BMW Australia Ltd v Brewster & Anor; Westpac Banking Corporation & Anor v Lenthall & Ors

[2019] HCATrans 153

[2019] HCATrans 153

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S152 of 2019

B e t w e e n -

BMW AUSTRALIA LTD ACN 004 675 129

Appellant

and

OWEN BREWSTER

First Respondent

REGENCY FUNDING PTY LTD ACN 619 012 421

Second Respondent

Office of the Registry
  Sydney  No S154 of 2019

B e t w e e n -

WESTPAC BANKING CORPORATION

First Appellant

WESTPAC LIFE INSURANCE SERVICES LIMITED

Second Appellant

and

GREGORY JOHN LENTHALL

First Respondent

SHARMILA LENTHALL

Second Respondent

SHANE THOMAS LYE

Third Respondent

KYLIE LEE LYE

Fourth Respondent

JUSTKAPITAL LITIGATION PTY LIMITED

Fifth Respondent

KIEFEL CJ
BELL J
GAGELER J
KEANE J
NETTLE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 13 AUGUST 2019, AT 10.00 AM

Copyright in the High Court of Australia

MR J.K. KIRK, SC:   May it please the Court, I appear with my learned friend, MR T.O. PRINCE, for the appellant in the BMW matter.  (instructed by Ashurst Australia) 

MR A. LEOPOLD, SC:   May it please the Court, I appear with my learned friends, MR S.J. FREE, SC and MS C.G. WINNETT, for the appellants in the Westpac matter.  (instructed by Allens)

MR J.C. SHEAHAN, QC:   May it please the Court, I appear in the BMW matter for the first respondent, Mr Brewster, with MS E. HOLMES and MS R. MANSTED.  (instructed by Quinn Emanuel Urquhart & Sullivan) 

MR J.T. GLEESON, SC:   May it please the Court, in the Westpac appeal I appear with MR W.A.D. EDWARDS and MS Z.C. HEGER for the first to fourth respondents.  (instructed by Shine Lawyers)

MR N.C. HUTLEY, SC:   If the Court pleases, I appear in the Westpac matter for the fifth respondent with MR B.K. LIM and MS S.K. TAME.  (instructed by Roberts & Partners Lawyers)

MR S.B. LLOYD, SC:   May it please the Court, I appear in both matters with MR D.P. HUME and MS K.N PHAM for the Commonwealth Attorney‑General.  (instructed by Australian Government Solicitor)

MS K.L. WALKER, QC, Solicitor‑General for the State of Victoria:   If the Court pleases, I appear in both matters for the Attorney‑General for the State of Victoria with my learned junior, MR M.A. HOSKING.  (instructed by Victorian Government Solicitor) 

MR J.A. THOMSON, SC, Solicitor‑General for the State of Western Australia:   May it please the Court, in each matter I appear with MS E.J. CAVANAGH and MR B.J. TOMASI on behalf of the Attorney‑General of Western Australia intervening.  (instructed by State Solicitor’s Office (WA))

MR G.A. THOMPSON, QC, Solicitor‑General of the State of Queensland:   May it please the Court, I appear in both matters on behalf of the Attorney‑General for Queensland with MS F.J. NAGORCKA of counsel.  (instructed by Crown Law (Qld)) 

KIEFEL CJ:   Yes, Mr Kirk.

MR KIRK:   May it please the Court.  Your Honours, in terms of the order in which I propose to address the issues, it is as follows.  First, I will address the factual context in the BMW matter and take your Honours through the order sought, the common fund order. Secondly, I will deal with issues of construction of section 183 of the Civil Procedure Act, which is the equivalent of 33ZF of the Federal Court of Australia Act. 

Thirdly, I will deal with the judicial power arguments.  Fourthly, but briefly, I will deal with the acquisition of property arguments and I will leave main argument on that topic to my learned friends for Westpac.  Fifthly, finally and again briefly, I will address the section 79 of the Judiciary Act point which is raised by Queensland.

Starting then with the factual context, if I could take your Honours by way of background to the core appeal book in the BMW matter, in the Court of Appeal judgment at page 38, just to outline briefly the context in which the dispute arises.  This is the beginning of the Court of Appeal’s joint judgment. 

Your Honours will see in paragraph 1 that there are six proceedings pending in the Equity Division of the Supreme Court involving Takata airbags.  Broadly speaking, the claim brought against BMW and, indeed, in the other five matters raises claims under the Trade Practices Act and the Australian consumer law covering slightly different periods. The issues raised are merchantable quality, misleading conduct, unconscionable conduct, and so forth. The proceeding therefore is well and truly within federal jurisdiction.

KIEFEL CJ:   Is there a specified quantum of damage claim?

MR KIRK:   The damages claims, to put it very briefly, are first transactional or opportunity costs relating to taking the cars is in to have the airbags replaced.  The airbags are actually being replaced for free, of course, but there may be certain costs – taxis and perhaps a little bit of opportunity costs for taking them in.

Secondly, there is a claim which your Honours would well imagine is hotly disputed as to loss of value.  It is said that there has been a loss of value of the 200,000 BMWs and the 1.8 million or so other cars.  They are the matters in dispute in the proceedings.

BELL J:   The loss of value after the airbags had been replaced.

MR KIRK:   Even after the airbags have been replaced, yes.  There are, as I said ‑ ‑ ‑

KIEFEL CJ:   So we are not looking at sums of substantial amounts?

MR KIRK:   I think we note in our written submissions in an earlier interlocutory argument my learned friend, Mr Sheahan, referred to as a hypothetical – a loss of value of, say, $1,000 per vehicle, say for 200,000 vehicles.  That is $200 million; 25 per cent of that, of course, is $50 million which is the funding commission sought in the common fund order.  Multiplied over the six class actions it is a much larger figure again. 

There are about two million vehicles involved overall.  That is referred to in paragraph 2.  Paragraph 3 it is noted that by October 2018 when those issues crystallised only some 33 group members in the BMW class action had entered into a funding arrangement with the funder, Regency Funding, and only 116 had shown interest in doing so.

If your Honours turn over the page to page 40, paragraph 9, there is there identified a question which was stated by his Honour Justice Sackar and that was:

“[D]oes the Court have the power to make Order 1 sought in the Notice of Motion filed by the Plaintiff on 14 August 2018 (the Common Fund Motion)?”

That was removed into the Court of Appeal, where it was argued in the Court of Appeal, as your Honours know, answered that question, yes.

That then leads me to the order sought in the common fund order motion.  If your Honours go back to page 8 of the core appeal book, in fact it is even starting at page 7, your Honours will note that the person seeking the orders is the plaintiff, Mr Brewster, and the legal representative is the plaintiff’s solicitor.

Then going to the terms of the proposed order in order 8, starting at the top, your Honours will see that there is a reference to an undertaking of each of the funder, the plaintiff and the solicitors:

to each other and to the Court that they will comply with their obligations under the Funding Terms at Annexure A ‑

Now, the undertaking is necessary because neither the funder nor the solicitors are parties in the proceeding, so they need to make the undertaking to bring themselves into some kind of legal obligation.  The core obligation is then set out in paragraph 1 and as the Court of Appeal noted at paragraph 27 of its judgment, without going to it, in a sense it could have stopped in the third line after the words “these orders”, namely the core obligation is that:

Subject to further order of the Court . . . the Plaintiff and Group Members are bound by the Funding Terms at Annexure A of these orders –

It then goes on to spell out what is, in any event, spelled out in the funding terms, and so I will deal with it as I go through the funding terms but your Honours will see it sets out the entitlements of the funder.

Could I also draw to attention, though, in subparagraph (b), which sets out the core percentage, 25 per cent of the resolution sum, in parenthesis it adds:

(or such other percentage as the Court considers reasonable at the time of approval of a settlement . . . or judgment –

That correctly acknowledges, and I will come back to this, that this order, if made, takes effect prior to payment of any resolution sum, any settlement or judgment, and that later in the process, either at the time of approval of a settlement or at the time of any judgment, there will be further consideration by an exercise of powers by the Court.  I will come back to the significance of that.

If I can then go to the funding turns which start at the next page.  Without going through the detail there is a definition of “Administration Expenses” which relates to the cost of administering the payouts from any resolution sum if and when some such sum is achieved:

(b)Adverse Costs Order means any costs order made in favour of the Defendant against the Plaintiff –

So, adverse to the plaintiff as the proceedings go along.  Jumping over to page 10, there is a definition at (t) of “Lawyers” just to mean the plaintiff’s solicitors.  At (u) there is a definition of “Legal Costs” to mean:

costs and expenses reasonably incurred –

Now, that is plainly meant to include costs assessed on a solicitor/client basis and it echoes the language of section 184 to which I will come in due course.  This definition of “Legal Costs” your Honours will see at the top of the next page in subparagraph viii includes “Adverse Costs Orders”.  So, that is costs orders made against the plaintiff. 

The definition of “Resolution Sum” is at paragraph (z).  Broadly speaking, it encompasses any amounts that the plaintiff or group members become entitled to in connection with the claims and “claims” is defined earlier in fairly predictable terms about the matters, the subject of the proceedings. 

Turning over to page 12, there is a heading “B” about a third of the way down the page:  “The Relationship Between the Applicant, Lawyers and the Funder”.  Your Honours will see in clauses 3 and 4 some articulation of the relationship between these various persons:

The Plaintiff is entitled to give instructions –

but subject to that the funder may give instructions to the lawyers with respect to the pursuit, conduct of the claims and the resolution of the claims.  Clause 5, for example, 5(b):

Nothing in this Part B entitles the Plaintiff to:

(b)require the Lawyers to cease to act for the Group Members, or any of the Group Members individually, in respect of the Claims‑

So, for example, if issues of possible conflict arise, that limits what the plaintiff may require.  There is a heading then:  “C.  Funder’s obligation to fund the Proceedings” which is obviously important.  This imposes an obligation on the funder to continue to fund the proceedings for so long as these funding terms remain operative.  This must be taken to mean to pay all costs including, for example, adverse costs orders, security for costs, et cetera. 

