Gladstone Ports Corporation Limited v Murphy Operator Pty Ltd & Ors [2021] HCATrans 114 (25 June 2021)

Last Updated: 28 June 2021

[2021] HCATrans 114

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B75 of 2020

B e t w e e n -

GLADSTONE PORTS CORPORATION LIMITED (ACN 131 965 896)

Applicant

and

MURPHY OPERATOR PTY LTD (ACN 088 269 596)

First Respondent

TOBARI PTY LTD (ACN 010 172 237)

Second Respondent

SPW VENTURES PTY LTD (ACN 135 830 036)

Third Respondent

LCM OPERATIONS PTY LTD (ACN 616 451 033)

Fourth Respondent

Application for special leave to appeal

KEANE J
EDELMAN J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 25 JUNE 2021, AT 9.50 AM

Copyright in the High Court of Australia

____________________

MR J.D. McKENNA, QC: May it please the Court, I appear with my learned friend, MR A.C. STUMER, for the applicant. (instructed by King & Wood Mallesons)

MR L.W.L ARMSTRONG, QC: May it please the Court, I appear with my learned friend, MR M.J. MAY, for the first to third respondents. (instructed by Clyde & Co)

MR P.J. DUNNING, QC: May it please the Court, with my learned friend, MR C. JENNINGS, QC, for the fourth respondent. (instructed by Piper Alderman)

KEANE J: Mr McKenna.

MR McKENNA: Thank you, your Honour. Your Honours, the key question which arises in this matter is the extent to which a commercial litigation funder can validly obtain rights of control over the funded action, in particular where the cause of action is for unliquidated damages in tort. The orthodox approach to this question in both Australia and in other similar common law jurisdictions, including England, New Zealand and Canada, has been to take a restrictive approach to this issue on public policy grounds.

In essence, that approach requires the true parties to the litigation to remain in control of their own litigation. In taking this approach a consistent public policy approach is taken to both the issues of the assignability of the causes of action and the funding of such litigation. The judgment under appeal, however, seeks to adopt a significantly more expansive approach allowing significant powers of control to the funder, without any defined limitation.

EDELMAN J: This is not a case of an assignment of the cause of action, though?

MR McKENNA: No.

EDELMAN J: Nor do you say that it is always going to be contrary to public policy for some control to be afforded?

MR McKENNA: I accept both those propositions, your Honour.

EDELMAN J: So, really, your question – the question of public policy that you are raising is, has the Rubicon been crossed as to the extent of control that a funder can have?

MR McKENNA: There are two facets to it, your Honour. Firstly, that if one accepts that bare causes of action in tort are not assignable, and if one accepts that that is rooted in good grounds of public policy, then there is a problem of consistency if you allow the parties to give control of the action and a share of the proceeds to a funder, because it runs into the same public policy concerns that would exist if there were an assignment.

EDELMAN J: Only if the control is at such a level that it amounts, practically, to an assignment.

MR McKENNA: Well, this is really the point of difficulty in the case, your Honour. If one goes back to the origin of this principle in Glegg v Bromley, the test was interference or involvement was enough to create a problem. In more recent cases, the question has been put the other way around, which is to frame whether the true parties remain in practical control of the action.

Now, what is interesting about this case is that there is – I guess to borrow an expression from another context – mission creep by funders who have moved from a position where they might have some day‑to‑day control of the matter, they might have a right to veto settlements subject to sending it off to arbitration, but this particular funding agreement goes the extra step and gives the funder powers not constrained by the express terms of the agreement to remove members, remove representatives, remove lawyers, and in effect reshape the funding agreement so that they have practical control of the way it is conducted.

The real problem with the judgment under appeal is that the dynamics of terms like that, and the impact upon control, really was not something that was engaged with by the court. That is actually what makes this case a suitable vehicle to provide – firstly, answer the question, is control a matter of concern in terms of public policy, because the judgment under appeal seems to draw from Fostif that this Court has no concern about control by funders over actions, regardless of whether they are actions in restitution or actions in tort, so that is the first concern.

But, in our respectful submission, the more difficult question is where you draw the line as a matter of principle to work out the level of control that is appropriate in this situation and the level of control that attracts public policy concerns.

