Deed
amended (PX1 V2 T23). Paragraph 2 on page 2 of that fax (PX1 V2T23 at
page 510) clearly misstates the Deed:
“the Deed then goes onto provide that
the BA Liquidator will examine the claims by the Priority Creditors and
determine those claims and at the same time gives a right to the HLBC
Group to veto any payments if they think they are unreasonable.”
This assertion is simply untenable on any reading of any provision of the Deed.
The fax then continues:
“It seems to us that no party turned
their mind to the circumstances in which the liquidator after
investigating and determining the claims by the Priority Creditors does
not allow all as part of their claim.
In these circumstances there is no
capacity to obtain a Release from those Priority Creditor [sic] in which
it may be able to be argued by the Nauruans that the failure to get the
Deed of Release by 1 July 2007, may give rise to a situation where the
remainder of the fund is to be accounted for to the Nauruans which of
course is completely contrary to the intention of the parties which was
clearly to ensure that whatever amounts are properly owed
to the Priority Creditors identified in the Deed is paid so as to avoid
any liability falling back to the Nauruan Entities and to limit their
total expose to the matter to $8.5 million being the settlement sum.”
Despite the purported enclosure of a series
of “draft amendment clauses” with that fax, those clauses were not
attached and actually sent on 19 February 2007. Those amendments were
rejected on 12 March 2007. However the very fact that they were
proposed shows that Mr Wily’s advisors were aware from at least 13
February 2007 that the Deed as it stood (and stands) did and does not
require Mr Wily to “determine” the claims and sought to vary the Deed to
alter that position.
The true position was simple. Mr Wily
was not obliged to “determine” anything, nor had he any power to do so.
His assertions to Ernst & Young that he was “charged with the
obligation of determining the proper amount due to specific priority
creditors” were simply wrong. All the Deed obliged him to do was to use
his best endeavours to obtain the Releases. The settlement sum in each
case was a matter for him.
Mr Wily was proceeding in his dealings with
Ernst & Young upon the mistaken assumption that the settlement deed
only permitted him to settle on terms which are going to be
satisfactory to or reasonable so far as the creditors are concerned.
Naturally he understood that the creditors for whom he acted would
appreciate his being in a position to minimise the amount he had to pay
to priority creditors thereupon maximising the return. He is also taken
to be on notice of the 30 June 2007 deadline provided for in clause 4.4
of the Deed which required a somewhat delicate balancing act in
relation moving along his dealings with the priority creditors.
At a relatively early stage Mr Wily's
solicitor, Mr Nikolaidis, had on behalf of Mr Wily threatened Ernst
& Young with having dealt fraudulently, an approach which would
likely have inflamed the position and caused Ernst & Young to see red.
Mr Wily had also sought from Henry Davis
York the materials which they had in relation to the Ernst & Young
claim and had received by the letter of 26 October 2006 a response
enclosing five tax invoices. Mr Wily had come to believe that this
response was accurate: we now know that this response was not accurate
because Henry Davis York still retained a deal of correspondence and
material relating to the Ernst & Young claim which turns out to have
only had an unusual relevance to Mr Wily's quest for information. The
materials were relevant only for what they did not include ie they did not include
any document probative of Ernst & Young's claim that the
handwritten note at the foot of the mandate had been superseded by later
correspondence with Nauruan Entities. But HDY/the Nauruan parties were
not to know of this unusual form of ‘relevance’. Having produced the
relevant invoices to Ernst & Young the whole of the pendulum had
shifted ever since Mr Levitt had claimed to have ‘material information’
needed to finalise a determination on the Ernst & Young claim.
