The litigation funder underwriting a class action over the collapse of Banksia Securities lost its bid Thursday to block a group member from challenging a $64 million settlement in the case.
Victorian Supreme Court Justice Ross Robson dismissed the injunction application by Australian Funding Partners Limited, saying the funder had relinquished any right it might have had to enforce a clause in its funding agreement barring investor Wendy Botsman from appealing the settlement.
The funder had waived its rights after deliberately failing to take issue with Botsman’s objection at the settlement approval hearing, in which the court was at pains to mention the relevance of objecting group members, Judge Robson said.
“AFPL may be said to have been made keenly aware of how the group members’ objections were relevant to the court’s consideration of whether or not to approve the settlement. AFPL’s awareness suggests that it made a deliberate, knowing decision not to inform the court that it regarded funded group members as being contractually restrained from exercising their statutory rights to object (and, by extension, to apply for leave to appeal),” the judge said.
The class action was filed in December 2012 on behalf of investors in Banksia Securities, which collapsed in October that year, owing $660 million. The case was brought against the finance group’s directors, auditors and legal advisors, and the trustee for the debenture holders.
In March 2014, the named plaintiff, debenture holder Lawrence Bolitho, entered into a funding agreement with AFPL, then called BSL Litigation Partners. The funder was controlled and run by Bolitho’s solicitor Mark Elliott, who got 6,500 of the 15,600 debenture holders to sign up, including Botsman.
A partial settlement was reached in the case in April 2016, under which Banksia’s directors, auditors and advisors agreed to pay $13.25 million.
A further settlement of $64 million was reached with the firm’s auditors and trustee for the investors, Perpetual subsidiary The Trust Company, in December 2017.
Botsman filed an objection to that settlement on January 24. Six days later Justice Clyde Croft approved the deal, which included a $12.8 million commission to AFPL and $4.75 million in legal costs.
In March, Botsman sought leave to appeal the judge’s approval. The application is set to be heard Friday.
In its application for an injunction against Botsman, AFPL argued her objection to the settlement breached the litigation funding agreement she signed. The contract stipulates that funded group members must not “reject any settlement offer made by any defendant”.
It also requires that if a group member does not want to settle the proceedings, when AFPL “considers it appropriate to do so”, then that group member and AFPL must ‘”seek to resolve their difference of opinion” by referring it to counsel.
Botsman argued that AFPL was in breach of the funding agreement, which required it to disclose the terms of the settlement to group members before executing the settlement deed.
She also contended that the funder had waived its right to assert any contractual obligation on her part by issuing a court-approved notice that invited group members to make objections and by raising no arguments at the approval hearing against Botsman’s objection.
In rejecting the injunction application, Judge Robson agreed that the funder had waived its right to enforce the funding agreement when it made a strategic decision to remain silent in the face of Botsman’s challenge at the approval hearing.
“Now that AFPL has secured the benefit of the court’s approval of the settlement — approval which the court granted after considering the entitlement and proclivity of group members to object — AFPL seeks to deny the existence of that entitlement for funded group members,” Judge Robson said. “The conduct constituting AFPL’s waiver was intentional.”
Whether the funding agreement could otherwise be enforced to preclude group members from appealing a settlement, the judge did not say, but noted that courts “take an objective view” of the construction of contracts.
“The aim is to give effect to the parties’ intentions, but those intentions are to be determined objectively,” he said.
AFPL is represented by Arnold Bloch Leibler.
The case is Australian Funding Partners Limited v Wendy Diane Botsman.
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