Prout v FC Capital Holdings Pty Ltd

1. [1]

   On 19 July 2019, the plaintiff, Mr Bradley Prout, and the defendant, FC Capital Holdings Pty Limited ("Holdings") entered a "Deed of Indemnity, Insurance and Access" ("the Deed").

2. [2]

   By the Deed, Holdings agreed to advance the defence costs of defending proceedings, defined in the Deed as "Relevant Proceedings", brought against Mr Prout because he is or was an officer of Holdings or of one of its subsidiaries including FC Securities Pty Limited ("Securities").

3. [3]

   Mr Prout has been involved in two "Relevant Proceedings," one in this Court and one in the Federal Court of Australia. Mr Prout has incurred costs in the order of $44,000 in the proceedings in this Court, and costs in the order of $1.6 million in the proceedings in the Federal Court.

4. [4]

   Mr Prout has made the following requests for payment:

5. [5]

   Holdings has made the following payments:

The Relevant Provisions of the Deed

1. [6]

   The relevant provisions of the Deed are:

The declaration sought

1. [7]

   Mr Prout seeks a declaration that:

2. [8]

   Mr Prout seeks the declaration concerning cl 2.7 in aid of the declaration he seeks in relation to cl 2.3. Holdings denies that cl 2.3 should be construed as Mr Prout contends. As I understand it, Holdings does not dispute that, taken alone, cl 2.7 should have the construction contended for, but contends that this is not the only work cl 2.7 does. I will return to this below.

3. [9]

   In her careful written submissions, Ms Jonker put the argument this way: [1]

Principles

1. [10]

   There was no dispute as to the relevant principles.

2. [11]

   A court in interpreting a provision of a document has regard to its words, its context, and the purpose of the document as a whole. The leading modern statement on the importance of context and purpose is found in the reasons of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd: [2]

3. [12]

   The question is what a reasonable business person in the position of the parties would have understood the relevant terms to mean; an objective task involving identification of the imputed intention of the parties by reference to the contractual text, construed in the light of its context and purpose. [6]

4. [13]

   Further, as has also been correctly stated:

5. [14]

   Reference was also made in submissions to cases dealing with what has been described as “rectification by construction”. This is the process of construction where the Court has power to correct obvious mistakes in a contract where “something has gone wrong with the language”, [8] and where “there is obviously an error in the parties’ written contract”, [9] and where the “literal meaning of [a clause] is absurd”. [10]

6. [15]

   That is not this case. There is no obvious error in the wording the parties have used in clause 2.3. There is perhaps some infelicity in the drafting of the Deed, but no obvious error of the kind referred to in those authorities. Those principles have no relevant application here.

Provisions in Securities' Constitution

1. [16]

   Ms Jonker, who appeared for Mr Prout, drew my attention to the following provisions in the Constitution of Securities:

2. [17]

   I cannot see how those provisions assist me in construing the Deed.

3. [18]

   First, Securities is not a party to the Deed, although, as a subsidiary of Holdings, it is referred to in it.

4. [19]

   Second, r 20.6 in the Constitution contemplates that Securities might enter into an agreement with the relevant officer “to give effect to the rights conferred by this rule” and “on any terms as the directors [of Securities] think fit which are not inconsistent with this rule”.

5. [20]

   The alleged inconsistency between the Deed and the rules, upon which Ms Jonker relied, was with the provision in r 20.3(b) that the indemnity in r 20.2 was to be “enforceable without the Officer having to first incur any expenses or make any payment”. The Deed does not, however, require Mr Prout “to first incur an expense or make any payment” before being entitled to the indemnity. Indeed, cl 2.3 provides for the advance of reasonable costs “expected to be incurred” as well as actually “incurred”.

6. [21]

   There is thus no inconsistency between the Deed and Securities' Constitution, assuming that to be a relevant matter.

Clause 2.3

1. [22]

   Turning to cl 2.3, a particular construction of that clause is proposed. My task is to decide whether that construction is correct, not to determine whether any alternative construction of that clause, or of the Deed generally, might be available.

2. [23]

   My conclusion is that the posited construction cannot be correct.