GLEESON J: Do you have all the findings you need in relation to the claim of impermissible control?

MR McKENNA: We do, your Honour, in the sense that this is a question of validity, so it is a question you determine at the outset when the agreement is entered into, and, in our respectful submission, it is a crystallised rule of public policy in the sense that you do not ask the question about the ethics or the morality of the people involved. You ask the question: does an arrangement of this kind create risks that the system should protect against by rendering arrangements of that kind unenforceable. So, all your Honours really need is the objective background facts and the agreements.

KEANE J: The objective background facts include the fact, do they, that the funding arrangement, including the piece of the action arrangement, is necessary for the proceedings to be brought and maintained?

MR McKENNA: That a funding arrangement was necessary for the ‑ ‑ ‑

KEANE J: Yes.

MR McKENNA: Yes, it is uncontroversial ‑ ‑ ‑

KEANE J: I think there is a fact that the funders here are the only – they are the funders of last resort.

MR McKENNA: Yes.

KEANE J: So that one has a situation where, on those facts, you can say that he who pays the piper calls the tune.

MR McKENNA: Well, that is a possible approach, save for this, your Honour. There is no evidence of negotiation of these terms. It is not as if anyone took issue with ‑ ‑ ‑

KEANE J: Not in relation to the negotiation of the terms, but in relation to the prosecution of the action.

MR McKENNA: Yes, the background facts, as I recall them, were that having failed with other funders this proposal was put and accepted, and that is the extent of the background facts, and it was the last - it was beyond the end of the limitation period and the only funder.

KEANE J: Mr McKenna, if one does not accept as - it is not concluded but certainly suggested in the Court of Appeal’s judgment that champerty is a tort that is still on the books in Queensland, what does that mean in terms of the process whereby proceedings that are, on their face, champertous are being pursued? Is the damage resulting from the champerty the pendency of the action and the prospect of recovery under it?

MR McKENNA: If we were approaching it from tort, the problem is trying to establish the damage to get a cause of action in tort or, alternatively, for seeking an injunction – a pendency of damage that would justify the injunctive relief.

KEANE J: But in the classic case of a champertous arrangement the damage is that which the defendant has to pay that he would not have had to pay otherwise.

MR McKENNA: Yes, or the costs involved or collateral damage that suffered higher interest rates that might be – they are damages to reputation and the like.

KEANE J: Does that play in at all to the notion of abuse of process or public policy?

MR McKENNA: We do not see – we only see the relevance of the tortious nature of this question coming into it when your Honour has asked the question has there been a shift in public policy from what I have described as the orthodox approach and ‑ ‑ ‑

EDELMAN J: You did not put your case on the basis of champerty or maintenance. There was no suggestion of that below.

MR McKENNA: A tort – no, no. Public policy only. But the relevance of the Queensland position came in because this Court in Fostif deliberately put to one side the question of jurisdictions where champerty remained a tort.

EDELMAN J: Is not one difficulty then with the older cases that you rely upon that to the extent that they are to bear upon public policy, that is a public policy of a different era, and it is a public policy of an era in particular where fiduciary duties were relatively undeveloped, so, the duties that those parties litigating before the court owe irrevocably to their clients have not been fully fleshed out.

MR McKENNA: Everything your Honour says is – we would accept all that. The difficulty with the judgment under appeal is that things have moved on since then, so in England the tort and crime was abolished in the 1960s, and since then a whole body of case law has considered the questions that your Honour has raised, which is, have things moved on? Are there no public policy concerns any more? The approach that they have adopted is the one that we advocate in this jurisdiction, namely, that control still is a problem and that a funding arrangement that shifts control away from the true litigant creates an invalidity problem.

So the difficulty with the judgment under appeal is that – and to some extent the difficulty with Fostif is that the analysis of the policy underpinnings of this rule stops at around 1910 or 1920 when, in many jurisdictions, including Canada, New Zealand and the United Kingdom, courts have wrestled with this question, is there a modern policy justification for the unenforceability aspect of this rule and they have answered it in a way very different from the more extreme public policy views that were a problem in the medieval period. The concern really is about distortion.

