Murphy & Ors v Gladstone Ports Corporation Ltd

This case concerned an application for security for costs, and for orders for disclosure. The security for costs application raised an interesting question as to whether a litigation funding arrangement could be champertous in Queensland.  The plaintiffs proposed that security be provided in the form of an indemnity issued by a foreign corporation and payment into court of $30,000.00.  The deed of indemnity had been procured by the litigation funder.  The defendant argued that the litigation funding agreements were champertous and there was a risk therefore that the deed of indemnity would be rendered unenforceable.  Crow J agreed that the litigation funding agreements could be considered champertous.  However, his Honour found that there was very little risk that the deed of indemnity would be declared unenforceable by a Court.  

Crow J

1 February 2019

Background

The plaintiffs brought a representative class action (pursuant to Pt 13A of the Civil Proceedings Act 2011) against the defendant for alleged negligence in the design and construction of a bund wall in Gladstone Harbour. They alleged that, due to the defendant's negligence, the wall failed and allowed contaminants into the water, causing them economic loss. [1]–[2].

The defendant applied for security for costs (issue 1) and further discovery of documents (issue 2). [3].

The parties agreed that security should be provided, but disagreed as to its form. [5]. The plaintiffs proposed security in the form of a deed of indemnity provided by a foreign corporation, AmTrust Europe Ltd (“Amtrust”), and by payment into court of $30,000 as security for the costs of enforcing the deed in London (because Amtrust has no assets in Australia). [6]. The defendant sought security in the “conventional” way, of payment into court or bank guarantee. [4].

AmTrust was shown to be a “company of substance” and, accordingly, there was “no reason to think” that there was “much, if any, risk in the defendant being unable to access … the security for costs”. [19]. However, this was subject to a difficult question: whether the deed may be unenforceable by reason of being part of a champertous funding arrangement. [20].

The champertous funding agreement

The torts of maintenance and champerty were conceived to prevent “merchandising in quarrels, of “huckstering in litigious discord” by persons who have no legitimate interest in a proceeding (quoted in Campbells Cash and Carry v Fostif Pty Ltd (2006) 229 CLR 386). Champerty is a form of maintenance which is done for reward (e.g. for a share in the spoils). [25]–[28].

In this case, the plaintiffs had entered into funding agreements with a litigation funder, LCM Operations Pty Ltd (“LCM”). [7]. LCM had procured the deed of indemnity from Amtrust on behalf of the plaintiffs. [10]. His Honour considered that it was a “reasonable assumption” that the agreements provided for a percentage interest or share in the rewards, if successful. [29]. Further, the funding agreement indicated that LCM had certain powers to give directions concerning the conduct of the litigation. [31]. Consequently, his Honour was “reasonably lead” to the conclusion that the agreement between the plaintiffs and LCM could be considered champertous. [32].

Would the deed of indemnity be rendered unenforceable?

The question turned to whether, if the funding agreements between the plaintiffs and LCM were champertous, the deed of indemnity (procured by LCM from AmTrust) may be rendered unenforceable. [54].

His Honour noted that, as a matter of general principle, “if a contract is illegal, a subsequent or collateral contract which is ‘founded on and springs from’ it is also illegal” (citing Williamson v Diab [1988] 1 Qd R 210). [42]–[44]. Where the contract involves a third party, the issue is whether they “knew or ought to have known of the essential facts giving rise to the illegality” (or whether they were an “active participator” in the implementing the unlawful arrangement). [52], [55].  

His Honour concluded that there could be no inference that AmTrust had been involved in a “conscious and voluntary assistance in champerty”. [56]. Further, the purpose of establishing the torts is to provide a disgruntled defendant with a means of action against the maintainer. In this case the provision of the indemnity gave the defendant “direct recourse against a substantial fund”, thus achieving what they would hope to achieve in an action founded on the torts. [59]. It was, therefore, “difficult to see that there is any logic in a court declining to enforce the deed of indemnity”. Consequently, the risk that the deed would be unenforceable “must be seen to be extremely low”. [61].

In summary on this issue, the security offered was adequate and did not impose an unacceptable disadvantage to the defendant. [63]. His Honour ordered security in the form proposed by the plaintiffs. [112].

Issue 2 – disclosure of expert reports including draft expert reports

The defendant sought disclosure of expert reports, including draft expert reports. [64]. Relevantly, r 212 of the Uniform Civil Procedure Rules 1999 provides that a statement or report of an expert "is not privileged from disclosure". [65]. The plaintiffs argued that the rule only applied to expert evidence that was "deployed" by a party. [66].

Crow J rejected the plaintiffs' submission, noting that their submission required the word "deployed" to be read in to r 212. [91]. Further, as to whether the duty to disclose would include draft reports, his Honour adopted the view of Douglas J in Mitchell Contractors Pty Ltd v Townsville-Thuringowa Water Supply Joint Board [2005] 1 Qd R 373, where it was said that: "[t]he fact that, after consultation with lawyers in an action, [an expert] may prepare a further report or amend the draft does not prevent the draft from meeting the description in the rules". [100].

Accordingly, his Honour ordered disclosure of any expert reports directly relevant to the issues in dispute (whether in draft form, or deployed, or not). [105].

W Isdale