Then if one goes to heading “D” on page 13, there is a heading “Funder’s Remuneration”.  Clause 8 imposes an obligation on the plaintiff and group members to pay to the funder, first:

an amount equal to the total monies paid or payable by the Funder pursuant to paragraphs 6 and 7 above –

So that includes all legal costs, which is broadly defined but then for avoidance of doubt 6(c) includes “Adverse Costs Orders”, so from the resolution sum is to come even amounts for adverse costs orders, for example.

Then (b) is the core provision about the funding commission rate of 25 per cent of the resolution sum calculated after payment of the amount in (a), so it is net of the amount.  Then (c), if there is an appeal, either way the funder has a right to seek:

a further amount expressed as a percentage of the Resolution Sum as approved by the Court –

and that amount is not specified.  Then (d) imposes an additional obligation to essentially uplift what is paid to the funder to cover any GST that the funder has to pay.

Subheading E, “Other obligations of the Funder” imposes certain other duties on the funder.  Subheading F, “Distribution of Resolution Sum” provides in effect that if the plaintiff and/or any group members for example become separately represented ‑ as they may do, and I will explain that as I go through the statutory scheme in due course ‑ they have an obligation to notify the funder if they receive, for example, a settlement or a judgment and deliver the full amount of the sum received to the funder to go into the distribution pot ‑ that is spelt out, for example, in paragraph 13 and it is an ongoing obligation pursuant to paragraph 14.

The next heading, G, “Settlement Dispute Resolution”, creates a dispute settlement process if a:

dispute arises between any of the Funder, the Plaintiff, or any Group Member –

It involves reference to a senior council to resolve the dispute.  At the bottom of that page, H deals with “Use and Disclosure of Documents”.  Paragraph 17, for example, imposes a duty of confidence in relation to certain material, that duty being imposed on the plaintiff and group members in relation to material provided by the funder.

Paragraph 19 deals further with the relationship between the funder and the lawyers, including for example:

the Lawyers may, subject to Part B above –

which I have already referred to:

(b)properly consider and act upon the Funder’s expressed views as to any matter or issue arising in or in connection with the Proceedings or the conduct of the Proceedings ‑

Turning over to page 16, paragraph 22, that purports to deal with privilege:

The Plaintiff, in providing to the Funder any documents or information about the Claims and the Proceedings, does not waive any privilege that may attach to such . . . unless . . . expressly waived in writing.

And paragraph 23 imposes an obligation of confidentiality on the funder.  Finally, in this document there is a heading I, “Termination”.  Again, importantly, paragraph 25 provides in effect that the funder may not terminate other than with permission of the court because it says at the beginning of the chapeau – or at the end of the chapeau – well, actually, the chapeau deals with an application which may be made to terminate.  It then spells out some effects of the termination, subject to contrary error of the court, for example, (b)(ii) at the top of page 17:

the Funder’s rights to recover any payments . . . from any Resolution Sum –

continues; it is not affected.

To seek to summarise the practical and legal effect of the proposed order and funding terms, if made in those terms or terms essentially equivalent to it, order 1, and thus the funding terms, will be immediately binding on all group members as an order of a superior court of record and it will continue to apply at all times through to the end of the case unless later varied. 

Its core purpose is to direct distribution of any resolution sum at some time in the future, to state the obvious correlative of that.  Prior to the order, group members have a right to take action to recover 100 per cent of any loss suffered by them and recovered in the proceedings after the order that is subject to a later variation, reduced to 75 per cent.  The practical effect is much like an assignment of or a charge over the fruits of the choses in action belonging to the group members. 

The respondent in the BMW Case says that it is only transferring the proceeds, not the choses in action themselves.  That is a distinction without a practical difference, in our respectful submission. 

The respondent also says it is contingent because group members can opt out – I will come back to “opt out” as I go through the scheme.  It is true that it is defeasible if opt‑out occurs by any group member, but we would also note, as Lenthall states in their written submissions at paragraph 6, that notice to group members is ordinarily given in a generalised way that will not necessarily come to the personal attention of all group members.

Without going to it, the Court of Appeal noted at page 44, paragraph 22, two significant differences between the funding terms that I have just taken your Honours through and the funding agreement that the plaintiff and 33 group members have entered.  To give your Honours a reference, the funding agreement is in the appellant’s further book of material at page 62, but again your Honours do not need to go to it currently.

The two differences the court noted were that, first, the funder, Regency, was, if the order is made, bound to fund the litigation, subject to the ability to withdraw with the court’s permission, whereas under the funding agreement it can terminate its obligation to fund on 21 days’ notice.  And secondly, its commission rate goes down somewhat.  It is a little complicated, but in essence it goes down from 30 per cent of an amount which may include some costs, to 25 per cent of an amount after payment of all costs.

More broadly, as your Honours will have seen from my excursus through the funding terms, those terms create rights and obligations in a range of detailed ways between the funder, the plaintiff, the group members and the lawyers, not limited to disposition of the fruits of the litigation.

It is in fact much the same kind of provision as is found in the funding agreement between the plaintiff and the funder.  That is necessarily so, in our respectful submission, because these funding terms create, in effect, a new practical and legal relationship between the funder and the group members, and there needs to be regulation of that relationship and that brings with it, for example, issues of control and direction, documents, confidentiality, privilege.  In the funding terms in the Westpac matter, they are not identical, but they very much touch upon similar sorts of issues.

There is, of course, as I will come to, no guidance in section 183 about how such terms and relationships are to be managed or delineated by the court.  It is very like imposition of a contract though, as the Court of Appeal notes at paragraph 25 of its judgment, the remedy for breach of the funding terms will presumably be contempt.

All of this is done without negotiation with, or consent of, group members.  It is worth noting, as one point, that in seeking these funding terms, the plaintiff is conflicted and that that is typically so.  He is conflicted in at least this way ‑ his rate of commission payable is reduced.  It is also worth noting that in the funding agreement between the plaintiff and the funder here, there is express provision given to the – or express right given to the funder to pursue a common fund order and, again, without going to it, that is relevantly found in the appellant’s further materials at page 92 to 93, in a replacement clause 4 1(a).  I say “replacement” because it was varied later.

The motion brought here, as I noted earlier, is brought by the plaintiff with his lawyers acting – lawyers who, of course, are being paid by the funder.  Commonly, when common fund orders are sought, not invariably but commonly, there is no contradictor.  The defendant, typically, not always, but typically has, if you will pardon the colloquial, no skin in the game.

The practical benefits for the funder of such orders are relatively obvious.  The return and profit of the funder will be substantially increased beyond what it would have been able to obtain if it had had to proceed by seeking to enter contractual arrangements with group members.  It will save or postpone costs of the funder in having to undertake the task of actually identifying group members, even though this task would be inevitable if any settlement or judgment is obtained.

And without going to it, I note that our friends for Westpac, in their reply at paragraph 3, point to a reference in the original ALRC report which noted that fact.  Common fund orders such as this one remove the need to persuade group members to agree that the fee sought is reasonable.  Instead, that judgment is ultimately left to the court.

A significant aspect of the Court of Appeal’s judgment and the Full Court’s judgment and the submissions put against us in various different refrains is that it is said that a common fund order such as this is an interlocutory order and reference is made to analogies or claimed analogies such as interlocutory injunctions, security for costs, asset preservation orders and so forth. 

In our respectful submission, that is not an adequate characterisation of such orders.  As I put earlier, this order if made has a direct and immediate effect and will continue until the end of the case unless later varied.  In our respectful submission, orders transferring a substantial proportion of the very thing being litigated, the choses in action, are of a different character to the various procedural powers sought to be made analogies which go to the conduct of the litigation as distinct from its determination. 

So, for example, an asset preservation order or an interlocutory injunction applies to preserve the subject matter of the proceedings or various assets until the case is decided.  An Anton Piller order is to preserve evidence, not to transfer ownership of documents or such like.  Security for costs is directed to facilitating any ultimate costs order to be made at the end.

KIEFEL CJ:   Why do you say it has immediate effect?

MR KIRK:   For two reasons, your Honour.  It applies, as I put, unless later varied, so it speaks throughout the rest of the proceedings, unless varied.  Secondly, as the Court of Appeal and, I think, the Full Court pointed out, it immediately binds the funder, for example, to continue to bind the – to pay for the litigation to fund litigation ‑ ‑ ‑

KIEFEL CJ:   It creates obligations immediately but does it act upon the chose in action immediately?

MR KIRK:   It necessarily can only act upon the chose in action if and when there is a resolution sum in terms of actually transferring the 25 per cent away, to put it simply.  But, as I said, it will have that effect unless varied and, recognising the danger of analogies, it is something like an assignment or a charge in that a cat’s paw of control is put down over that portion of the proceeds subject to opting out and subject to any later variation.  If, for example, a group member sought to assign their cause of action to anyone else, or assign the benefits of it, they could only assign in practical terms what was left subject to the order in the common fund order.

KIEFEL CJ:   Assign with the obligation.

MR KIRK:   Yes.  It would be subject to these requirements.

KIEFEL CJ:   But the obligations are speaking to the future.

MR KIRK:   Yes, but it has an immediate effect, in our respectful submission, on the value of the chose in action in the way I have just sought to explain, that were a group member to seek to assign it, it is worth less, to put it very simply.

EDELMAN J:   That is the value of the ultimate outcome.

MR KIRK:   Yes. 

EDELMAN J:   Is it really any different in that respect from advance costs orders?

MR KIRK:   I think my learned friends for Westpac are going to deal with advance costs orders so I might postpone that issue to them, if I may, your Honour.  We have sought to divide some of the issues between us to be efficient.