Months of activity had been expended chasing this rabbit and any failure
by HDY or their clients to go back into their files to produce masses
of seemingly irrelevant materials to prove a negative could not and did
not constitute a failure to give ‘reasonable assistance’ within the
meaning of any part of Clause 4.The Nauruan Entities
The Nauruan Entities were concerned to be
rid of any threat of continued action by persons claiming to be their
priority creditors, and in that sense had entered into the Deed in an
attempt to outsource to Mr Wily the task, if it could be achieved within
the stated time, of procuring the Priority Creditor Releases. However
they had an entitlement to be legitimately concerned to have their
solicitors carefully vet documents to be furnished to the liquidator
against the event that a privileged material and the like not be so
provided. They also faced a position that Levitt Robinson [the firm of
solicitors who had acted for them in relation to the Federal Court
proceedings] were causing real difficulties in being prepared to pass
across to Henry Davis York documents apparently in their possession and
control and emanating from the time Levitt Robinson had so acted.
Levitt Robinson
The obstructionist attitude demonstrated by
the evidence in terms of what moved Levitt Robinson has already been
chronicled above
Finding
96 Earlier in these reasons reference was made to authorities which support the self-evident proposition that what is reasonable will turn on the particular circumstances. Here
the particular circumstances have been set out in detail and cannot be
properly characterised as a failure of Nauruan Entities or its
solicitors to honour either:
i. the vital express terms of the deed or
ii. any pleaded implied terms to similar effect.
97 Mr Wily has failed to establish some
type of 'tongue in cheek' conduct by either Nauruan Entities or its
solicitors HDY in their dealings with Mr Wily. The benefit of hindsight
clouds many things. Importantly, from the occasion when the Deed was
entered into in October 2006, Mr Wily was on notice of the deadline
requiring the entirety of the Priority Creditor Releases to be furnished
to HDY by no later than 30 June 2007 failing which the balance of the
funds then standing to the credit of the account were to be paid to the
Nauruan Entities. That Mr Wily had been acting upon a mistaken
understanding that the Deed required that he not settle with any
Priority Creditor otherwise than for an appropriate amount is not a
matter which can be sheeted home to any conduct of the Nauruan Entities.
The second alleged breach: conduct outside the Court on 27 and 28 June 2007
98 The Wily parties also claimed that it
was possible to infer from the evidence that the Nauruan Entities
deliberately encouraged Ernst & Young not to enter into the Priority
Creditor Release offered by Mr Wily, in order to avoid having to comply
with the terms of the Deed.
99 If proved, such conduct would
undoubtedly be a breach of the obligation to provide reasonable
assistance to the liquidator, and of the implied duties of good faith
and cooperation. However, what little evidence was before the Court on
this matter was heavily reliant on inference and speculation.
Ultimately, the evidence was far from sufficient to establish the
conduct alleged.
100 Ms Evan’s evidence shows only that
conversations took place between the Nauruan representatives and the
representatives of Ernst & Young on or around 27 and 28 June, and
that subsequently Ernst & Young did not enter into a Deed of
Settlement offered by Mr Wily. It is impossible to infer from this that
the Nauruan Entities or any other parties engaged in any improper
conduct.
Causation: assuming there was some breach, did it change the outcome?
101 It was argued by the Nauruan Entities
that, even if Court were to find that they were in breach of their
obligation to provide reasonable assistance, no sufficient causal link
has been shown as between any such breach and the failure of Mr Wily to
obtain the Priority Creditor Release from Ernst & Young before the
required date.
102 If one was to postulate that Henry
Davis York had furnished to Mr Wily, in addition to the five invoices,
all the other documents which, it now turns out, were in its possession,
the question which arises is whether or not the balance of
probabilities would favour a finding that Mr Wily would have consummated
a settlement with Ernst & Young prior to 30 June 2007.
103 Taking the whole of the evidence into
account, the very strong probability is that even had Mr Wily had access
to the documents [which he now claims would have confirmed to him that
what he was told by Ernst & Young had no merit], his negotiations
with Ernst & Young would have continued with that firm continuing to
take a hardline attitude to recovery of what it regarded as its due
entitlement to fees. One has to recall that the actual environment had
included allegations made by Mr Nikolaidis that the invoices were
fraudulent. Ernst & Young had remained unmoved.