3. [24]

   That construction would oblige Holdings to pay costs incurred “on [Mr Prout's] request”, that is, in the first instance, as soon as he made a request and whether or not the costs were “reasonable”. Indeed, the posited construction would oblige Holdings to advance such costs even if the costs were, on their face, unreasonable; or not incurred “as an officer of the Company and each Subsidiary”, and thus falling outside the indemnity in cl 2.1. [11]

4. [25]

   The construction would also involve reading cl 2.3 as if the word "reasonable" were absent.

5. [26]

   Ms Jonker submitted that the posited construction would still give work for the word "reasonable" in cl 2.3 to do, as it would act to define Holdings' ultimate obligations under the Deed, once the processes in cll 2.6 and 2.7, referred to in the opening words of cl 2.3, were undertaken.

6. [27]

   In my opinion, the word “reasonable” has more work to do than this. In cl 2.3 it defines the very nature of Holdings' obligations at all times, including on the making by Mr Prout of a request. The language of cl 2.3 compels a conclusion, in my opinion, that Holdings has no obligation, at any time, to “advance” costs other than “reasonable costs”.

7. [28]

   The words of cl 2.3 cannot yield to the construction proposed by Mr Prout. It is one that is “not reasonably open on the text” of cl 2.3. [12]

8. [29]

   The fact that cl 2.3 is expressed to be subject to cll 2.6 and 2.7 cannot, in my opinion, take matters further.

Clause 2.6

1. [30]

   Clause 2.6 is the method chosen by the parties to determine whether costs are reasonable.

2. [31]

   The clause can be invoked by either party, at any time when there is a dispute “as to the reasonableness of the costs incurred”. If there is a dispute, the clause obliges the parties to refer that dispute to senior counsel.

3. [32]

   Here, for whatever reason, neither party has sought to invoke cl 2.6. Each could have sought to do so.

4. [33]

   A dispute may arise as to whether there is a "dispute" for the purposes of cl 2.6. And it may be that the:

5. [34]

   But that is, or may be, a problem arising from the words the parties have chosen to use in cl 2.6(i). It can have no bearing on the meaning of cl 2.3, nor in my opinion provide any support for reading cl 2.3 by ignoring the word "reasonable" in that clause.

Clause 2.7

1. [35]

   Clause 2.7 provides a mechanism for reimbursement where Holdings pays Mr Prout an amount to which he “is not entitled”.

2. [36]

   Clause 2.7 might well be enlivened following either party invoking the procedure in cl 2.6. But it also may be enlivened in other circumstances. One example to which Mr Burnett, who appeared for Holdings, pointed was if costs were incurred in one of the circumstances specified in s 199A(3) of the Corporations Act 2001 (Cth). [14]

3. [37]

   But that provides no support for reading cl 2.3 in a way which ignores the word "reasonable" in that clause.

4. [38]

   Ms Jonker pointed to the facts that

   1. (1)

      Clause 2.1 refers to an "indemnity" to be provided by Holdings to Mr Prout;

   2. (2)

      Clause 2.3 obliges Holdings to make "advances" to Mr Prout as there set out; and,

   3. (3)

      Clause 2.5 provides that such "advances" are to be treated as satisfaction of the obligation of "indemnity" and will "cease to be repayable" unless Mr Prout is found not to be entitled to be indemnified for those costs.

5. [39]

   Mr Jonker then referred to a provision in cl 2.7 obliging Mr Prout to repay any amount paid under cl 2.2, or advanced under cl 2.3, if he were found not to be entitled to be “indemnified for or advanced those costs”, and submitted that, if cl 2.7 were enlivened otherwise than by reason of senior counsel providing an opinion under cl 2.6, the words “or advanced those costs” in cl 2.7 would have no work to do. Ms Jonker submitted, as I understood the argument, that for that reason cl 2.7 should be read as only being enlivened by reason of the operation of cl 2.6.

6. [40]

   I cannot see how that follows.

7. [41]

   The advance of costs under 2.3 is an aspect of Holdings' obligations under cl 2.1 to provide the indemnity there referred to, as foreshadowed by the parenthetical words in cl 2.1. They are two sides of the same coin.

Conclusion as to Declaration Sought

1. [42]

   I decline to make the declaration sought as to the proper construction of cl 2.3. There is, in those circumstances, no utility in making the declaration sought as to cl 2.7.

Other Declarations

1. [43]

   Mr Prout also seeks the declarations that:

2. [44]

   There is no evidence of any controversy about those matters. In those circumstances, I see no utility in making those declarations.

Orders

1. [45]

   The summons is dismissed with costs.