What I mean by that is that, in the normal course, there are hundreds of decisions that need to be made by every litigant - who they are going to sue, how much they are suing for, what heads of damage. Those decisions are made by real parties and it is true that real parties can be more conservative or more aggressive in the way they make those decisions, but the whole nature of litigation shifts if it is no longer the real party that is making those decisions, but somebody who is a stranger, and, may I say, a random stranger in the sense that one should not view litigation funders as if they are a genus or a common type.

Whoever chooses to fund an action suddenly, based on our concerns, gets in a position of control to make those decisions, and so distorts the process of litigation from one where someone who is alleged to have committed a wrong against someone else is no longer dealing with the victim of the wrong, and dealing with them, with all the choices they make in a litigation, but actually dealing with a complete stranger.

EDELMAN J: That sounds an awful lot like a submission that is not saying that there is something peculiar about this particular agreement that involves an excessive amount of control, but rather a submission that is saying that almost every funding arrangement is going to involve some high degree of practical control that will be contrary to public policy.

MR McKENNA: Your Honour, we certainly do not go that far, and I apologise if we have conveyed that. Can there be an objection to a requirement of reasonableness – that is, if I fund someone’s action, can there be an objection to the decision‑maker acting reasonably in their own interests, difficult to see that there is a problem there, difficult to see that there would be a problem in having some constraint on their ability to unilaterally settle without an opportunity to discuss, to deal with it, perhaps have a third party determine whether it is a reasonable course of action or not?

There are many steps and - your Honours will have seen these kinds of provisions in earlier funding agreements that no one takes issue with. The key focus of the concern here is that you have this combination of funder that is paying the lawyers, a funder that is dealing with them on a day‑to‑day basis, giving day‑to‑day direction, the background fact that these real plaintiffs are practical people, they are not people who are familiar with running litigation, and the final point, which is that the funder in this case has the power to remove from their funding scheme anyone who, let us say, takes a view that they consider inappropriate.

That is a very, in our respectful submission, different kettle of fish to the kind of funding arrangements that traditionally have been looked at in England and in Australia. That is why this case is an appropriate vehicle to deal with that question.

Your Honours, we come back to the need for coherence between the assignment rules and the funding rules because that is how this Court originally approached – when I say, “this Court”, I mean the courts had originally approached the question. Glegg v Bromley is the case we point to for that. It was a defamation case. It was not a case where the plaintiff was seeking to assign the cause of action, but they were agreeing to pay the future proceeds of the cause of action to a third party and the court had no difficulty with that.

They did have a difficulty if there was involvement or interference that the proposed assignee could have in the proceedings and the reasons for the concern are obvious because it places the stranger in a position of both temptation, in the sense that they stand to gain more from the action, and an ability to act on that temptation because they have powers of interference or involvement.

As your Honours have raised with me, there is of course scope for debate about what degree of involvement, what degree of interference runs into public policy concerns and can I say that is the great unresolved question in all the jurisdictions I have mentioned to your Honours. Control is spoken of in a very general way, but no one has drilled down to define in a principled way where the boundaries of that are, which again is why this case is a suitable vehicle for doing it because you do have a case that sits uncomfortably in the spectrum between no control and complete control.

Glegg v Bromley directed the future of English law because it was expressly endorsed by the House of Lords in Trendtex in 1982 and that led, through a series of decisions following Arkin in the UK, to adopt this position that it is the loss of control of the true litigant which actually triggers a problem of unenforceable funding agreement. A similar concern is expressed by the New Zealand Supreme Court in Waterhouse in 2013, and at first instance a number of courts in Canada have taken a similar approach.

In our respectful submission, this was the orthodox view adopted in the common law of Australia pre‑Fostif and we point to the decision of the Queensland Court of Appeal in 2001 in Elfic. Fostif creates difficulty in this space because there is no doubt that the High Court, in their review of the law of maintenance and champerty, pointed to obvious deficiencies in the law in the sense that it has accumulated over time - a so-called patchwork of exceptions has been created. There is a need for a court to review it and to try and align doctrine more closely with public policy.