In response to the prematurity argument, to which I will come, analogies have been drawn by the Court of Appeal, paragraph 97, and the respondents with interlocutory orders because it is said that they are always capable of variation as new evidence comes to hand.  In our respectful submission, in part that misses really the key reason that funders seek common fund orders and seek them early.  It is sufficiently illustrated by JustKapital’s submissions ‑ paragraph 16 in the Westpac matter, without going to it – where that funder refers to:

the need for litigation funders to have some comfort that funding open class actions through to a determination will not be a commercial futility -

The point of an early common fund order is to assure the funder of a commercial return.  It is to give them some degree of certainty; it is worth taking the bet of investing in this litigation.  If and when the order comes to be revisited after any settlement or judgment, the funder will be in a position to say, “This is the rate on which I took the bet.  This is the rate on which I accepted my continuing funding obligations.  This is the rate on which I detrimentally relied.”  So although it is possible, of course, for the court to later alter the rate, that sort of argument is in practice very hard to answer because the very point of the order is to give them a degree of certainty.

Having outlined the nature of the order sought – your Honours will gather from my submissions that this is a fairly typical common fund order – can I then turn directly to the statutory construction issue and take your Honours to volume 1 of the numerous joint books of authorities in relevantly tab 7, which is mainly just Part 10 of the Civil Procedure Act 2005 (NSW). Can I note at this point that your Honours would have seen in the common fund motion references made to section 183, to which I will come in a second – I think it was called the inherent jurisdiction of the court, and that picked up section 23 of the Supreme Court Act (NSW).

Argument below and here has been directed to section 183 and not to section 23, and that is not surprising, in our respectful submission.  If a common fund order is not supported by the power specifically within Part 10 dealing with what might be called residuary issues, it is difficult to see how it could be supported by a power outside it.

Can I note by way of background that Part 10, with two or three differences, mirrors Part IVA of the Federal Court of Australia Act. It was enacted in 2010 with effect from 2011. Section 183 is at page 65 of the book, at the top of the page, and it is in the same terms as 33ZF of the Federal Court of Australia Act.  Your Honours will note in the heading for each section there is a cross‑reference to the equivalent Federal Court section.

Can I make these points about the text of section 183.  It obviously confers a broad discretion in the Supreme Court but it is by no means unconfined.  The criterion involves that the court thinks it is appropriate or necessary to ensure that justice is done in the proceeding.

In our respectful submission, it has to be read as a whole.  “Appropriate or necessary” are expressed as alternatives, but the lesser “appropriate” will always encompass the greater, so unless “necessary” have no work to do, we would submit it needs to be read together.  Along with the word “ensure”, in the respondent’s submissions in the BMW Case at paragraph 16, without going to it, my learned friends note some authority to the effect that “ensure” means make certain or make sure, which involves a reasonably high degree of surety.

So, taking account of the words “necessary” and “ensure”, we submit it indicates a test of substance, not encompassing for example just anything conducive to the interests of some or all of those involved in the proceedings.  It needs to be justice is being done in the proceedings and we give emphasis to “in the proceedings”.  In our submission, that means within the metes and bounds of the proceeding before the court.  It obviously presupposes that a proceeding exists and seeks to resolve issues within it that have come up within the proceeding.  That is confirmed, incidentally, by the starting words in any proceedings, including an appeal, conducted under this part.

It is a similar notion, if your Honours go back to page 54 at the commencement of this part, to section 56, which is the familiar sort of provision.  Section 56(1) talks about facilitating:

the just, quick and cheap resolution of the real issues in the proceedings.

Again, it is a focus about what is an issue between the parties in the proceedings and there is a broad equivalent, as your Honours know, in 37M of the Federal Court of Australia Act.

In our primary submissions at paragraph 25, we quote something his Honour Justice Wigney said in what I will call Allco (No 1), which was the first case where a common fund order of this kind was sought and which his Honour held was not within power.  As we quote there, he said:

The “requirement … that the order be ‘appropriate or necessary’ would ordinarily require, as a first step, the identification of a particular issue or problem in the proceeding that needs to be addressed”.

We respectfully embrace that.  Common fund orders of the kind at issue here relate to whether and in what way the proceedings are commenced and maintained, not in substance what happens within them.  The common fund order of the kind at issue here is in no way directed to managing or quelling the controversy.  It is not equivalent to orders such as Mareva or Anton Piller, which are directed to preventing the process of the court being frustrated because it goes to the logically prior step of what proceedings are brought and on what contractual or funding terms.

The purpose of section 183 I do not think is really in dispute.  It was, with respect, well‑articulated by Justice Wilcox and it is quoted by the Full Federal Court.  If your Honours could go to the core appeal book in the Westpac matter at page 99, paragraph 85, there is a quote from his Honour Justice Wilcox in a 1998 case called McMullin.  I invite your Honours to read that.

We do not dispute it is a very wide power.  We draw attention to Parliament - the fact that, as his Honour noted, Parliament was introducing an entirely novel procedure.  It was not possible to foresee all issues.  This was intended to cover unforeseen difficulties arising from a novel procedure. 

Examples of the sorts of orders that have been made under the power include, for example, sometimes orders are made for determination of what are sometimes called the claims of sample group members.  So, for example, the plaintiff or the applicant’s issues may not throw up all the matters raised in the class action, so you need to identify some sample group members whose particular facts do.  You may need discovery from those sample group members who are not actually parties but you can make orders effectively treating them as parties under ZF or 183. 

Another type of order is a registration process.  The Full Federal Court dealt with this in a case called Treasury Wines, for example, and it is quite commonplace now, without going to detail, to require at some stage of the proceedings that group members register.  Commonly, that is required before mediation because it is very important to the mediation to know how many people are in play, how many claims are in play, what is the ambit of the monetary amounts in play. 

The issue of having sufficient funds to conduct litigation is neither novel nor unforeseen nor unique to class actions.  The ALRC in its 1988 report, particularly at paragraph 318, expressly recommended against permitting private funders to obtain a share of the proceeds.  It considered the issue and rejected it.  An extract of that report, without going to it, is at volume 9, tab 76, relevantly page 3630 but my friends for Westpac will develop that point and I will leave it to them.

The proffered reasons or justifications put as to why common fund orders are within 183 or 33ZF are essentially three overlapping types of reasons – and I will enumerate them and then deal with them in turn.  First, to achieve justice between the plaintiff or applicant and group members by distributing costs equally and equitably; second, to promote access to justice, especially for cases with a large number of group members with relatively small claims – provide what the Full Federal Court called a stable base of funding – see paragraph 27 of its judgment; and thirdly, to provide an appropriate or commercial reward to the funder, for taking the risks of the funding.  So can I deal with those in turn, starting with the notion of equalising burdens between the plaintiff and group members.

At most, in our respectful submission, that might justify what is called a funding equalisation order, not a common fund order.  A funding equalisation order is an order that has been made at the end of proceedings, where, for example, some group members have incurred funding costs, and others have not.  The total of those funding costs are then spread out equally across all group members.

A common fund order goes significantly beyond that by creating a new entitlement in a third party funder that it did not otherwise have and to create it in advance.  There is a degree of bootstrapping in this type of argument to say that it is about sharing burdens equally and equitably when the very premise of a case being funded in a case such as either of these two is the expectation by the funder that it will obtain a common fund order.

As for the second, access to justice, the respondent in BMW, for example, at paragraph 8, quotes Attorney‑General Duffy’s second reading speech in 1992 about providing a real remedy for instances where many people are affected but their claims are small, that being obviously a key purpose of Part IVA.

The Court of Appeal, in our respectful submission, was right to reject arguments that such common fund orders should be seen as manifesting what some call below the original intent of Part IVA.  Without going to it, that is at paragraphs 68 to 71 of the Court of Appeal’s judgment, at page 59 of the core appeal book.

That submission is plainly not sustainable in light of what was in the 1988 ALRC report. The costs of litigation and the burdens of seeking funding were well understood in 1988; in 1992, when the Part IVA was enacted; and in 2010, when Part 10 of the Civil Procedure Act was enacted.

We note in our written submissions at paragraph 13, and so does Lenthall in its, the class actions have been funded in a range of ways prior to the Full Federal Court’s decision in Money Max in 2016, which opened the door to common fund orders, for example, solicitors running the action on a conditional fees basis, potentially where the fees ‑ for having done so.  That was how many of the original class actions were funded, and some of them still are funded in that way today.  In our primary written submissions, we give an example of the current AMP class action, for example.

Another option is funding by some or all group members who pay for it themselves and/or, related to that, where some group members enter arrangements with third‑party funders.  Indeed, one important aspect of class action litigation in the last decade or so is so‑called closed class actions where it is made a defining feature of the class – part of the class definition is that you have had this interaction with the defendant and you have entered a funding arrangement with the funder and thus, by definition, if you are going to be within the class you have to have signed up with the funder.  The Full Federal Court indicated that that type of class definition was within power in a called Multiplex v Dawson, and we refer to that in our written submissions at paragraph 13.

It cannot thus be said that the operation of the class action regime – Part IVA, Part 10 or equivalent in Victoria and more recently in Queensland – has been stultified until common fund orders were invented, when they were first sought, as I said, in Allco (No 1) in 2014. 

In that context, in our respectful submission, the Court of Appeal, having correctly rejected the original intent argument, was wrong to say that because statutes are always speaking section 183 may be taken to extend the making of common fund orders ‑ see its judgment, paragraphs 75 to 77.  As the Court of Appeal itself noted, the always‑speaking principle means that a statutory expression may extend to things not contemplated at the time of enactment.  But third‑party funding was contemplated and not provided for.

Given the complexities and uncertainties that arise in seeking a common fund order ‑ setting the rate, regulating other aspects of the relationships which are created – in our submission it would be expected that if intended to have been authorised it would have been done expressly and with appropriate statutory guidance where there is a complete absence of any statutory guidance. 

