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  • Unreported Judgment

Nationwide Oil Pty Ltd v Interline Hydrocarbon Inc


[2005] QSC 331









No BS8259 of 2005



ACN 066 383 364

First Applicant




ACN 051 348 353





ACN 067 298 088

Second Applicant


First Respondent


Second Respondent




DATE 02/11/2005



HIS HONOUR:  The defendants seek a stay of the plaintiff's claim.  They contend that its prosecution with the financial support of IMF (Australia) Pty Ltd ("IMF") constitutes an abuse of the Court's process.


The plaintiff claims against Nationwide Oil Pty Ltd moneys due and owing pursuant to, or damages for breach of, an agreement concerning the design, construction and assembly of a waste oil refinery in Sydney.  It makes other claims against both defendants:  for example, for royalties pursuant to claimed contractual entitlements.


The argument has proceeded on the assumption that the plaintiff's claims are fairly arguable and will, if successful, result in judgments for substantial sums.


The defendants have counterclaimed for relief which includes an amount alleged to exceed the value of the plaintiff's claims. Nationwide seeks to set-off its counterclaim in extinguishment of the plaintiff's claim.  The contentions advanced in the counterclaim are also, for the purposes of this application, taken to be fairly arguable.


The plaintiff is impecunious.  It lacks the resources to satisfy any judgment for a money sum that may be obtained by a defendant on the counterclaim.


The defendants successfully applied for security for costs in respect of the plaintiff's claim.  The security ordered has been provided.  It is not suggested that the fund is now or may in future be insufficient to meet any liability of the plaintiff in costs in connection with the prosecution of its claim, should that claim fail.


IMF and the plaintiff are parties to a funding agreement. Under it, IMF is entitled to receive, from a successful outcome for the plaintiff, reimbursement of moneys it has expended in facilitating the prosecution of the plaintiff's claim to judgment, and up to one-third of the total benefits the plaintiff derives from the case.


Because the plaintiff is impecunious and no other corporation or person is liable to satisfy any judgment the defendants may obtain on the counterclaim, the defendants inevitably confront this prospect:  that the plaintiff, funded as it will be by IMF, prosecutes its claim to judgment, but should a judgment on the counterclaim exceed the amount of any judgment in the plaintiff's favour, the defendants (in particular the second defendant) will receive nothing.  In the circumstances, appropriately enough, the argument has also proceeded on the assumption that such an outcome is on the cards.


The defendants contend that the existence of that possibility means that the intervention of IMF in the plaintiff's proceedings constitutes an abuse of process.  Two propositions are advanced.


First it is said that, by funding this case, IMF is engaged in "litigation trafficking" which, therefore, constitutes an abuse of process. 


Secondly, the defendants contend that the involvement of IMF as a speculator for a profit to be derived from success on the plaintiff's claims, without exposure by IMF to the burden of having to satisfy any judgment on the counterclaim, "is a cynical exploitation of the Court's process for profit rather than involving the use of the Court's process to vindicate rights and achieve a fair balance".  The mere fact that neither IMF nor anyone else (other than the plaintiff) is exposed to the prospect of having to satisfy any liability in the event of success by a defendant on the counterclaim is said to mean that the prosecution of the plaintiff's claim involves the use of Court process as an agent of oppression, converting the Court's procedure into an instrument of potential injustice and unfairness.  According to the defendants, such unfairness emerges from a consideration of the course that settlement negotiations might take:  more particularly, that the defendants will know that success on their counterclaim is meaningless (at least beyond the extent to which it might extinguish any liability to the plaintiff established on the claim).  Only if IMF, having intermeddled in the prosecution of the plaintiff's claim with a view to profit, assumes liability to the defendants on their counterclaim can an abuse of the Court's process be avoided, or so it is said.


Now, there is no suggestion that, by the terms of the funding agreement or otherwise, IMF's involvement involves the risk of some inappropriate conduct in the litigation.


Rather, the alleged abuse of process is said to arise from the probability that the defendants will not realise anything in respect of a judgment on the counterclaim.


The mere fact that IMF's business is the funding of litigation cannot mean that its financial support in the prosecution of the plaintiff's apparently valuable claim through to a judgment constitutes an abuse of the Court's process. Without more, external funding is not tantamount to such an abuse.  Were it otherwise, legislatively supported regimes for State legal aid, administered through legal aid commissions, would attract much the same opprobrium (even though legal aid is not provided in the expectation of deriving a profit).  Moreover, even if IMF's only interest in the litigation is fairly characterised as an investment, if that matters, the same is not true of the plaintiff, which stands to reap substantial rewards from the successful prosecution of its claim.


In QPSX v. Ericsson (2005) 219 ALR 1, French J, in a comprehensive review of the modern authorities, identifies "economic benefits to be derived from legitimate litigation funding arrangements" - see paragraph 54 - which are scarcely contrary to public policy.  His Honour also points out that whether an agreement may be unenforceable as champertous is not to the point in deciding whether the supported proceedings amount to an abuse of process.


The objection that there is here involved some "trafficking" in litigation which, of itself, exposes an abuse of process is incorrect.


The next question is whether the current IMF funding arrangements, involving as they do that IMF will not be liable on the counterclaim, constitute, as it was put, a cynical manipulation of Court procedures with a view to obtaining profit which deserves to be characterised as an abuse of process.


The predicament the defendants confront - non-recovery on a judgment on a counterclaim for compensation overtopping the plaintiff's claim - has always inhered in the contractual arrangements the parties put in place initially.


The defendants did not, it seems, take guarantees from the plaintiff's directors, shareholders or holding company.  Nor did they conclude an arrangement to secure the value of any future litigious claim. 


In other words, an ordinary business risk to which the  defendants were exposed from the outset by the contractual  arrangements they were content to conclude has materialised.


The defendants have always been exposed to the risk that the plaintiff might, in the event of litigation, obtain from an external source - as examples, directors, shareholders or a financial institution such as a bank - enough money to fund a case to trial and to meet any order for security for costs, but no more.  When the contracts among the parties were entered into, tney were content to accept that any monetary claim they might make in connection with the contracts with the plaintiff would neither be secured, nor enforceable against anyone else. 


As it happens, the consequential business risk has eventuated. And no abuse of process is involved in a state of affairs which leaves the defendants still unsecured in respect of the value of the counterclaim, and entangled in litigation against another party which, despite recourse to external funding, will likely never have more money than is needed to take its case to judgment.


The application is dismissed.


Further order that the applicants pay the respondent's costs of and incidental to the application, to be assessed.


Editorial Notes

  • Published Case Name:

    Nationwide Oil Pty Ltd & Anor v Interline Hydrocarbon Inc & Anor

  • Shortened Case Name:

    Nationwide Oil Pty Ltd v Interline Hydrocarbon Inc

  • MNC:

    [2005] QSC 331

  • Court:


  • Judge(s):

    Byrne J

  • Date:

    02 Nov 2005

Litigation History

No Litigation History

Appeal Status

No Status