But the gist of the analysis in Fostif, having parked that question about a need for reform, was to focus on the question that was in issue in that case, which is: do any of these concerns justify a stay of proceedings, that is, finding a proceeding which, on the face of it, seems valid but staying it because of a funding agreement that has a champertous element? Not surprisingly, the Court said no. If you are going to stop proceedings – that is, turn champerty into a defence, you have to bring the case within the traditional grounds of abuse of process.

It is in that context that much of the discussion in Fostif that is relied upon by our learned friends and in the judgment below are taken. So, statements are taken out of the context of do we have a new rule of public policy staying proceedings to try and support an argument that there should be no public policy rule about enforceability, and a fair reading of Fostif suggests that that was not what the Court decided at all. What you see from Fostif ‑ ‑ ‑

KEANE J: You are not asking us to overrule Fostif or even look at it. You are just asking us to take it seriously.

MR MCKENNA: I was about to say Fostif, in some ways, had a cliffhanger ending. It tantalised us with this suggestion that there was a lack of conformity between underlying public policy and doctrine, but then did not answer that question. It left it for a subsequent court to take up the cudgels and that just has not happened. It has not happened in any ultimate appellate court in any of the relevant jurisdictions, which brings us to this case.

In our respectful submission it is a suitable vehicle because it is directly concerned with the issue of enforceability. It is not about staying proceedings. The applicant has never suggested that this case cannot be validly funded, or that it should be stopped for any reason. What we object to is the way this particular case has been funded.

Secondly, it is helpful, in our respectful submission, that the claim is advanced as a representative proceeding. Our learned friends say that is a reason to think it is an unsuitable vehicle. We say the opposite because if the analysis is that court control removes the concerns that used to exist 100 years ago about champerty, well, representative proceedings provide the maximum level of court control of any proceeding we can think of in our jurisdiction. But it does not answer the problem.

The problem is courts can only deal with what they are told. If no one ever – if a settlement proposal does not go ahead the court will never find out about it. So, it is illusory. To speak about court control as being an answer to the problems arising in these cases assumes the court knows things.

EDELMAN J: Is your submission an “all or nothing” submission? In other words, if some of the aspects of the agreement or agreements to which you point do involve excessive control and they are severable, why would it not be open for the court to conclude that that particular aspect is void as contrary to public policy, but there is no reason why the entire agreement needs to fail?

MR MCKENNA: We would accept the point about severability, your Honour, but, of course, that raises a difficult question about whether these things that do seem to be fundamental aspects of the arrangement are truly severable. No one suggests to date that they are. That is why the argument has proceeded on an “all or nothing” basis, but I accept that that is an issue.

GLEESON J: What is the vice of the provision that permits the expulsion of a member from the class?

MR MCKENNA: The vice, in our respectful view, your Honour, is that you cannot be a representative unless you are a member, so by expelling a member you have disqualified them from being a representative. May I add, if it is a class supported for the benefit of a member, why would a funder have a unilateral right to expel a member from the class – not constrained by particular concerns that would justify it but apparently absolute.

EDELMAN J: The issue then raised by the question I asked you earlier is why, as a matter of vehicle, would it not be better for questions such as expulsion of a member to be determined as to their validity when they arise, rather than an attempt to adjudicate upon the validity, all or nothing of the agreement?

MR McKENNA: May I briefly answer, your Honour? I see my time is up. The key point is this. Validity has to be able to be determined at the outset, and its practical relevance across the jurisdiction is that people are drawing and entering into funding agreements, and they need to know where the boundaries are, so the right time to determine this question is when your Honours see a suitable vehicle, a suitable agreement that creates the issues that provide a vehicle for your Honours to rule upon where the proper boundaries of control are.

KEANE J: Thanks, Mr McKenna. Yes, Mr Armstrong.

MR ARMSTRONG: Thank you, your Honour. Firstly, may I respond to a question that your Honour Justice Gleeson raised, namely, the vice in the suggestion that the funder in this proceeding can expel a member from the class. That is not the case. The funder can expel a member from the funding arrangement, but any change to the definition of the class can only be effected with leave of the court, pursuant to Part 13A of the Queensland provisions.