In our reply at paragraph 2 we pick up a quote actually from Byrne v Australian Airlines but approved in Shergold v Tanner (2002) 209 CLR 127 at paragraph 27 without going to it, where the Court approved the quote that:

[W]here a question arises as to the creation of new rights and liabilities which will engage Ch III . . . , it is to be expected that the Parliament will clearly state its will.

Access to justice was facilitated by the very enactment of Part IVA in the way that Attorney‑General Duffy explained.  It enabled readier, clearer ways of bringing representative proceedings than under the old equitable procedure which found its manifestation in various Rules of Courts around the country and which this Court, for example, considered in Fostif.

EDELMAN J:   You are not submitting, though, that the “always speaking” maxim ties the Court to an understanding at the time of the legislation of what access to justice necessarily involved, are you, just because the circumstances might have existed or some people might have understood circumstances of funding in a particular way?

MR KIRK:   The “always speaking” notion, in a sense, is a statutory manifestation of what in constitutional law is sometimes spoken of as the connotation/denotation distinction.  It goes to ‑ ‑ ‑

EDELMAN J:   That is not the way it was treated in Aubrey v The Queen by at least four members of this Court.

MR KIRK:   It certainly, if it is not identical, it is certainly similar.  It involves the notion of identifying the core definition, the essential characteristics of what is put in issue.  So, I think, the Court of Appeal, for example, gave an example of a case where it was a mining statute but it was not taken to be limited to methods of mining at the time the mining statute was enacted but that is because, presumably, one would understand the relevant definitions to encompass a broader level of characterisation than just taking some particular mineral out by picks and shovels. 

To come back to your Honour’s question, it is ultimately - it has to be fitted in with a purposive sense of statutory construction.  Now, that does not mean it is limited just to assumptions, for example, as to the way a power is going to work but where a particular topic is known, understood, considered and rejected, namely giving a third party funder a share of proceeds, that is, at the least, in our submission, an important consideration in construing the broad statutory text. 

To come back to my point about access to justice, there is no doubt Part IVA and Part 10 promote access to justice but it does so by providing the very means set out in the parts.  That does not mean one reads every aspect of the scheme as seeking to promote litigation and as this Court said in Mammoet (2013) 248 CLR 619 at paragraph 41, quoting the US Supreme Court:

“[N]o legislation pursues its purposes at all costs.”

Insofar as the argument is that a common fund order is a practical necessity for this litigation or that litigation to proceed that is also no proper answer, in our respectful submission.  As I have already put, section 183 presupposes an existing proceeding, being a proceeding properly commenced with an intention to run.

The court’s grant of a common fund order, even if it is permissible at all, could never be presumed.  And, indeed, there is a degree of undue pressure in such arguments, which Justice Wigney noted in Allco (No 1) ‑ grant us a common fund order or this proceeding may not run.

As I have sought to point out too, that a common fund order of the kind at issue here creates and regulates a relationship with a third party.  If that is within power in the name of sustaining the litigation, then that might justify all sorts of other orders also directed to sustaining litigation, where all sorts of practical difficulties and financial difficulties may stand in the way.

Westpac is the defendant in the other proceeding in this case.  A bank, it could not reasonably be thought, for example, that a court might order the bank to fund the claim against itself but if a common fund order is within power, such might also be within power.

Proceedings are what they are.  It is not for courts, in our respectful submission, to go promoting flexible funding options as a way of encouraging litigation in that court and to do so has a little bit of a flavour of favouring the interests of claimants over defendants, which again would not readily be read into provisions such as 183, in our respectful submission.

As to the third and overlapping justification about appropriate or commercial rewards, without going to it, see for example the Full Federal Court at paragraphs 105 and 109, and also the Lenthall submissions at paragraph 28.  Funding by third party funders such as in these two cases is provided voluntarily.

Can I take your Honours to Atco, which is in volume 7 of the joint book at tab 63 and it is reported as (2014) 252 CLR 307. Your Honours will recall the case. It was about a dispute between a secured creditor and a liquidator about costs. Can I take your Honours briefly to page 326 in the Court’s judgment, and invite your Honours to read paragraphs 47 and 48.

As Falcke establishes, merely to provide a benefit voluntarily does not suffice to establish an entitlement to recovery.  This Court in the plurality, I think, said much the same in Lumbers, as referred to in paragraph 47.  There are exceptions, but as the plurality explained in Lumbers, they are ones of necessitous intervention in which, broadly speaking, there tends to be some necessity to save life, health or property and/or a moral duty to intervene.  There is no equivalent here.

There is no necessity for the funders in cases such as these to act.  They do so for a very simple reason:  commercial self‑interest.  They are using litigation as an investment vehicle.  There is nothing wrong with that in light of this Court’s decision in Fostif, but that is a world away from any notion of necessitous intervention. 

A principle cited against us by everybody and referred to by both courts, I think, is, if I can call it, the Shin Kobe principle.  Your Honours are well familiar with it; it is quoted in the Court of Appeal judgment at paragraph 56 but I do not think your Honours need to go to it.  In Shin Kobe this Court jointly and unanimously said:

It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words ‑

We do not seek to make implications; we seek to give effect to the express limitation of appropriate or necessary to ensure that justice is done in the proceedings.  What is in issue between the parties here is the scope of that section and how far it reaches.  In our submission, it is the respondents who seek to extend it beyond its natural reading.

It is notable that in Lenthall’s written submissions at 12 it is submitted that it is not a great leap from what the ALRC recommended about sharing solicitors’ fees to sharing the costs of a third‑party funder.  Lenthall seems to accept that some sort of leap is required.

Further, the Shin Kobe principle does not mean that one ignores other principles of statutory construction, nor that anything goes.  If I could take your Honours to our primary written submissions as a means of conveniently picking up a couple of references.  At paragraph 30 on page 8 of our primary submissions, at the end of the fourth line we quote something said by three members of the Court in PMT Partners, namely, that the provision in question can:

be construed as liberally as its terms and context permit”.

That reference indicates that one still must engage in a process of statutory construction.  In footnote 39 we refer to this Court’s recent judgment in ABCC v CMFEU where a similar sort of issue was dealt with.

Back in the text of paragraph 30 we quote something his Honour Justice Sackville said in the fifth line of section 33ZF, in a case called Courtney v Medtel, that whilst it:

“should be given a broad construction, that does not mean it can or should become a vehicle for rewriting the legislation”.  

We respectfully adopt that.  An analogous case with which Westpac is going to deal is this Court’s decision in Jackson v Sterling Industries Ltd (1987) 162 CLR 612, and my friend, Mr Leopold, will take the Court to that, I understand.

An aspect of our arguments, as your Honours will have appreciated, is the principle of legality, that being one of the principles of construction which has to be fitted together with Shin Kobe and a textual and contextual reading and I will come to the context very shortly incidentally, your Honours.

It is appropriate to register the principle here that the relevant point, of course, is that ‑ without going to it, as we note at paragraph 36 of our primary submissions ‑ decisions of this Court for more than a century establish that legislation will not be construed to interfere with vested property rights or other valuable rights, absent clear words.  As we note, at that paragraph, quoting the plurality’s judgment in Coco v The Queen in 1994, this Court has held that general words will rarely be sufficient.

Out of the context here, too, of course, is it is clearly established by decisions of this Court such as in the 51/31 context, such as Georgiadis and Smith v ANL that choses in action of property ‑ and, as I put earlier, in particular, my exchange with your Honour the Chief Justice ‑ there is a taking or at least a setting aside of a substantial portion of the fruits of the group members choses in action here in favour of the third party funder.

Can I take your Honours to how the Court of Appeal addressed the principle of legality arguments?  So, it is in the BMW core appeal book at page 56, starting at paragraph 58.  The learned members of the Court said that:

The so‑called “principle of legality” does not undercut the foregoing.  Essentially that is because s 183 is located in a legislative regime where there is clear adjustment of represented parties’ right to litigate a cause of action, counterbalanced by a detailed series of protective provisions.

Then, also the first couple of sentences of 59:

Part 10 effects a significant alteration to the rights of persons with a cause of action.  They may be made group members without their consent.

In our respectful submission, there is a substantial difference between providing that choses in action may be the subject of litigation without consent in the way that Part 10 and Part IVA provide on the one hand and taking a substantial portion of the proceeds on the other.  The expectation of the scheme, as explained by Attorney‑General Duffy in his second reading speech, was that Part IVA would help people achieve their rights, achieve their choses in action and the fruits thereof.

As I said, I will come to the context shortly but the very fact that the Act makes express provision, relevantly in section 159, that the choses in action may be litigated without consent rather drives home the point, in our submission, that where the Parliament sought to trammel on the achievement of property rights, it did so clearly.  In paragraph 61, the court, in its first sentence, said:

There is a difficulty in accepting, on the one hand, that Part 10 imposes new regime on the causes of action of group members, even without their consent, but, on the other hand, adopting a construction which narrows the scope of the parts of that regime.

With respect, it is quite erroneous to say that because Parliament has gone some way to infringing property rights, or managing how choses of action are to be litigated, that no attempt should be made, or could be made, to draw limits on broad powers such as 183, 33ZF, or that no account is to be taken of the significant, a very significant effect on the nature and value of the property rights at issue.

Your Honours will then see the Court of Appeal relied on your Honours Justices Gageler and Keane’s judgment in Lee v New South Wales Crime Commission, with which your Honours will all be familiar.  Reliance on that paragraph, with respect, is inapposite because, in contrast to what was being discussed there, the legislation here does not make plain that property rights are being abrogated by enabling transfer of a substantial portion of the fruits of the chose in action to third party funders and that is exactly the sort of thing the principle of legality would require the Parliament to make clear.

