Gladstone Ports Corporation Limited v Murphy Operator Pty Ltd & Ors

In this case, the Court of Appeal was asked to provide an “opinion” pursuant to r 483(2) of the Uniform Civil Procedure Rules 1999. The Court had to consider whether agreements for the funding of a class action were unenforceable and void on account of being against public policy. Having undertaken a detailed consideration of the history and changing policy underlying the torts of maintenance and champerty, and the interrelationship with modern doctrines of abuse of process, their Honours unanimously held the agreements were not unenforceable on public policy grounds.

Sofronoff P and Morrison JA and Davis J

13 November 2020

Background

The appellant, Gladstone Ports Corporation Limited, is a government owned corporation engaged in the development of the port of Gladstone. The respondents are plaintiffs in a class action brought pursuant to Pt 13A of the Civil Proceedings Act 2011 (the Act). The class action concerns disruption to natural soils, pollution of waterways and the degradation of fish quality and stocks. There are “177 odd” claimants to the suit, with the total of claims amounting to between $112 million and $150 million. [1]. In 2015, after a number of unsuccessful attempts to secure funding, the respondents’ solicitors (Clyde & Co) secured an agreement with LCM Operations Pty Ltd, the fourth respondent in the appeal (the Funder) to fund the class action. [2]. The Court set out the exact nature of the funding agreements in detail at [3]–[13].

The appellant sought an order that the plaintiffs (the respondents in this appeal) provide security for costs. The plaintiffs had offered a deed by which a third party irrevocably promised to pay a sum of money, to a certain limit, by way of costs. [15]. At first instance, Crow J found that form of security would be adequate. The appellant had contended that the funding agreement between the claimants and the Funder was champertous and unenforceable. Accordingly, there was a risk that the security deed would be tainted and was therefore also unenforceable. Justice Crow did not determine this question of law but instead assessed the likelihood that it was correct. His Honour found that “the risks of the deed of indemnity … is judged as having low risk of being unenforceable”. Therefore, his Honour ordered security be provided. [15]. There was no appeal against that order. [16]. On appeal, the Court considered that his Honour ought to have considered the question of law concerning whether the agreement was champertous and unenforceable. [15].

The respondents then sought an order joining the Funder as a respondent to the application and also sought a declaration that the funding agreements were not, by reason of maintenance, champerty or public policy, unenforceable.

Referral of question to Court of Appeal

The respondents sought, from order by Crow J, the referral of the question to the Court of Appeal for its “opinion” pursuant to r 483(2) of the Uniform Civil Procedure Rules 1999 (UCPR). [17].

The Court recalled that, with the exception of specific circumstances, such as advice to trustees, the Supreme Court does not give advisory opinions. However, the Court also recognised that there may be occasions where it will be proper to exercise the discretion to grant relief. [21]. As the Court identified, should the agreements be unenforceable, then, at least, further progress of the litigation would be prevented and, at worst, the Funder would lose a large amount of money, exposing the representative plaintiffs to an adverse costs and Clyde & Co to a liability to pay costs. Therefore, their Honours described it as “perfectly understandable” that the plaintiffs wished to have the issue determined. [26].

The Court of Appeal’s decision

The appellant submitted that certain features of the agreements rendered them unenforceable because they are against public policy. [33]. In particular, the appellant contended that the Funder had “overreached itself” on the basis it did not owe any duty of care to anyone but had significant power to terminate a claimant’s status as a member, to terminate the solicitors’ retainer, to terminate a Member’s position as a representative and to require the solicitors to retain particular counsel or to terminate the retainer of counsel. The appellant described these as “Draconian powers” which raised a question of whether the provisions conferring the power were unenforceable. The agreements were said to be tantamount to an impermissible assignment because their effect was to confer upon the Funder the practical control of the litigation. The appellant submitted that whilst litigants should conduct litigation to benefit themselves, in this case control and influence had been vested in a party whose interest was not just compensation for a wrong but, rather, return for money. [32].