Your Honours, the principal question identified by the applicant for special leave, in our submission, does not arise in the terms that the applicant proposes, and the issue which might be said to arise is not one that involves a controversy in the lower courts that requires resolution by your Honours’ Court.

The only real issue that might be said to arise in this proceeding is the question as to the content of public policy so far as it concerns the suggested unenforceability of agreements with elements of maintenance or champerty, where they occur in class actions and in jurisdictions not affected by what I might call the Abolition Acts, the equivalents of statutes like the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) and cognate provisions in Victoria, South Australia and the ACT.

EDELMAN J: That is still a fairly significant question, though, is it not?

MR ARMSTRONG: It is, your Honour, but it is narrowed further still because the issue, in our respectful submission, is heavily affected in Queensland by the unusual provision in the Queensland class action regime, which is section 103K(2)(b), the one that, in our respectful submission, indicates that the Parliament of Queensland, like the Parliament of New South Wales, which is the only other jurisdiction that has the equivalent to section 103K(2)(b), has recognised that funding for class actions is likely to require group members to be organised by reference to their agreement to participate in a particular funding arrangement.

KEANE J: It does not necessarily contemplate that that will proceed otherwise than by a funding arrangement that leaves the class representatives in control?

MR ARMSTRONG: Yes, your Honour, we accept that section 103K(2)(b) does not, in its terms, automatically authorise any funding agreement. The court still is entitled to look at questions of whether the proceeding appears to be conducted for a proper purpose but, in our respectful submission, the way that the courts can deal with that issue is via the existing mechanisms, for instance, relating to the doctrine of abuse of process.

Now, our learned friends have referred in their submissions and this morning to cases in New Zealand, Hong Kong, Canada, Britain. In our respectful submission, the High Court – this Court in Fostif, did review all of the public policy concerns that arise in the context of not merely applications for a stay based on suggested abuses of process, but the more fundamental public policy concerns which might be said to justify a stay by reason of abuse, but at the same time are the same public policy concerns that have traditionally justified the torts of maintenance and champerty.

The High Court, as my learned friends have noted, in Fostif, specifically reserved the question as to what the public policy considerations might be in those jurisdictions that do not have what I have called an Abolition Act. As a consequence, the issue that was addressed by the Court of Appeal in the present matter did look at that question of what the public policy is in the jurisdictions that do not have an Abolition Act.

The Court of Appeal in the present matter, having identified, firstly, the limitation that was stated in Fostif, and made very clear in paragraph 68 of their Honours’ reasons that the Court of Appeal recognised that Fostif was an examination that was undertaken in an Abolition Act State, nonetheless, the Court of Appeal below proceeded to examine all of the historical and traditional justifications for the public policies which, on the one hand, justified the torts of maintenance and champerty, on the other hand had been said to justify the rules regarding the unenforceability of contracts that have elements of maintenance and champerty, and proceeded then to do so by reference to modern conditions, in particular in the State of Queensland, among other things, the court’s modern powers to deal with abuses of process under the rubric of “abuse of process”, and, very importantly, the court’s powers of supervision under the class action provisions in Part 13A.

All of the vices that our learned friends refer to – the aspects of control, the things that the funder in the present case is said to be able to do, upon closer examination are all matters which can only take effect through a step in the court. The replacement of the lead applicant is something that ordinarily would require leave of the court under section 103P. Even if it were said that section 103P did not apply, nevertheless, the fact of replacement of the representative party is clearly something that would come to the Court’s attention.

EDELMAN J: Is that then a submission to say that there is no point at which the level of control could ever amount to an abuse of process, or to be contrary to public policy?

MR ARMSTRONG: Your Honour, if the level of control rose to that point, then it would be dealt with as an abuse of process, applying the concept of abuse of process that this Court articulated in Williams v Spautz, that is, that the purpose of litigation is that it be run for the substantial benefit of the persons in whom the suggested rights originally accrued.

In our respectful submission, in circumstances like the present case, where there is no suggestion of an assignment of the cause of action, there is at most a charge or a promise in respect of a portion of any future potential proceeds of the cause of action, the funder’s interests and the group members’ interests are aligned. There is nothing to indicate that there is likely to be a distortion away from the proper purposes of the litigation.

