Feltex
class action barrister John Eichelbaum alleges he was shafted by litigation
funder Tony Gavigan and his company Joint Action Funding Ltd after his demands
for a better payout failed. A desire to
hide from the trial judge that he had an option to take shares in Joint Action
Funding resulted in Mr Eichelbaum having no standing in company law when he
later sued. A Fair Trading Act claim
also failed.
The Court of Appeal
supressed part of its published judgment detailing how any Feltex success fee
was to be divvied up. Over 3000 Feltex
investors failed in their class action claiming damages following the company’s
2004 initial public offering. There was
no success fee to be divided; there was only a fight over the scraps.
The court was told class
action funding came from investor sign-up fees and outside investors. Joint Action Funding, controlled by Mr
Gavigan, was to project-manage the litigation.
Mr Eichelbaum joined the litigation team in mid-2009 agreeing to a ten
per cent stake in Joint Action Funding as his share of the deal. Registration of his shareholding was to be
delayed until after court hearings, to avoid any legal argument about him having
an undisclosed interest in the outcome.
This arrangement was treated as being an option to take a ten per cent
stake sometime in the future. Mr
Eichelbaum later alleged Mr Gavigan watered down the value of his ten per cent
stake in Joint Action Funding by diverting project management fees. He was incensed to learn Mr Gavigan and his
spouse were budgeted to receive $2.25 million between them. He was likely to get zero, Mr Eichelbaum
complained. There was evidence of more
than $887,000 paid to Mr Gavigan for project management. Attempts to publically blacken Mr Gavigan’s
name resulted in a complaint to the Law Society and Mr Eichelbaum being
censured for both unsatisfactory conduct and misconduct.
Mr Eichelbaum
sued. He claimed compensation under the
Companies Act for “oppression” as a minority shareholder in Joint Action
Funding. There was no evidence Mr
Eichelbaum was “oppressed” since becoming a shareholder in September 2012, the
court said. There is no minority
oppression remedy for events occurring before becoming a shareholder.
He also sued claiming a
breach of the Fair Trading Act. The
court said that if Mr Eichelbaum was promised ten per cent of the project
management fee, a failure to pay would amount to a breach of contract. He did not sue in contract; instead suing
under the Fair Trading Act he claimed that Mr Gavigan and Joint Action Funding allegedly
had represented he would receive ten per cent of management fees when received
in the future. Representations as to
future intent cannot support a claim under the Fair Trading Act, the court
ruled. Intentions can and do
change.
Gavigan
v. Eichelbaum – Court of Appeal (19.09.17)
17.117