This is a transfer of significant economic effect.  It is taking a quarter off the value of the choses in action, potentially more, potentially less.  If it is to be done, it should be done so pursuant to express authorisation, in our respectful submission.

Can I also note at this point briefly that the Commonwealth suggests at paragraph 12 of its submission that the principle of legality does not have work to do in relation to legislation dealing with courts.  That is contrary to authority, and see our reply at paragraph 9, without going to it now.

Can I now turn to the context of 183 by going back to Part 10 in tab 7 of volume 1, starting on page 55.  There is a heading, of course “Representative proceedings in Supreme Court”.  I will just seek to pick out some points, without going through every aspect of it.  Section 157, the equivalent to 33C, is the gateway provision.  It sets the legal requirements for when proceedings may be brought within the part.  Over the page, 158 deals with standing, and 159 deals with consent.  So looking at 158(1):

a person has a sufficient interest to commence representative proceedings –

if they have standing on their own behalf against that other person.  So it is sufficient if the representative party has a sufficient interest to commence, and they can then do so on behalf of all the others, the represented group members in the class action.  Tied to that, 159(1):

the consent of a person to be a group member is not required.

And so that illustrates the point I made a minute ago, that where the Parliament has sought to infringe the rights of a group member to pursue their own proprietorial rights in their chose in action, it is done so expressly.

On the next page, section 162, the equivalent of 33J, is the right of a group member to opt out.  Subsection (1):

The Court must fix a date -

Subsection (4) is actually a very important part of the scheme:

Except with the leave of the Court, the hearing of representative proceedings must note commence earlier than the date before which a group member may opt out of the proceedings.

In other words, if you are going to opt out you need to do so before the trial starts.  That is for a very obvious reason that people should not in general be entitled to opt out once they know the result.  That would be most unfair to defendants.  You need to opt out in advance. 

The reason I emphasise that is that, without going to it, as part of the Court of Appeal’s response to our 51(xxxi) arguments at paragraph 109, page 71, their Honours suggested that part of the answer to that argument was that group members can opt out seemingly at any time.  In the absence of special reason, 162(4) speaks about leave of the Court.  That was an incorrect premise, with respect.

Section 163 notes that the group description may change.  In other words, the metes and bounds of the represented group may alter and commonly do alter a little bit from time to time.  So in this BMW class action, for example, new people have been amended as – I forget exactly how it works but in effect it is the ACCC has issued new recall notices.  Those amendments are made to expand the class definition.

Over the page, 166, the equivalent of 33N, about discontinuance of proceedings in certain circumstances.  Can I draw to attention – it is a small point but worth noting – subsection (2).  Subsection (2) is one of the few differences between Part 10 and Part IVA.  There is no equivalent of that subsection in 33N in the Federal Court Act. 

As the Court of Appeal, correctly, with respect, explains at paragraphs 71 to 72 of its judgment, this subsection gives effect to what I referred to earlier, namely, the Full Federal Court’s decision in the Multiplex proceedings that it is permissible to have what are closed‑class actions where a defining characteristic is entering into a funding agreement.

Perhaps of minor significance for current purposes is that it is an acknowledgement by the New South Wales Parliament of the existence of funders and funding agreements, but it counts against section 183 being construed as dealing with such because, where it is dealt with, it is dealt with expressly.  I accept that is a relatively small point.

At 168 on the same page, the equivalent of 33Q, subsection (1) recognises, as your Honours will appreciate, that determining the plaintiff’s case and the common questions may not resolve all the issues in the case.  So subsection (2) deals with the first example of how that may be dealt with, namely, the court may establish sub‑groups.  So there may be sub‑groups for whom there are distinct issues not arising for all of them.

A second way that can occur is dealt with in 169(1), namely, there may be individual questions.  For example, in some misleading conduct cases there is a reliance issue.  Reliance is always an individual question and 169 provides that in those circumstances an individual group member may appear and may be subject to costs – see subsection (2) at the top of the next page.

A third type of variation provided for in 170 is that it may be such that actually some issues need to be the subject of distinct proceedings and the court can direct that in section 170.  171 deals with adequacy of representation.  Put simply, the court may substitute a representative party if the current one is not able adequately to represent group members and so too for sub‑groups ‑ see 171(2).  Although not expressly dealt with, it is an incident of ordinary litigation that sometimes the lawyers may change too.  At 172:

the Court may order a stay of execution in respect of any relief awarded to –

any particular group member if some other proceedings are linked.  I will come back to the significance of all these matters shortly.  At 173, the equivalent of 33V is an important provision.  Subsection (1):

proceedings may not be settled or discontinued without the approval of the Court.

Subsection (2) then gives a power:

If the Court gives such approval, it may make such orders as are just with respect to the distribution of any money, including interest, paid under a settlement or paid into the Court.

So this is an express power in the court relating to distribution of money – the very topic covered by a common fund order.  It is not in issue strictly in this case as to whether or not 33V covers common fund orders but it has been raised by, I think, Lenthall in particular to suggest that Westpac conceded that 33V covered common fund orders and Westpac make clear in its reply it does not, nor do we concede that 33V would cover common fund orders at settlement for essentially the same sorts of reasons, but that is not strictly in issue in this case, we accept that.

Section 175 deals with notice of certain matters and I think my friends for Westpac are going to say something more about that.  Then at page 62 one comes to Division 4 “Powers of the Court”.  Section 177, headed “Judgment – powers of the Court”, the equivalent of 33Z, sets out, as your Honours see, six powers.

First, in relation to this subsection, can I make a submission about the meaning of the word “damages” in (1)(e).  As we have submitted in our written submissions at paragraph 32, we submit and I understand Westpac submits that that is not meant to be damages in some specific common law type of sense but rather encompasses all monetary awards, including equitable compensation, debt, statutory claims and so forth.  The point of the provision is to deal with monetary amounts.  It speaks about amounts:

being damages consisting of specified amounts or amounts –

then it links in, for example, to (f), a particular power in the court to:

award damages in an aggregate amount without specifying amounts . . . in respect of individual group members.

So understood, it forms a particular part of the scheme dealing with money.  There is no apparent reason why one would exclude debt claims or equitable compensation or perhaps some statutory regime simply because of the common law meaning of “damages”.  The Court of Appeal did not need to decide this but we note it was inclined to agree with that submission at paragraph 47.

EDELMAN J:   Presumably in an account of profits.

MR KIRK:   Yes.  Paragraph (f), as I note, is a very specific type of provision dealing with aggregate awards.  Subsection (2) is one on which we place significant emphasis that:

In making an order for an award of damages, the Court must make provision –

so it is mandatory –

for the payment or distribution of the money to the group members entitled. 

So it is a mandatory direction the court makes provision for the payment or distribution of money to the group members entitled.  That echoes, incidentally, the language in (e) about making an award of damages for group members, sub‑group members, et cetera.

KIEFEL CJ:   You read that to say “only to group members”?

MR KIRK:   Yes.  There are three exceptions to that in the scheme which I will come to in turn.  Section 177(4)(a) again uses language of establishing the member’s entitlement, so it is an echo of subsection (2), and we read it in the same way that your Honour the Chief Justice just raised with me.  Section 178 seems to link to 177(1)(f).  Actually, before I make that point, I have missed one point.  Can I go back a step. 

One of the other differences between Part 10 and Part IVA is that there is no subparagraph (g) in 177(1).  If your Honours keep your finger there in the book and then go to page 15, in tab 3, which is in the Federal Court Act, 33Z, your Honours will see in 33Z(1)(g) there is a further residuary power to:

make such other order as the Court thinks just.

There is no equivalent going back to 177(1) in that provision.  The reason I make that point is that Lenthall, at paragraph 34, relies on, in its case, a Federal Court case – I am sorry, 33Z(1)(g), as an additional basis to make a common fund order at the time of judgment.  It is obviously not necessary to dispute that in my case because it is not available, so I simply note that difference.

I was then dealing with 178 about funds.  As I think I said it appears to link back to 177(1)(f).  It starts by noting that it does not limit the operation of 177(2), the provision which I have emphasised, then indicates that the court may provide for the constitution and administration of a fund consisting of money to be distributed, makes some provisions including, for example, (c) in relation to interest. 

We suggest that illustrates the pretty careful consideration by the drafters of the issues that arise here.  Subsection (2) is the first of three exceptions or possible exceptions to 177(2).  It provides that the costs of administering the funds are to be borne by the fund or by the defendant or both as the court directs.  Insofar as the cost is borne by the fund, it could be seen that group members were paying for the costs of administering it. 

Your Honours would appreciate that if you have a fund, sometimes you need quite complex processes to establish entitlements to the fund.  It has become a matter of controversy in Victoria, for example, in relation to the bushfire litigation but it can arise in simpler ways.  So, the costs are sometimes not insignificant.

Section 178(3) more detail of how funds work.  We would draw to attention (3)(b):

specify the manner in which a group member is to make a claim for payment out of the fund and establish the group member’s entitlement to payment‑

There is that word again.  Section 178(5) is the second possible exception.  To put it simply, if there is a fund established, the group members are paid out, there is some left, the defendant can apply for the return of anything remaining.  So, again, that might be seen as money that was otherwise directed to group members.  Section 179 provides for the effect of the judgment.  It is another critical provision in the scheme, the judgment:

must describe or otherwise identify the group members who will be affected –

and it binds all of them.  A small point, there is obviously no mention of third party funders or such like in that section.

Over the page there is then a heading “Miscellaneous” and “Costs.”  But before I get on to dealing with 181 to 184, I note the time, your Honour.  Is that a convenient time?

KIEFEL CJ:   Yes, thank you.  The Court will adjourn.

AT 11.15 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.30 AM:

KIEFEL CJ:   Yes, Mr Kirk.

