FEDERAL COURT OF AUSTRALIA

Shearpond Pty Ltd v Atune Financial Solutions Pty Ltd (No 3) [2014] FCA 1448

THE COURT ORDERS THAT:

1.    The applicant, by its solicitors and counsel, have leave to disclose to the directors of the applicant any documents discovered or otherwise disclosed by the respondents in the proceeding, subject to the directors first having given an undertaking in the form of Annexure A to these Orders.

2.    The applicant, by its solicitors and counsel, have leave to disclose to Mr Steven Foale of Maurice Blackburn, as solicitor representing the applicant's litigation funder Claims Funding Australia Ltd. any documents discovered or otherwise disclosed by the respondents in the proceeding, subject to Mr Foale first having given an undertaking in the form of Annexure A to these Orders.

3.    Within 14 days, the applicant provide security for costs in the sum of $200,000 by bank guarantee or such other form as is acceptable to the Registry of the Court, such security to cover the respondents’ costs of this proceeding to 25 September 2014.

4.    The respondents' interlocutory application dated 28 October 2014 be otherwise dismissed.

5.    The respondents pay the applicant's costs of and incidental to:

(a)    the applicant’s interlocutory application dated 24 October 2014; and

(b)    save for the costs referred to in Order 6 below, the respondents’ interlocutory application dated 28 October 2014.

6.    The costs of para 5 of the respondents’ interlocutory application dated 28 October 2014 be reserved.

7.    The costs of today otherwise be reserved.

8.    The proceeding be listed for directions at 9:30 am on 10 December 2014.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

FORM OF UNDERTAKING

IN THE FEDERAL COURT OF AUSTRALIA         Case No. VID 254 of 2013

SHEARPOND PTY LTD

ACN 089 271 116

Applicant

ATUNE FINANCIAL SOLUTIONS PTY LTD

ACN 092 987 329

First Respondent

AASPIRE PTY LTD

ACN 125 151 779

Second Respondent

LINK ADMINISTRATION HOLDINGS PTY LTD

ABN 27 120 964 098

Third Respondent

CONFIDENTIALITY UNDERTAKING

In this undertaking:

Proceeding means Proceeding No. VID 254 of 2013 in the Federal Court of Australia and any appeal in relation to that proceeding.

Confidential Information means all documents in the nature of discovered documents, affidavits or witness statements provided to me by the Applicant or the Respondents in the course of the Proceeding, and all information contained in such documents.

I, [Name]

of [Address]

give this undertaking to the Court and to each of the Respondents:

1.    I undertake to treat the Confidential Information in strict confidence and I will use all best endeavours to safeguard the Confidential Information from unauthorised access, disclosure, copying or other use.

2.    I will not disclose any of the Confidential Information to anyone, except:

a)    staff of Lander & Rogers lawyers;

b)    counsel engaged by the Applicant in the Proceeding

c)    to the extent I am compelled by law;

d)    to the Court;

e)    with the leave of the Court; or

f)    with the prior written consent of the Respondents, obtained through their solicitors.

3.    At the conclusion of the Proceedings, I will destroy or return to the solicitors for the Applicant all of the Confidential Information and any copies of it.

Signed by [Name]            ……………………………Signature

REASONS FOR JUDGMENT

APPLICANT’S APPLICATION FOR LEAVE TO DISCLOSE DOCUMENTS

1    The object of the applicant’s interlocutory application presently before the court is to permit the applicant to show documents discovered by the respondents to a single (named) solicitor with the firm of solicitors engaged by the litigation funders being used by the applicant in the proceeding. Self-evidently, the purpose of the proposed disclosure would be to provide for that solicitor a basis of upon which to give advice to his client in relation to the funding, or continued funding, of the proceeding and in relation to such other matters as may be contingent on that funding. I take the view that the applicant has a proper and legitimate interest in its funder having its own advice, independently of the advice tendered to the applicant itself, and that the purpose for which the applicant proposes to show the documents to the solicitor is a purpose properly connected with the proceeding.