In the absence of something coming to the court’s attention to suggest that there is a material risk that the litigation will cease to be conducted for a proper purpose, then at that point the court would deal with it as an abuse of the process, and it would not need to deal with it by any kind of blanket rule establishing that funding agreements on particular terms are contrary to public policy.

Now, on that question, the Court of Appeal, in our respectful submission, looked closely at the modern conditions in Queensland, and identified what the various factors are that go to the court’s ability to supervise class actions in particular. The Court of Appeal looked closely at the funding arrangements in the present case.

Our learned friends have referred to the various discretions that the funder has, but there are, as the Court of Appeal and as the learned primary judge identified, dispute resolution procedures in respect of every step that might be taken in the course of the proceeding. If there is a dispute between the representatives and the funder in respect of any tactical decision, and certainly in respect of decisions in relation to potential settlements of the class action they go to a dispute resolution procedure, ultimately arbitrated by senior counsel then briefed in the case.

So, the suggestion that there might be some overbearing by the funder of the wishes of the plaintiffs who are the representatives of the class in the proceeding, in our respectful submission, does not, in a real sense, arise, because if there is a disagreement between the funder and the plaintiffs it is referred through the arbitration procedure. So, ultimately, it is not the funder who is in control. On that view of things, it would in fact be senior counsel briefed in the case, who makes the decision as to whether a particular settlement offer should be accepted or rejected or made, or as the case may be.

In our respectful submission, your Honours, the issues of control which are said to arise in the present case firstly, are extremely modest upon the terms of the funding arrangements; secondly, to the extent that any of those steps might ultimately affect the interests of the group members or take effect in a way that might be thought to result in a potential distortion of the proper purposes of litigation, they are matters over which the court, pursuant to the class action provisions, will have direct supervision.

In most respects they are matters in respect of which the court’s leave must be obtained and, as your Honours all know, certainly applications in respect of the proposed settlement of a class action require a very detailed process of disclosure by the lawyers for the class, including confidential opinions of counsel, as to the reasons for and against any particular proposal.

Our learned friends also seem to assume away any real role for the lawyers conducting the case and, as your Honour Justice Edelman referred to, the more developed fiduciary obligations that might be said to have arisen over the last 140, 150 years and the fact that the lawyers acting for the representative plaintiffs in a class action have not merely their normal fiduciary obligations to their actual clients but also obligations approaching something like fiduciary obligations toward the group members.

Again, if there is a problem that arises in the course of the conduct of the class action the court could confidently expect that the responsible practitioners acting for the class will bring it to the court’s attention if it is something that engages a concern as to whether there is in fact an overbearing of any interests of the persons for whose benefit the action is being conducted.

GLEESON J: Is it the practice in Queensland for the courts to receive a copy of the funding arrangements?

MR ARMSTRONG: Yes, your Honour. Yes, and that process was followed in the present case, and your Honours will have seen in the Court of Appeal decision and at first instance that their Honours went through in detail the provisions of the funding arrangements, specifically on this question of control, to outline for the reader an understanding of exactly what role might be expected to be played by the funder on the one hand, or by the representatives on another hand, and, indeed, by the lawyers.

Your Honours will recall at the end of the Court of Appeal’s decision their Honours review the practical realities of class actions, that through most of the life of a class action the focus is on the common questions, which invariably relate to essentially issues of contravention by the defendant.

Those are matters on which it is unlikely that the fishermen in the present case are likely to have any view at all. They are matters on which the representative plaintiffs might have a view, but the representative plaintiffs are again there to give instructions on advice from the lawyers and, frankly, they are likely to be assisted by any input that is able to be provided by an experienced litigator like the funder who can also examine the tactical and strategic decisions that might be making the course of the running of the common questions in a class action.

The interests of group members ‑ the points at which they might be expected to want to have a say in the conduct of any aspect of the proceeding is once the court moves past the common questions and is starting to look at the individual issues, essentially after the judgment on contravention in the first instance.