MR KIRK:   Thank you, your Honour.  Your Honours, I was up to page 64 at tab 7, within the Civil Procedure Act and section 181, “Costs,” another important provision.  Your Honours will see:

the Court may not award costs against a person on whose behalf the proceedings have been commenced (other than a representative party) except as authorised by sections 168 and 169.

Your Honours will recall they related to individual questions and subgroups.  The relevance of that, for current purposes, is that in the orders sought here and, indeed, commonly, the common fund order and the funding terms provide that out of the resolution sum come all costs including adverse costs orders.  The effect of that is that costs orders made against the plaintiff are, in effect, taken from the group members. 

Section 184, also dealing with costs, was as Lenthall noted at paragraph 10c of its submissions, an implementation of an ALRC recommendation.  What it does is enable the difference between, to use the old fashioned language, party/party costs and solicitor/client costs, to be spread out over the group.

So if a matter goes to judgment and the defendant loses, typically the defendant has to pay party/party or assessed costs leaving a gap between what the plaintiff has actually paid as costs, and the amount they recover as costs.  In those circumstances, as provided for subsection (1):

If the Court has made an award of damages –

So that is post judgment:

the representative party . . . may apply to the Court for an order under this section.

That takes you to subsection (2):

If . . . the Court is satisfied that the costs reasonably incurred –

There is that phrase I said was echoed in the funding terms:

are likely to exceed the costs recoverable . . . the Court may order that an amount equal . . . be paid to that person out of the damages awarded.

Thus this is the third exception by which – third exception to 177(2) by which damages paid to group members may be reduced.

This statutory provision and discretion again illustrates that where the Parliament intended to depart from group members obtaining full entitlements it expressly provided for it.  This brings home clearly, in our respectful submission, that a common fund order of the kind at issue here, necessarily pre‑empts this exercise of discretion by making orders of the kind sought and without reference to all the circumstances including, for example, the conduct of the lawyers or the plaintiff which led to adverse cost orders being made against them over the course of the proceedings.

In our submissions in this Court and below, we make an Anthony Hordern argument by particular reference to sections 173 relating to settlement, 177 to 178 relating to judgments, 181 and 184 relating to costs which, in our submission, manifest a careful, limited provision for departures from the core 177(2) requirement.  The Court of Appeal ‑ and I should add, treating section 183 as a source of power to direct damages or costs undermines the provisions I have just been through, particularly those that I have just identified. 

If I can take your Honours to the Court of Appeal’s addressing of the Anthony Horden argument at page 58 of the core appeal book starting at paragraph 66.  At 66, they deal with what they call a temporal aspect and 67, the subject matter aspect.  When I say aspect of the core issue of whether Part 10 confers only one power they take the relevant action.  So, whether it is the ones I have referred to or whether 183 is also available.  At 66, to say, as the Court of Appeal does, that:

There is no temporal limitation on the face of –

183 because it includes an appeal, does not, with respect, grapple with the arguments I have just made and that we made below.

Paragraph 67 to say in relation to subject matter – or, if I could put it this way.  In effect, the Court of Appeal answers that argument by saying this is an interlocutory order which presently bound group members to the funding terms and made provision contingently for what was to happen in the event that damages were awarded.  It does not qualify, let alone prevent, the exercise of power.

Again, with respect, that does not answer the arguments we have just made and made below.  To say it is interlocutory, with respect, ignores the fact that the order has immediate effect, as I have sought to articulate, and applies until the end unless varied. 

GORDON J:   Is not that the critical issue, though – unless varied?  That is the temporal aspect. 

MR KIRK:   That is the temporal aspect but it also leads to this other point which I wish to make.  Without going back to it, your Honours will recall that in, I think it is, paragraph 1 of the common fund order, it has the bit in brackets about subject to further order under 173 or 177.  What that illustrates, and it comes up sotto voce in submissions put against us, is that there is more than a hint that ultimately, post judgment or post settlement, other powers may be relied upon to revisit these questions of whether or not the common fund order should be left in place or varied.

If that is so, that, with respect, reinforces our Anthony Hordern point that it is those provisions which deal with the topic, not 183.  So to come back to the point your Honour Justice Gordon has raised with me, the mere fact that it can be varied later actually re‑raises the issue of what powers are being exercised at one point of time.  It does not answer the fact that the provisions I have just been through are in carefully directed and limited terms.

GORDON J:   I assume you are going to come to it, but does that also pick up on the same basis the funding terms themselves, which include in some instances, effect a term where the funder has agreed that it is subject to revision at the end?

MR KIRK:   Yes, the same point would apply.  Your Honour is quite right, with respect, that there is provision – I should have drawn attention to that – in the funding terms, as is implicit anyway, that it is all subject to later variation but it again raises the point:  what power is actually being exercised and at what point of time?

That leads me – I am going to come to judicial power shortly, but there is a related point which, sort of, links statutory construction and judicial power about prematurity.  I should note that all of the points I have made so far apply to common fund orders made at any stage but the point I am about to – or at least most of them do ‑ the point I am about to make applies particularly to common fund orders made early in proceedings as this one is sought to be, i.e, well ahead of trial or judgment or settlement.

At that time - so, for example, in BMW a trial was set down in March next year.  I think it has been pushed out to April.  We are still well away from trial.  If the order was made as was sought to be done in October last year or now, the court would not know whether the matter will settle, go to trial, be appealed.  If it settles, at what stage; if it goes to judgment, after how long a trial, for what amount; whether in favour of all group members or just some; the court will not know whether the class definition is final or will change and expand; the court will not know how many group members will opt out. 

The court will not know whether the pleadings will be amended so that new causes of action are raised or others dropped.  The Court will not know whether subgroups may be established with possible correlative cost consequences or individual questions determined again with correlative cost consequences.  It will not know if and how many or why adverse cost orders have been made against the plaintiff. 

It does not know whether the representative party and the lawyers involved remain the same throughout or, for example, are replaced because not adequately representing the interests of group members.  It will not know whether individual claims have been settled and withdrawn or whether there is a stay of execution on relief in relation to some particular group member.  Thus, in our submission, early common fund orders have fundamentally infirm factual foundations.

If your Honours still have the Court of Appeal judgment, your Honours could go to page 73 of the core appeal book at paragraph 113.  The court quotes with approval nine factors identified by the Full Court in Money Max as being likely relevant considerations in relation to rate setting.  Without going through all of them in interests of time, could I draw attention to (d):

the litigation risks of providing funding in the proceeding.  This is a critical factor –

We would respectfully rhetorically ask how the court is to assist that near the beginning of litigation and how it may do so making an assessment of, in effect, prospects, and expressing that in a judgment how it may do that without running the risk of pre‑judgment.  It is not – if it is put against us, that is like what the court does on an interlocutory injunction where it has to assess serious question to be tried, this presupposes a more nuanced analysis than that.  It is about an economic analysis, a risk analysis, how likely are you to win such that we can consider what is a reasonable rate of return for your bet.

GORDON J:   Putting aside the question of the prejudgment, one aspect that is solved by having the person doing that - is the judge doing that not being the trial judge.

MR KIRK:    That would be another potential way of doing it, although it commonly is not.

GORDON J:   It may not answer the question itself but the prejudgment aspect is, I think - cannot be determinative.

MR KIRK:   I would accept that, your Honour.  I would note it is not an answer to your Honour’s point.  Commonly, certainly in the Federal Court, it is done by the docket judge, but I accept that is not an answer to your Honour’s point.  It still involves – and I will get to this shortly in relation to judicial power – the court making assessments to which they are not well suited, in our respectful submission.

Without going through the other factors, many of them are not matters that will be known, at least with any clarity, in advance.  In Money Max itself, can I note that the Full Court there made the common fund order but declined to set the rate, saying at paragraph 11, (2016) 245 FCR 191, that this was:

to be left to a later stage when more probative and more complete information will be available to the Court, probably at the stage of settlement approval or the distribution of damages.

That ties back again to the point I raised about which powers are actually being exercised.  As the Westpac case illustrates, that type of caution is no longer routinely applied.  Commonly ‑ and Justice Lee addressed this in the Westpac Case and in some earlier judgments of his Honour – a number of judges see it as advantageous to make them early and set the rate early so everyone knows what is in play, the funder knows what is in play, the group members do.

I note that the sort of prematurity arguments I have just made are ones that were particularly persuasive to Justice Wigney in Allco (No 1) leading him to reject the earlier comment and order there.  That brings me to judicial power.  I note that we raised judicial power both as a constitutional point in its own right but in effect many of these arguments also go into the statutory construction analysis, making it unlikely that this was intended.

We raised the point in two ways:  firstly, prematurity and hypotheticality and, secondly, creation of legal rights in the absence of sufficiently objective criteria.  If I can deal with prematurity first, can I take your Honours briefly to a case we have handed up which is Bass v Permanent Trustee. Of all the cases in the seven volumes, that one did not make it. For the record, it is (1999) 198 CLR 334. Can I take your Honours briefly to page 357, paragraph 49 in the joint judgment. I know your Honours are familiar with the principles. Could I just invite your Honours to read paragraph 49.

The point we seek to make is that there is an equivalence here.  The Full Court of course was talking about relevantly decorations.  It had just quoted Zamir & Woolf, but also the context of the case, as your Honours know, was answers to separate questions which had been given in effect in a hypothetical or contingent way.

Just as for that type of issue, to give an answer which does no more than declare what the law will be in particular circumstances is not an efficient administration of justice nor consistent with the judicial process and may mislead people as to what their rights are. 

The point made against us in a range of ways is that it all can varied later.  If so, first, that illustrates it has been done on incomplete information; secondly, insofar as, for example, a rate is set, that is a rate which, if it can truly be varied later, despite what I said about detrimental reliance may mislead people, including funders, as to what their rights are.

GAGELER J:   Mr Kirk, do your submissions go to the entirety of annexure A to the common fund order or do they just go to the bit that deals with the rate?

