Queensland Supreme Court decision recognises public benefit of funded class actions

Queensland Supreme Court decision recognises public benefit of funded class actions
Authors:
Kate Hurford
Legal Counsel - Australia
Matthew Kennedy
Investment Manager - Australia

In a recent decision1, the Supreme Court of Queensland (Court of Appeal) held that the funding agreements between a funder and the members of a class action were not unenforceable as being against public policy.

In reaching its decision, the court examined the history of the torts of maintenance and champerty2, in particular the policy behind these torts. It held that those aspects of society which had led to the crimes and torts of maintenance have long since vanished3. On the other hand, the current policy setting, as found in the Queensland statutory class actions regime, recognises the public benefit to be derived from “class actions which must depend upon champertous agreements” (that is, class actions funded by a third party litigation funder) for their efficacy.

Background to appeal

The action was brought pursuant to Part 13A of the Civil Proceedings Act 2011 (Qld), a class actions regime that came into force in Queensland in 2017. It is largely based on similar legislation that has been operating for many years in the Federal Court of Australia, New South Wales and Victoria.

The representative plaintiffs and the other members of the class are fishing and processing businesses in Gladstone, Queensland. The action was brought against Gladstone Ports Corporation (GPC). The plaintiffs alleged that, due to GPC’s negligence and failure to comply with certain statutory obligations during an expansion project in 2011, the waters surrounding the port of Gladstone were polluted and they suffered loss of profits as a result.

GPC contended that the funding agreement between the plaintiffs and the funder was champertous and unenforceable. GPC’s solicitors wrote to the plaintiffs’ solicitors, claiming that GPC might be entitled to damages for the torts of maintenance and champerty and that the plaintiffs’ solicitors had participated in implementing the tortious arrangements.

Consequently, the plaintiffs applied for a declaration that the relevant funding agreements were not unenforceable by reason of maintenance, champerty or public policy. The funder was joined as a respondent to that application. The judge at first instance made the declaration sought and GPC appealed.

GPC submitted that certain features of the funding agreements rendered them unenforceable because they were against public policy. It referred to the fact that they conferred practical control of the litigation on the funder. GPC submitted that this level of control was against public policy although it did not identify any ingredient of public policy with which the funding agreements clashed.

Decision on appeal

The Court of Appeal dismissed the appeal and held that the funding agreements were not unenforceable as being against public policy.

The judgment included a number of important observations and findings.

Complicated and expensive proceedings

The Court of Appeal noted that the class action would be a very complicated, and therefore expensive, proceeding. It would require calling expert witnesses in construction, engineering, soils, hydrology and marine biology. It said this prospect would be daunting to even the most litigiously minded citizen. The fee estimates of the plaintiffs’ solicitors ranged from $8.4 million to above $13 million. GPC’s fees may also be of that order, although perhaps lower as the defendant. The funder had, therefore, agreed to carry a massive financial risk because it had agreed to meet all of those costs if ordered to pay them and had also provided valuable security for costs and would meet any adverse costs orders if the case was ultimately unsuccessful.

The funding agreements gave the funder the power to guide the day to day progress of the case and also gave it a “crucial voice” in settlement discussions. However, the agreements asserted in several places that the solicitors acted for the class members and only for the members, notwithstanding that they might owe contractual duties to the funder. There was no power in the funder to override the members on “strategy and tactics” or settlement because any disagreement between the funder and the members, who had equal say, would be resolved by arbitration.

Public policy considerations

As GPC had relied on the elements of public policy that inform maintenance and champerty, the court examined the policy behind these torts from medieval times, referred to in old texts and cases, to the present day.

The court noted that, as long ago as 1890, an English academic suggested that the English law of maintenance and champerty was founded on old statutes which were based on a condition of society that no longer existed and that the modern rule was no longer dependent upon any considerations of justice and policy4.

By the twentieth century, maintenance had lost its justification and exceptions to the rule grew. The court found that, unless there is some distinct aspect of public policy that would render litigation funding as “improper”, then the law of maintaining has been subsumed in the modern law of abuse of process.

The court examined the seminal Fostif case5 in which the High Court of Australia upheld the validity of an agreement to fund the litigation by a party otherwise uninterested in the claim. The plurality of the High Court held that, the fact that the agreement was champertous did not mean that it was contrary to public policy.

In Fostif, Gummow, Hayne and Crennan JJ rejected the proposition that a funder, whose participation is based solely upon a desire to profit from otherwise bona fide litigation and who, in order to make that profit, sought out the class of claimants, was acting contrary to public policy.

The Court of Appeal then considered the present proceeding, an action brought under the Queensland statutory class action regime. It was significant that Part 13A contained a specific provision relating to litigation funding arrangements – a statutory recognition of the “necessary associations of champertous funding agreements and class actions”.

The court also referred to the ongoing supervisory role of the court in the statutory regime which included an elaborate procedure to ensure that advantage was not taken of class members. It also noted that Part 13A was enacted after many years of successful experience by the courts in other states under similar legislation.

Public benefits

Finally, the Court of Appeal said it was inevitable that the funder would have a great degree of control of the action. This would ensure the litigation was conducted efficiently for the benefit of all, while affording the funder, who was risking millions of dollars, to be able to oversee and protect its investment.

This decision confirms that, even in Queensland which, unlike New South Wales and Victoria, enacted a statutory class actions regime without abolishing the torts of maintenance and champerty, litigation funding is not contrary to public policy.

It also highlights the public benefits of both litigation funding and the statutory class actions regime, in providing access to justice for bona fide claimants who are unable to fund an action and/or unwilling to expose themselves to liabilities for significant adverse costs orders. Funded class actions enable individuals and businesses who have suffered loss to seek redress against better resourced defendants.

 


 

  1. Gladstone Ports Corporation Limited v Murphy Operator Pty Ltd & Ors [2020] QCA 250.

  2. Maintenance is the improper support of litigation in which the supporter has no legitimate concern, without just cause or excuse. Champerty is a type of maintenance. It occurs when the maintaining party pays some or all of the costs of a party in return for a share of the proceeds of the action or suit.

  3. Ancient rules against maintenance and champerty were based on the public interest in protecting the purity of justice in the face of abuse by powerful nobles in medieval times. However, these concerns are now widely considered to be out of date and misplaced and many jurisdictions have abolished the crimes and torts of maintenance and champerty.

  4. The Law of Maintenance and Champerty, A H Dennis (1890) 6 LQR 169 at 187-188. The condition of society referred to was the abuse of the justice system by powerful nobles in medieval times (see note 3).

  5. Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386.