The appellant’s submission turned on the fact that certain features of the agreements rendered them unenforceable on account of the fact they were generally against public policy. As noted by the Court, no specific “ingredient of public policy” was identified as at odds with the funding agreements. [33].

Their Honours considered that the appellant’s reliance on the public policy (which informs the law of torts in relation to maintenance and champerty) required a consideration of that policy. [35]–[73]. Having outlined the history and policy behind the torts of maintenance and champerty in detail, their Honours considered that there were two key observations to be gleaned. First, the so-called “evils practised in early times” were actions that would now all be regarded as a form of abuse of the court’s process. Rather than legislating to prohibit abuses of process generally, early legislatures had choses to create the specific offences of maintenance and champerty. [74]. Second, their Honours considered that it must be recalled that the forms of perversion of the course of justice that led to the enactment of the early statutes were only possible because of the “immaturity” of the system of the administration of justice. [75].

In light of these two observations, their Honours concluded that “modern conditions” no longer present the same threats and that those threats are now addressed by other means including, in particular, the power of courts to control their own processes against abuse. [76]. Therefore, their Honours held that in this case, the provision of financial aid on the terms of the agreements did not amount “in any sense” to an assignment of a bare cause of action. The Court concluded it did not “savour of maintenance” nor constitute “trafficking” in claims. [80]–[81].

Their Honours went on to consider that under the modern law of abuse of process, it is an abuse of process to maintain an action for an improper purpose. However, the Court considered that it makes no difference whether the maintainer is a party or a non-party. Therefore, there must be a distinct aspect of public policy prohibiting third party maintenance and rendering that maintenance “improper”. Critically, their Honours concluded that the law of maintaining has been subsumed in the modern law of abuse of process. [82].

The Court then turned to consider the so called “remnant tort” in the light of the present proceeding, brought pursuant to Pt 13A of the Act. [83]. The Court considered it was significant that s 103K(1), which empowers the court to terminate proceedings if, inter alia, it is “inappropriate” that they be pursued, contains a specific exception in sub-s 103K(2)(b), which confirms that a proceeding is not to be regarded as “inappropriate” merely because the class is closed by reference to members being parties to “a litigation funding arrangement”. This was considered to be a statutory recognition of the necessary associations of champertous funding agreements and class actions. [84].

Their Honours observed that “in truth” significant control of the litigation by a funder is “inevitable” on account of the nature of class actions. This was said to be for two reasons. First, even though each member’s claim will be different, the raison d’etre of class actions is to ensure the efficient litigation of those parts of the claim that all members have in common. Therefore, individual instructions from members would be in inefficient. [97]. Whilst the Court considered it “impossible” to imagine what practical role the members could have, or would wish to have, in technical parts of the litigation, it was understandable that the Funder would seek to play a significant role. [100]. The Court recalled that in this case, despite the level of control by the Funder, the agreements “ensure that the essence of the orthodox” client and solicitor relationship be maintained and that ultimately, the members retain the final say. [101].

Second, the Court described the motivation of the members and of the Funder as “exactly the same” – namely to recover as much money as can possible be recovered. Their Honours found it difficult to see why a court should presume that a professional litigation funder is more prone to misbehaviour than the plaintiffs. Consequently, their Honours firmly rejected any contention that a funder would be more likely to misconduct litigation than anyone else simply because the funding agreement is champertous. [102].

Ultimately, their Honours considered that the appellant’s “appeal to public policy” had failed. The Court considered that the aspects of society which had made the criminalisation of maintenance desirable, and therefore tortious, “have long since vanished”. In contrast, the current policy of the law recognises the public benefit to be derived from class actions which must depend upon champertous agreements for their efficacy. Their Honours observed that there is now a long history of litigation in which none of the appellant’s “predicted ills” have transpired. [104]. Therefore, the Court determined that the agreements were not unenforceable, and the appeal was dismissed with costs. [105], [106].

K Anderson