MR KIRK:   They cannot be divorced, in our respectful submission, not readily, anyway, for the reasons I gave near the beginning of my submissions.  If one is to create this sort of entitlement to a third party funder not before the court, it becomes almost inevitable – probably inevitable – that one needs to start delineating aspects of the relationship.  That is not to say that every part of the metes and bounds of this proposal is going to be in every common fund order, but you do need to start delineating what role the funder is going to play in the proceeding, its relationship to group members, the entitlement of group members to make any claims for information or so forth from the funder, who is going to give instructions and so forth.  They are not divorceable, in our respectful submission.

GAGELER J:   Are you saying the court can have nothing to do with the relationship between the funder and the class members? 

MR KIRK:   I do not need to go that far.  Our submission is that to make a common fund order of the kind sought, including setting the rate and delineating those aspects of the relationships that I have just referred to, exceeds the power in 183.  That is not to say that there may not be some circumstances in particular issues where the court might focus on what a funder has done or what a solicitor has done and so forth.  Section 183, for example, I think, is sometimes relied on as a basis for reviewing the way a solicitor has conducted a class action to see that it has been done properly and with regard to the interests of the group members.

BELL J:   Mr Kirk, your detrimental reliance point, how does that run in circumstances where the funder’s undertaking is given on the clear understanding expressed in order 1(b)?

MR KIRK:   That is true, of course, your Honour, and much emphasis is given to that by my learned friends who oppose us.  My point was not necessarily that there is going to be some promissory estoppel that the court is going to uphold in the sense of saying, “Well, there is a legal prohibition, I am going back on it” but that, as a practical matter ‑ ‑ ‑

BELL J:   As a practical matter the court would not have regard to the obligations imposed at the point of settlement or judgment because of the earlier making of the order.

MR KIRK:   The court would, of course, take account of the circumstances facing it, exercising the powers it is then exercising, which is to go back to the point I made earlier.  But it is a powerful argument for funders to say, “Yes, of course, your Honour can vary the order and yes, I got lucky because this matter settled a few weeks after the common fund order was made, and I get a big windfall”.  But, your Honour, the submission would go, “You should not impose a retrospective risk analysis with the benefit of hindsight.  When I took the bet on this litigation and funded it at the start and sought the common fund order and so forth ‑ ‑ ‑

BELL J:   Well, that is one argument and there would be arguments to the contrary.

MR KIRK:   There may be others.  I accept all that.  My point is that it is a very powerful one and that is the reason that early common fund orders are sought, as JustKapital illustrates in its submissions here, to give itself a degree of certainty, to know it is worth the bet, to know it is worth the investment.  That is the real practical significance of them at an early stage.  But it is a practical point, ultimately, your Honour.

The other way we seek to put judicial arguments – our judicial power argument – again, both constitutionally and as a statutory argument, is about creation of legal rights in the absence of sufficiently objective criteria.  Those points are intertwined.   Can I take your Honours to Precision Data, which is in volume 7, tab 54. Its reference is (1991) 173 CLR 167. Can I take your Honours in the book to page 2618, which is page 188 of the CLR in the joint unanimous judgment.

Your Honours will recall this was a case a little bit like Alinta later, which was a constitutional challenge to the then called Corporations and Securities Panel, established under the Corps Law, which had powers to do certain things, including in relation to takeovers and so forth.

The core complaint – and this your Honours will see at page 188, about the seventh line – it was submitted, was that the panel was exercising judicial power by being able to determine what it did and make orders affecting rights and so forth.  At page 189, in the first full paragraph at about point 2, beginning “It follows that functions”, is a familiar recitation of the chameleon principle, as it is commonly called.

The Commonwealth in this case, in its written submissions, seeks to give great emphasis to the chameleon principle and makes the point that if a power is given to a court, there is a presumption it will be exercised judicially, and no doubt that is right.  But that cannot mean, in our respectful submission, that merely because a power is given to a court, which it is presumed will exercise that power judicially, that that necessarily means it passes constitutional muster because were that so, Boilermakers’ would be undermined. 

There are limits on what sorts of powers can be conferred on courts, as Boilermakers’ illustrates.  We have also referred to Queen Victoria Memorial Hospital v Thornton (1953) 87 CLR 144.

GAGELER J:   Where I think it is quite a clear distinction that is drawn between a final order and an order that is made as what is described as an incident of judicial power.

MR KIRK:   Well, in that case, which related to preference being given to service people returned from the war, and actually relative preference when two service people were applying for a job, and the court held that that was not a judicial power.  There, it was obviously a final order.  It was under federal legislation granting powers to State courts.  I confess I cannot recall if that distinction is drawn.

GAGELER J:   It is.

MR KIRK:   I certainly take it from your Honour that it is.  The point we would seek to make is what I keep coming back to, that a common fund order is not appropriately characterised as a common fund because it has immediate effect, and continues right through until the end, unless varied and has also the effect that I mentioned earlier on the choses in action and the value thereof.  Going on at page 189, at about point 5, there is a familiar passage about creation of rights, and then a quote from Re Ranger Uranium Mines, all of which we say is apposite.

Now, I recognise, of course, that any judicial power argument is a characterisation question, it is a factorial analysis.  You take account of the nature of the function, the context in which it is conferred, perhaps also the history.  And, indeed, to go over the page at the bottom of 190, and at the top of page 191, there is a discussion and your Honours will see on 191, about the twelfth line, a reference to Justice Dixon’s judgment in Ex parte Barrett.

The discussion there is about the so‑called “double function laws”, namely, that a Parliament might simultaneously grant a power to a court to make an order and in so doing set out the matters to be found to enliven the power.  But, again, the double function analysis does not undermine Boilermakers’, the powers conferred must still be consistent with the Boilermakers’ requirement.  What is set out in that discussion, particularly at the passage beginning on 191 from about the twelfth line “Leaving aside problems that might arise” if your Honours could read about ten lines down to “judicial power” footnote 15.  The reference to the discretion needing to be:

exercised according to legal principle or by reference to an objective standard or test prescribed by the legislature and not by reference to policy considerations or other matters not specified –

KIEFEL CJ:   Are you contending there are policy considerations inherent in the order of this kind?

MR KIRK:   Insofar as, for example, the notion of access to justice is used as a justification, that is a policy consideration but more broadly our point is not so much policy as the complete absence of statutory criteria as to how the radius to be set, how the aspects of the relationship are to be delineated in what is essentially a rate setting task and I will develop that point shortly, if I may, your Honour.

The core complaints we had in this context is that there is a creation of new rights, it is not resolving an existing dispute, vis‑à‑vis the third party funder, for example.  It is not doing so by reference to any objective standard or test which I will develop shortly, potentially with the policy aspects and without, we would submit, historical analogues.

Could I take your Honours to what the Federal Court said about this?  So, if your Honours go to the Westpac core appeal book at page 105 paragraph 102, it is at page 32 of the judgment.  If I could direct your Honours’ attention to the last eight lines after the reference to a shipping case, their Honours say:

That there is no objective guidance in the statute –

So pausing there, their Honours, with respect, correctly accept that:

means that the Court will look for legal and factual criteria that will inform an exercise of power that involves assessing risk, reward and fair commercial return in the light of all relevant circumstances, including the benefit conferred . . . This is not to act as a prices justification tribunal, it is to supervise the vindication and realisation of rights . . . just and efficient process . . . balancing the rights . . . and the entitlement of a funder to a return commensurate with the risk –

Can I also note what Justice Lee said in his Honour’s judgment in the Lenthall Case.  I think it is at page 31 of the Westpac core appeal book.  In paragraph 60 of the Lenthall judgment his Honour quotes an earlier judgment of his own in GetSwift.  If your Honours look at the second paragraph beginning “Secondly”, can I draw attention to the last five or so lines, where Justice Lee said: 

Leaving aside questions as to the principled exercise of judicial power, one need only reflect on the complexity of the economic evidence placed before public utility regulators in making discretionary assessments or the former Prices Justification Tribunal to understand how ill equipped the Court is to perform any role analogous to that performed by a price regulator.

The answer to the question of what should be an appropriate or fair return is not one that lends itself to a single answer.  It is an inquiry without bright lines and at the margins.  Value judgments, which may vary idiosyncratically from judge to judge, may intrude.  When this is appreciated, it seems to me that assessing the value of risk . . . is beneficial.

That description of the process, with respect, is an accurate one and one not consistent with (a) judicial power, or (b) what is likely to have been intended by the Parliament, or (c) a task for which courts are well suited.

EDELMAN J:   Section 24 of the Canadian Charter empowers the court to make orders that are appropriate and just.  In the last 50 years the Supreme Court of Canada has made all sorts of different orders under that provision.  Would you say that that is also beyond judicial power?

MR KIRK: No, and this is a point we made in reply to the Commonwealth’s submission. We are not attacking, for example, 183 per se either; we are attacking this particular application of 183. That sort of power is not dissimilar to, probably, section 23 of the Supreme Court Act and an equivalent provision in the Federal Court Act, which, for example, was the subject of this Court’s decision in Jackson v Sterling Industries, which illustrates that, even with such broadly expressed powers, there are limits.  They are expressed broadly to cover a range of circumstances.  That does not mean anything goes in any circumstance.  We are focused on this task.  It requires this type of economic assessment without any guidance.

GORDON J:   Do you go further?  Just so I understand it, your real complaint is the process of assessment that is set out and described by Justice Lee.  Do you take it one step further, and do you need to take it one step further, to complain about, in a sense, the consequences of that giving rise to the form of order?  If you look at the form of the order here, which was the point I think I was trying to raise before, the consequence of the exercise of the power, whether it is characterised as judicial or otherwise, in effect is the court’s endorsement of a set of contractual terms.

MR KIRK:   Yes.

GORDON J:   Subject to the court at the end varying those contractual terms?

MR KIRK:   Yes.