2    There has been some debate before me as to whether the disclosure of documents to a litigation funder in circumstances such as those arising in the present case would be a breach of the implied undertaking referred to in Harman v the Secretary of State for the Home Department [1983] 1 AC 280. This question was discussed at length by French J in QPSX Limited v Ericsson Australia Limited (No 5) [2007] FCA 244, where his Honour distinguished the judgment of Finkelstein J in Cadence Asset Management Proprietary Limited v Concept Sports Limited [2006] FCA 711. If it were critical, I would prefer the view which appears to have been expressed by Finkelstein J that the question whether disclosure by a party would constitute breach of the Harman implied undertaking should be determined by reference to the purpose for which the disclosure was made. In the circumstances of the present case I would hold that the purpose of the proposed disclosure is centrally rooted in this proceeding.

3    In that respect, I note that disclosure to a funder would have the consequence that the funder too was bound by the Harman undertaking, a circumstance contemplated by Hayne, Heydon and Crennan JJ in Hearne v Street (2008) 235 CLR 125, 160 [109]. However, as it happens, the comprehensive nature of the undertaking which will be annexed to the order which the applicant seeks, and which I propose to make, effectively renders any consideration of the Harman point moot in the context of the present proceeding. The undertaking is to be given by the funder’s solicitor, and it would preclude him from showing the documents to, for example, his own client. It is difficult to see in those circumstances how the respondents could suffer any real, as distinct from theoretical, detriment as a result of disclosure in the terms contemplated.

4    The respondents also relied upon the royalty agreement which lies at the centre of this litigation, contending that disclosure, even if permitted by order of the court in the terms proposed by the applicant, would be a contravention of cl 8.2 of that agreement. That provision operates by reference to the definition of “confidential information” in the agreement, and would preclude the applicant from disclosing any such information to any third party, and from using it otherwise than in accordance with certain defined categories. I am bound to say that this is a very wide provision but, correspondingly, the exceptions for which cl 8.2 provides are also widely-stated. I am not disposed to embark upon a full construction, as it were, of the relevant provisions of this difficult instrument for the purposes of the present application. The applicant appears content to take its chances with such contractual consequences as there may be from the disclosure of the information which it proposes under the order which it seeks. As a matter of discretion, I take the view that the matter should be allowed to rest in that area.

5    It was also put on behalf of the respondents that the funding agreement – a redacted version of which has been put into evidence – does not disclose what is the interest of the funder in the outcome of the litigation, whether by settlement or judgment. In the view I take, the consistency of the course proposed by the applicant with the Harman principle, and the discretionary considerations by which I should otherwise address the present application, are not affected by the nature, or the size, of the interest which the funder might have in the outcome of the litigation. What matters is the applicant’s purpose in making the disclosures which it proposes, and, countervailing that, the detriment or prejudice which would be visited upon the respondents if the application were to be granted. In neither respect can I see the nature or extent of the funder’s interest in the litigation having any material role to play.

6    It was also put on behalf of the respondents that there is no evidence that the litigation could not have been funded by the applicant’s own shareholders. This was put, as I understand it, in response to a submission made on behalf of the applicant that it would be in the public interest for the future prosecution of this proceeding not to have been compromised or frustrated by the inability of the funders to obtain their own, properly grounded, independent legal advice as to the strength of the applicant’s case and of the respondents’ defences. It appears to be said on behalf of the respondents that it has not been established that the litigation would be put at risk by reason of the funders, in effect, taking the view that they could not continue with the project because they had not been properly advised. I am not attracted by this submission as a matter of merit. The applicant has chosen to engage funders. There is no impropriety or irregularity involved in that, so long as the disclosures proposed are kept within proper professional bounds and tightly controlled as the applicant intends. I do not think it appropriate to introduce into the mix of factors taken into account on this occasion some element of doubt as to the suitability of the course of litigation funding which the applicants have adopted.

7    Finally, it is put on behalf of the respondents that, because the solicitor alone would be able to view the documents proposed to be disclosed and could not show them to his client, the order sought by the applicant would be of no utility. In my view, this is a matter entirely for the applicant. I could well understand a non-party, such as the funder here, being interested, even fascinated, by the undisclosed provisions of documents upon the basis of which they received their own professional advice. However, that appears to be the situation in which they are content to place themselves, and it is certainly the limit of the applicant’s present intention. If the applicant is prepared to proceed on that limited basis, I do not think that it lies in the mouth of the respondents to say that there would be no, or little, utility in so proceeding.

