A legal stoush over a “secret” side agreement between the lead applicant in a shareholder class action and a litigation funder has been shut down, with the Full Federal Court on Monday dismissing an appeal by the applicant.
The dispute, which threatened to put a $19.25 million settlement on ice indefinitely, set Caason Investments against Singapore-based funder International Litigation Partners in a battle over almost $700,000 in GST refunds.
Caason was the lead applicant in a shareholder class action against directors and auditors of defunct laser technology company Arasor International Ltd.
It claims the side agreement with ILP entitled it to withhold tax credits on GST paid by the funder to cover legal, administrative and accounting costs incurred in its lead role in the litigation.
The investment firm says it advised ILP it would retain the refunds as part of their deal, but ILP denies making that agreement.
In approving the $19.25 million settlement in the underlying class action in April, Justice Bernard Murphy ruled that the Federal Court had the authority to hear the side dispute because it formed part of a “single justiciable controversy”.
Judge Murphy, who referred to the side agreement at issue as a “secret” apparently kept from group members, ordered Caason to pay the GST refunds to the scheme administrator.
On Monday, the Full Court heard and dismissed Caason’s appeal, which challenged Justice Bernard Murphy’s power to resolve the side dispute together with approving the settlement.
The GST refunds themselves are currently under audit by the Australian Taxation Office, which is investigating almost $400,000 of tax credits received by Caason, the Full Court heard Monday.
ILP barrister Dr Kristine Hanscombe, QC, told the court the ATO was looking into claims Caason had claimed credit on invoices that were too old and had also claimed excess GST on other invoices.
Caason barrister David Robertson told the Full Court the side dispute was separate from the shareholder class action and should be heard in the NSW District Court.
“They’re essentially disparate claims concerning an applicant and a non-party,” Robertson said.
The Full Court was not persuaded, with Justice John Middleton saying GST refunds were “part and parcel” of the settlement and not an issue Judge Murphy “could sweep under the carpet”.
Justice Nye Perram agreed that Judge Murphy was correct to consider GST refunds together with the overall settlement amount. “You can’t assess the reasonableness of the settlement without assessing the deductions made upon it,” he told Robertson.
Chief Justice James Allsop questioned the need for the dispute at all.
“Don’t you trust ILP to give you your costs properly?” he asked.
Robertson replied that Caason was in a “somewhat invidious position” given the current circumstances. There was concern money would be handed over to the overseas-based ILP, which may be needed to repay the ATO once it concluded its investigations.
Monday’s appeal was dismissed with costs.
Robertson, of New Chambers, was instructed by Mills Oakley. Hanscombe, of Castan Chambers, was instructed by Russells.
The case is Caason Investments Pty Ltd v International Litigation Partners No.3 Ltd.
Miklos Bolza
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