New South Wales
Supreme Court
| CITATION : | Nauru Phosphate Royalties Trust (Receivers and Managers appointed) & Business Australia Capital Mortgage Pty Ltd (in liquidation) & Ors; 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 [2008] NSWSC 916 | |
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| HEARING DATE(S) : | 28/08/08, 29/08/08, 1/09/08 |
| JUDGMENT DATE : |
5 September 2008 |
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| JURISDICTION : | Equity Division Commercial List |
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| JUDGMENT OF : | Einstein J |
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| DECISION : | Parties to bring in short minutes of order |
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| CATCHWORDS : | Contract - Construction - Express obligation to take reasonable steps to give effect to agreement and to provide reasonable assistance - Obligation the same in substance as an obligation to use ‘best endeavours’ - Obligation to use 'best endeavours' does not require person who undertakes obligation to go beyond the bounds of reason but requires that he do all he reasonably can in the circumstances to achieve the contractual object, but no more - Content of obligation to provide 'reasonable assistance' - Interdependent contractual provisions - Derivation of duty to cooperate - What is reasonable will turn on the particular circumstances - Implied obligations of good faith - Causation | |
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| CATEGORY : | Principal judgment |
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| CASES CITED : | Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Mackay v Dick (1881) 6 App Cas 251 Overlook v Foxtel (Barrett J) Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 State of New South Wales v Banabelle Electrical Pty Ltd [2002] 54 NSWLR 503 Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 Tymshare Inc v Covell (1984) 727 F2d 1145 Vodafone Pacific Limited v Mobile Innovations Limited [2004] NSWCA 15 Waters Lane Pty Ltd & Anor v Sweeney & Ors [2007] NSWCA 200 Wentworth v De Montfort (1988) 15 NSWLR 348 |
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| TEXTS CITED : | H Broom, R H Kersley, A Selection of Legal Maxims, 7th ed (1989) Pakistan Law House |
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| PARTIES : | Nauru Phosphate Royalties Trust (Receivers and Managers appointed (First Plaintiff 50096/07; First Defendant 50135/07) Republic of Nauru Finance Corporation (Second Plaintiff 50096/07; Randwick Nominees Pty Ltd (Receivers and Managers appointed) (Third Plaintiff 50096/07) Central Pacific (Downtowner) Pty Ltd (Receivers and Managers appointed) (Fourth Plaintiff 50096/07) Spencer Investments Pty Ltd (Receivers and Managers appointed) (Fifth Plaintiff 50096/07) Ronsi Business Pty Ltd (Receivers and Managers appointed) (Sixth Plaintiff 50096/07) Ronsi Holdings Pty Ltd (Receivers and Managers appointed) (Seventh Plaintiff 50096/07) Business Australia Capital Mortgage Pty Ltd (in liquidation) (First Defendant 50096/07) Business Australia Capital Finance Pty Ltd (in liquidation) (Receivers and Managers appointed) (Second Defendant 50096/07) HLBC Pty Ltd (Third Defendant 50096/07; Third Defendant 50135/07) Bondedge Pty Ltd (in liquidation) (formerly Business Australia Corporate Finance Pty Ltd) (Fourth Defendant 50096/07) Andrew Hugh Jenner Wily (Fifth Defendant 50096/07; (in his capacity as liquidator of Business Australia Capital Finance Pty Ltd) First Plaintiff 50135/07; (in his capacity as liquidator of Business Australia Capital Mortgage Pty Ltd) Second Plaintiff 50135/07; (in his capacity as liquidator of Bondedge Pty Ltd ) Third Plaintiff 50135/07) Leon Nikolaidis (Sixth Defendant 50096/07) James Miller & Parties trading as Ernst & Young and Ernst & Young Transaction Advisory Services Ltd (Second Defendant 50135/07) |
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| FILE NUMBER(S) : | SC 50096/07; 50135/07 |
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| COUNSEL : | Mr NC Hutley SC, Mr MW Sneddon & Mr S Aspinall (Plaintiffs 50096/07; Defendants 50135/07) Mr TS Hale SC, Mr DJ Barnett (Defendants 50096/07; Plaintiffs 50135/07) |
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| SOLICITORS : | Henry Davis York (Plaintiffs 50096/07; Defendants 50135/07) MD Nikolaidis & Co (Defendants 50135/07; Plaintiffs 50135/07) |
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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). (a) the HLBC Pty Limited [“HLBC”]; (b) each of the BA Companies; (c) Ian David Lazar [“Lazar”]. (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. 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.
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.
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. “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:
(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:
(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. 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.
(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? “…. 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”. 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. 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; 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. 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. i. The general principle as expressed by Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251:
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”. "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." 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. 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. "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. “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.
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:
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. (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:
(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. 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. 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. 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. "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." 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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… 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. 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. 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. 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…”.
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. 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.
Why he's having this discussion with him is unclear.
Mr Levitt seemed to have a view as to his obligations, which for some reason Mr Wily fell in with.
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] 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.
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:
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.
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 i. the vital express terms of the deed or ii. any pleaded implied terms to similar effect. 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:
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.”
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. |
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