So, for those reasons, your Honours, in our respectful submission, the issue which arises in the present case is closely affected by the statutory context in Queensland which recognises at least a role for funding in the organisation of group members for the purpose of the group definition in a class action.

The Court of Appeal recognised the limitations in Fostif and having identified that Fostif concerned an Abolition Act State, the Court of Appeal here proceeded to look at what happens, what are the policy considerations in a non‑Abolition Act State. The consequence, your Honours, is that the Court of Appeal decision below in fact is the only intermediate Court of Appeal decision that has looked at that question in a non‑Abolition Act context.

There is no contrary authority in Australia that stands in contrast to the decision below and, in our respectful submission, no controversy between intermediate appellate courts that requires the intervention of this Court for the purpose of providing clarification.

Unless there is anything further I can assist your Honours with, those are our submissions.

KEANE J: Thank you Mr Armstrong. Yes, Mr Dunning. Mr Dunning, do you have anything additional to what Mr Armstrong has said to put in opposition to the grant?

MR DUNNING: No, I was going to, in fact, gratefully adopt the submissions he had made. Could I epitomise the three reasons why you should refuse it?

KEANE J: Yes.

MR DUNNING: First, there is no difficulty applying Fostif. For 15 years it has been usefully applied by courts throughout Australia without difficulty, and the fact that our learned friends had to resort to pre‑Fostif cases to create the controversy tells you that. In that regard, apropos a grant of special leave, the Court of Appeal below did what the Court of Appeal is meant to do.

Fostif dealt with the facts of the case, confined them to that, but stated broad matters of principle that have been, for 15 or 16 years, uncontroversially applied. That was done by the intermediate appellate courts, that is what should occur, and there is no reason for a matter like that to come to the High Court while you have something like Fostif that is fit for purpose and can be applied as it was here.

EDELMAN J: Applied/extended.

MR DUNNING: Well, Justice Edelman, I would respectfully submit no, because – well, it depends to what extent “extension” is different to “apply”. It applied it to the facts that arose here, which were, as is accepted, different to those in Fostif.

Your Honours, the second matter is that this case is hypothetical, and our learned friend, Mr McKenna, says you need to determine now whether these agreements are objectionable. But that matter was carefully looked at, by Justice Crow at first instance and three members of the Court of Appeal, four judges, all of whom it might be said, with vast experience of civil litigation, Bench and Bar, came to the view that those agreements were not objectionable and, indeed, their Honours critique, and we have referenced it, those matters where control could be, that is, where there was a particular involvement of the funder, for example, expert evidence and the like, and as to why that was the case and their Honours reference, in fact, how is that different to an insurer running a case for an insured? Their Honours’ reasons are ‑ ‑ ‑

KEANE J: Well, the immediate answer to that is that the insurer has rights under the insurance to do so, by virtue of his insurance contract with the insured.

MR DUNNING: That is correct, but, if I might, with respect, your Honour ‑ ‑ ‑

KEANE J: And to recover the moneys that it has, or will, outlay.

MR DUNNING: All of which, Justice Keane, respectfully, might be accepted. Nonetheless, it is the case that, when that insurer is funding, and often giving the instructions directly to the legal representatives for – be it plaintiff, it could be defendant, those lawyers will still be the lawyers for that insured, not the insurer. Should controversy arise, it will be the insured that they are bound to remain with.

Now, when one sees it in that context, in our respectful submission, it is ultimately a distinction without a difference. How one extracts the money from it for the third party might differ, but the core principle is not different, that is, there is a third party that has a commercial interest in what is occurring, but there are a set of rights and obligations which protect the litigant on the record.

Your Honours, the final matter is that the Court of Appeal recognised, as had Justice Crow, that courts now have the facility to deal with the problem that maintenance and champerty, to the extent it is engaged as a concept, as a public policy reason to find these agreements void, in a much more calibrated way. Their Honours were plainly right to do so.

Indeed, Justice Edelman, they went a little further than just recognising the more careful explication of fiduciary obligations to speak more generally of detailed rules, written rules that now exist around lawyers’ conduct, and really, after Knight v FP Special Assets and White Industries v Flower & Hart, and Williams v Spautz, every court in Australia has had the capacity to deal effectively and in a calibrated way with this.