104 The evidence discloses that from the date of the Deed, Mr Wily and Ms Evans knew the following things:
a) That the Ernst & Young mandate of 8 March 2004 contained typed conditions in the following terms:
“This mandate is subject to Ernst &
Young discharging the current Mortgage held by GE Capital by raising
funds through the refinance or development or equity joint venture
relating to the following properties:
Nauru House, 90 Collins Street, Melbourne not less than $80,000,000.00 AUD
Raytheon Building, 2224 Bay Area Boulevard (Clear Lake) Houston Texas not less than $6,700,000.00 USD
Regards to: 677-689 Bourke Street, Melbourne Obtaining the appropriate DA and tenants for that property.”
b) That the condition in relation to Nauru House had never been met (Evans T50.40; Wily T136.45).
c) That the condition in relation to the Raytheon Building had never been met (Evans T50.5; Wily T142.10).
d) That the condition in relation to 677 Bourke Street Melbourne had never been met (Evans T51.5; Wily T150.10).
e) That this had been communicated to Ernst & Young (Evans T54).
f) That Ernst & Young had said there were further documents which meant the conditions did not matter (Wily T197.10).
105 All these facts had been put to Ernst
& Young (Wily T181.20), but despite this, Ernst & Young had
steadfastly continued to assert that it was entitled to its fees (Evans
T55.10; Wily T148.30).
106 The assertion was made again on 23
March 2007 by the Proposed Rejection of Claim and again in Mr Wily’s
determination of 1 June 2007. Ernst & Young remained unmoved.
107 Mr Wily and Ms Evans had been aware
that the quantum of fees was unsupported by documentation which Ernst
& Young had provided (Evans T61.20). They had raised this issue
with Ernst & Young in early November 2006 (Evans T80.15; Wily
T196.10).
108 Finally there was the issue of the
handwritten special condition. Ernst & Young, despite having
produced the mandate with the special condition written on it from their
own files in October 2005, had rejected Mr Wily and Ms Evan’s repeated
assertions that the special condition disentitled them to the fees.
109 Ms Evans deposes to a conversation
where this issue was specifically raised with Ernst & Young. The
simple fact was that Ernst & Young, despite everything Mr Wily and
Ms Evans had put to them, had simply refused to accept that they were
not entitled to their fees. This had been the case since October 2005
(Wily T138.30 – 138.40). Mr Wily said as follows (Wily T97.10):
“They were running a number of arguments. I
think they were running a quantum meruit argument. They were running
an argument that HLBC was authorising Nauru or had authority through
Nauru. They were trying to run another argument that the financing
argument – that they actually raised finance and a fourth argument that
there was a handwritten note on the mandate that they said that they
didn't agree to and wasn't there when they originally signed it. They
were the four main issues.”
110 The entire weight of evidence from both
Mr Wily and Ernst & Young is to the contrary of the proposition
that Ernst & Young would have varied its position had it been shown
the documents at pages 57-60 of Mr Wily’s affidavit of 25 August 2008.
As Mr Wily conceded, the simple fact of the matter is that he could not
achieve a settlement with Ernst & Young (Wily T196.17).
111 Moreover, even if Mr Wily had
“immediately” commenced proceedings as he claims he would have (Wily
T128.47), once the allegation of fraud had been raised the proceedings
would have been protracted and were very unlikely to have ever resulted
in a settlement within the time delimited in the Deed (Wily T188-189).
The nature of the proceedings would have required at least the joinder
of the Nauruan parties.
112 Hence even had the Court held that the
Nauruan parties had breached their obligations to provide reasonable
assistance, no sufficient casual link would have been established as
between the breach and the failure to obtain the Priority Creditor
Release from Ernst & Young.
The admissibility of exhibits LN 1 and LN 2 to the affidavit of Mr Nikolaidis of 27 August 2008
113 As the transcript [at 130.29] makes
clear the court reserved into the final judgment the question of whether
or not these exhibits were admissible. In my view the documents were
admissible: they are admitted into evidence as exhibits LN 1 and LN 2.
Short minutes
114 The parties are to bring in short minutes of order on which occasion costs may be argued. |