RESPONDENTS’ APPLICATION FOR FURTHER SECURITY FOR COSTS

8    The respondents’ application for security is unusual in the sense that it is rearward-looking. Orders for security have previously been made, with leave reserved to the respondents to approach the court for an increase in that security. That is what they have done in their interlocutory application which is before me today. They seek security in respect of the costs which they might recover for legal work which has already been carried out.

9    The approach which the respondents have taken to estimating what might be the unsuccessful applicant’s exposure to an order for costs has been to identify the amount of hours occupied by various levels of legal professionals and paraprofessionals in their solicitors’ organisation, and to apply to those hours the estimated allowable hourly rates that would apply on a taxation, as set out in the affidavit of Peter Trimbos made 28 October 2014. Counsel for the applicant makes the point that the respondents’ material nowhere contains a statement on oath by a professional – be it a legal professional or a costs consultant – that the work in fact done by the solicitors and paralegals at various levels was appropriately done by those people. He submits, by way of example, that the material does not exclude the real prospect that some of the work done by partners ought more appropriately have done by less senior people in the firm. I am disposed to think that this is a valid criticism.

10    As I pointed out to counsel for the respondents, that is not to say that the only way that they could have approached this application would be, in effect, to have drawn up a draft bill of costs. But the absence of a sworn voucher from a senior professional person representing the respondents as to the appropriateness of the work having been done by the practitioners by whom it was in fact done is problematic, and it is an omission which troubles me. It does so because I consider that I should be astute to avoid the prospect, slight though it may be, of the applicant being oppressed by the need to provide security in excess of what would be a realistic conservative estimate of the respondents’ entitlement to costs on a party/party taxation, should they succeed in the case.

11    My attention has been drawn to other cases in which judges of this court have handled applications for security, and it seems that one approach is to take an estimate of the solicitor/client costs that have been, or will be, charged, and to apply a discount of 40 or 50 per cent, which is said to be not atypical of the relationship between party/party costs and solicitor/client costs in sophisticated legal organisations, and in complex commercial litigation. Another approach has been to make, as close to possible, an accurate estimate of the party/party costs that might be claimed under a bill of taxation if one were to be drawn up. For reasons I have explained, I do not think that the respondents’ material quite fits either of those templates, and I am troubled that the way it has been done presents a risk that they are subjecting the applicant to a security claim which might not be based upon a careful professional assessment of what the applicant’s ultimate exposure to a costs order might be.

12     Even that might not be enough for me to see this interlocutory application favourably to the applicant, were it not for the fact that the applicant has provided an affidavit by a costs consultant, Anna Helene Sango, made 5 November 2014, in which an attempt is made to identify the costs that would, in fact, be recovered on a party/party taxation if work of the kind, and in the amount identified in the respondents’ material, were carried out. Necessarily, Ms Sango’s material has been prepared at a remove from the centre of action, as it were, in relation to the work, and the calculation of the costs entitlements that would arise in respect of that work, and I take into account the significant qualifications that would have to be made in respect of her affidavit by reason of that circumstance.

13    However, the difference between the sum at which she arrives and the sum which is claimed by the respondents, even on a party/party basis, is so significant as to lead me to doubt that both could be even approximately close to the mark. At least one of them is likely to be, and both of them might be, quite wide of the mark. The sum arrived at by Ms Sango is of the order of $157,600, whil the sum arrived at by the respondents’ process of calculation is slightly in excess of $500,000, calculated ostensibly on the same basis.

14    The subject matter of the present application was one peculiarly within the province of the respondents, and although they have gone to considerable lengths to place before the court evidence in support of that application, that evidence, while voluminous, does suffer from the deficiencies to which I have referred. In the circumstances, I am not disposed to make the orders sought by the respondents.

15    The applicant is prepared to provide security, and is prepared to go beyond the sum estimated by Ms Sango. The applicant suggests that $200,000 should be the amount of security which it is now required to provide, and I have not been persuaded, on the material before me, and for the reasons I have given, that I should go beyond that in imposing a security obligation on the applicant. The order will be that $200,000 be provided by way of security.

16    I should only add to that that everything I have said so far takes no account of the material which the respondents have provided in the last 24 hours. To the extent that the respondents might subsequently find itself in a position to seek further security, it should regard that material as not having been taken into consideration for the purpose of the reasons that I have just given, or the order I propose to make.

Associate:

Dated:    24 February 2015