What instead is asked to come to this Court is something that would look at moving away from that to a much less calibrated response. Ultimately, your Honours, for those reasons, in our submission, this is an
inappropriate vehicle for special leave, particularly because of its hypothetical character and a grant of leave for this is inevitably a one‑for‑one disallowance of a grant of leave for some other and we would submit more suitable case. Unless we can assist your Honours further.

KEANE J: Thanks, Mr Dunning. Mr McKenna.

MR McKENNA: Four very brief points, your Honours. The first point is section 103K(2)(b), as your Honours have observed, does not throw any light on this case because it only refers to “a funding agreement”.

EDELMAN J: It establishes a baseline, a baseline for which there would not be an abuse of process.

MR MCKENNA: There is no contest between us that a funding agreement can be made. So, it cannot be statutory imprimaturs of funding agreements generally, or any particular kind of funding agreement ‑ it just accepts that there can be funding agreements.

The second point, your Honours, is that it was submitted that the rubric of “abuse of process” is sufficient to deal with this problem. In our respectful submission, the answer is no, because abuse of process is based upon proof. One has to come to the court with proof that there is an actual or threatened abuse of process to occur.

The unenforceability provisions, including the provisions about the unenforceability of a solicitor’s arrangement to take a share of the action, do not depend upon proof about whether the solicitor is apt to engage in abuse of process or not, it is a transaction that creates a risk that one is trying to protect the system against by not going the extra step of looking for factual evidence because the problem about evidence is that everything that goes on, on the other side of the record, is privileged and confidential, except to the extent that it is revealed to the court.

So, a party in the respondent’s position just cannot know how things are going on, and that is why the enforceability provisions are so important. The solicitor’s conduct or expert witnesses’ conduct, the maintenance and champerty rules have a protective role for the system generally.

The third point is this. Our learned friends correctly point to the ability to go to arbitration, the ability for the court’s leave to be obtained or need to obtained to change representative parties, but that is a formal response to the problem. The rules we are talking about are about human nature and about temptation, and the purpose of the rules is to stop people being put in positions of temptation and to protect against the human – the features of human nature that emerge where, if you are in the hands of
someone else who is the funder – who is knowledgeable, who has the power to exclude you from the position, and there is some controversy involved, what will human nature suggest you will do. Will you say I insist on my right to arbitration and I am going to go to Court?

The concern is that people – human nature will mean that people will give in to the person with practical experience, control and funding and it is something that someone on the other side of the record will never find out about. The final point is this ‑ ‑ ‑

EDELMAN J: It is a little bit more than that. It is also that the statutory regimes, all of the various different regimes, have developed by reference to various assumptions, and the assumptions may be that they are, themselves, responding to those temptations in that formal way, and then it may be questionable as to whether common law public policy can develop inconsistently then with that regime, those regimes.

MR McKENNA: I will accept, your Honour, that public policy obviously takes its lead from the statute law and signals we get from the Parliament about how public policy should develop obviously have to be observed but, in our respectful submission, the two actually fit together very neatly here by creating permissible boundaries of arrangements that keep people away from temptation and then, if they do fall into temptation, we have mechanisms of the court to deal with it.

The final point, your Honours, is this. It was submitted that funders and class members are all on the same page and they have a common purpose, and there is no difficulty here. Fundamental to our proposition is that there are inherent conflicts of interest between funders and class members in this situation.

I can point to an obvious example in the appeal record, page 98, paragraph [8] of the judgment that explains the funder’s return, which is 15 per cent of the recovered amount while costs are below $1 million, and then 35 per cent of the recovered amount if the costs go above $1 million. It is not difficult to imagine a situation where class members would like a quick lower settlement rather than a later higher settlement, but you can see the potential for conflict there, and that is the root of these rules. Unless I can assist any further, they are our submissions.

KEANE J: Thanks, Mr McKenna.

The appeal proposed by this application would not enjoy sufficient prospects of success to warrant the grant of special leave to appeal. The application should be dismissed with costs.

AT 10.37 AM THE MATTER WAS CONCLUDED