GORDON J:   If you take it that far, do you need to go that far?

MR KIRK:   I probably do not need to go that far but that is also an aspect of our argument and it links back to what I was discussing with your Honour Justice Gageler, too, earlier.

GORDON J:   That is why I raised it, because you seemed not to embrace that.

MR KIRK:   I do embrace that because it is very much, as I put earlier, the other side of the coin.  You are creating a new relationship between group members and a funder, and you then delineate the aspects of the relationship.  That is almost inevitable and that is part of our complaint.  It is taking the court into, in effect, settling what is very much like a contract.

GORDON J:   At the moment we have been focused – I understand your argument – principally on the aspects of funding.  When one looks to the terms of the order, they go much further than that.  Is one able to look at those in assessing this exercise of power as part of the order?

MR KIRK:   Yes, because the very point of the order, in the first three lines, is all that is needed, as the Court of Appeal pointed out, is to say, “You are all bound by the funding terms, subject to further order of the court”.  It is a package deal.  I have to accept, incidentally, that there has been no common fund order ordered in my case in comparison to the Westpac case.  We raise it as an issue of principle.  Some particular word or subclause which a judge might like to strike out is not going to aid me, but it comes back to what I was saying earlier.  It is practically inevitable that you have to delineate the aspects of the relationship because you are creating a new relationship.  The task is then to settle a contract. 

GAGELER J:   Has the opt‑out date been reached in your case?

MR KIRK:   No.  There is often discussion – and this comes up with common fund orders and judges take different views.  Some take the view, for example, that notice should be given of common fund applications and others do not, so the arguments are “you should give them notice to group members because you are about to affect their rights”.  The counter argument is “we will just make it and then if they do not like it, they can opt out, so we will give them notice later”.  So there is a range of practices.  In Westpac, I think, notice was given, as it happens on Friday.  I am arguing about one where notice has not been given.  It varies. 

Can I take the Court very briefly to Boilermakers’, which is also in volume 7 at tab 57, at pages 2738 to 2739, which is pages 297 to 298 of 94 CLR 254. In the joint judgment at the bottom of page 297, the last five and a bit lines, there is a reference to the American precedent for the separation of powers. It says at the end:

One American case should perhaps be mentioned because it supplies an example of a similar application of principle.  It concerned an attempt to establish a court to determine freights and charges in connection with transportation and to regulate that activity in specified respects. 

The American case, Western Union Telegraph, held that invalid.  It is claimed that the High Court regarded that as relevant and implicitly agreed.  Boilermakers’ itself illustrates that setting wages, a central function of the then Conciliation and Arbitration Court, could also be regarded as outside of judicial power.

Various parties invoke against us Cominos v Cominos (1972) 127 CLR 588 - without going to it, it is in volume 2, tab 25 - where this Court upheld powers to make property orders in relation to matrimonial causes on a criterion of what the Court considers just and equitable in the circumstances of the case, section 86, or further general orders, section 87, that it thinks necessary to make to do justice. As Justices McTiernan and Menzies noted at 591:

The powers conferred by the sections are ancillary too, and take their colour from, the valid grant of jurisdiction to hear and determine matrimonial causes.

So it had to be seen in the particular context in which it was granted.  It was seen as sufficiently certain in that context.  Justice Mason, for example, at page 608, referred to historical – not analogues, direct historical judicial dealing with matrimonial causes, all of which illustrates it is an issue of degree and characterisation, depending on the particular scheme.  We have put against that Queen Victoria Hospital (1953) 87 CLR 144, which I identified earlier, where it was seen on the other side of the line.

The respondents place great reliance on this Court’s decision in Fostif. But can I take your Honours briefly to what was actually said in that case. It is in volume 2 at tab 22, for the record (2006) 229 CLR 386. Can I take your Honours to page 755 of the book, which is page 434 of the CLR, in the joint judgment of Justices Gummow, Hayne and Crennan at paragraphs 90 to 92. At 90, in the first sentence, their Honours noted that:

Two kinds of consideration are proffered as founding a rule of public policy –

So that is one against funders taking a share of proceeds:

fears about adverse effects on the process of litigation and fears about the “fairness” of the bargain struck between funder and intended litigant.

Paragraph 91 they rejected those arguments.  Paragraph 92, in the fourth line, their Honours say:

Further, to ask whether the bargain struck between a funder and intended litigant is “fair” assumes that there is some ascertainable objective standard against which fairness is to be measured and that the courts should exercise some (unidentified) power to relieve persons of full age and capacity from bargains otherwise untainted by infirmity.  Neither assumption is well founded.

That manifests, in passing, the Court’s recognition that to speak of fairness when making a judgment about these sort of bargains as to rate, or as to terms of the delineation of the relationship, is not something a court can, or should, do.

GAGELER J:   What is the difference between doing that and setting a liquidator’s remuneration, for example?

MR KIRK:   Courts do not set liquidator’s remuneration.  There are – courts do sometimes set – I do not claim great expertise about liquidator’s remuneration ‑ ‑ ‑

NETTLE J:   They very frequently do set ‑ ‑ ‑

MR KIRK:   I withdraw what I said earlier – I am manifesting my ignorance and I apologise.  When they do so and a point is also put against us by Lenthall as to trustees or fiduciaries that in relatively rare circumstances that is done.  It is typically done first by reference to past conduct.  Typically, they are done ex post facto rather than in advance so you can see what is being done.  Secondly, it is done in a marketplace.  So, a liquidator or a professional trustee will be able to point to “a marketplace operates”. 

There is no marketplace for common fund orders save as is created by courts.  To talk about private funding arrangements is not the same marketplace because in private – say, for example, in closed‑class actions, which I identified earlier, there part of the bargain struck between the funder and the class is knowing that this is the set of people who are going to be signing up with you.  In an open class where a common fund order is sought, the funder gets access to the choses in action of everybody.  That is quite distinct from a privately negotiated arrangement. 

The market is set by the court so we would distinguish trustees or liquidator’s remuneration as to other analogies put against us, for example, without going to it, the Court of Appeal paragraph 99 referred to - and this is what I was thinking of when I incorrectly answered your Honour Justice Gageler a moment ago, the Court of Appeal referred to 477(2B) of the Corporations Act where approval can be given by a court inter alia to a liquidator to enter a funding arrangement. 

When that is done, the court is giving approval to what the liquidator proposes and it is assessed typically against market rates and so forth.  It is not making its own judgment.  It is saying, all right liquidator, you are acting in the best interests of this company, you have made your judgment as to what is in the best interests and about entering this funding arrangement and I will review it but I am really just second‑guessing your judgment.  For a common fund order, the court is making the judgment because the proposer is the one seeking the benefit.  The proposer in practice is not a funder speaking through the voice of the plaintiff or the applicant.

KEANE J:   Do courts ever make orders in favour of liquidators to assist them to make a decision whether or not to undertake a particular winding‑up?

MR KIRK:   They may do as part of their direction power in relation to courts and winding ups and control of liquidations but, again ‑ ‑ ‑

KEANE J:   Would they fix their remuneration in advance?

MR KIRK:   I am not sure, to be honest, your Honour.  You are taking me beyond the limit of my practice; I do not know.  In terms of other examples, the Court of Appeal spoke about salvage, as did the Full Federal Court.  Salvage is done ex post facto after the deed has been done.  Again, it is potentially done in a marketplace where objective material can be pointed to and nowadays it is done by reference to 10 articulated criteria which we have identified in our primary submissions at paragraph 53.  The Commonwealth suggests an analogy with a solicitor’s lien, submissions paragraphs 28 to 29, but that is based out of a legal right arising from an existing relationship between a solicitor and a client. 

Noting that I have very brief time remaining, can I touch very briefly upon my final two topics?  In relation to acquisition of property, as I indicated, Westpac is going to have carriage of that argument.  Can I make two brief points in relation to the Court of Appeal’s judgment?  At paragraph 108 in dealing with this point without going to it, their Honours, with respect, appear to adopt a single characterisation approach in relation to 51(xxxi) saying, well, this had another character and, thus, not an acquisition character.  That is contrary, in our respectful submission, to basic principle in Australian constitutional law:  see our reference to Work Choices, for example, in our primary submissions, paragraph 57.

Secondly, implicit in what the court seemed to say and explicit in some of the submissions put against us is the suggestion that 51(xxxi) does not apply to powers conferred on a court.  That cannot be right, with respect.  It is not a necessary or characteristic feature of dealing justice that property be acquired without just terms.  One could readily imagine a law in current circumstances, for example, a federal law, which said that. 

If the defendant owns a power station which generates more than X per cent of the national grid and which it is proposing to shut down and where there is another party available to take over running the power station and all associated remediation issues, et cetera, the court may order transfer and it could not be thought that such a law would not be subject to 51(xxxi) and were that to be so, the guarantee could readily be circumvented.  One might also refer to bank shares in light of Australian history.

The final point we seek to make, very briefly, is Queensland alone raises an argument in relation to section 79 of the Judiciary Act which is to the effect that the restrictions of Chapter III in relation to judicial power and 51(xxxi) do not apply to State courts when exercising federal jurisdiction when exercising a power such as is in 183 of the Civil Procedure Act.  Its arguments seem directly contrary to this Court’s decisions recently in Rizeq and Masson v Parsons.  As stated in Masson v Parsons, without going to it, (2019) 93 ALJR 848 at paragraph [30]:

the purpose of s 79(1) of the Judiciary Act is to fill a gap in –

legislative power of the States in:

courts exercising federal jurisdiction by providing those courts with powers necessary for the hearing and determination of those matters.

EDELMAN J:   I think the big question, though, is what is the gap?  That was not raised in Rizeq.  It was not raised in Masson.

MR KIRK:   The gap, as we read Rizeq and Masson, is as to direction of the exercise of jurisdiction and in particular through the grants of powers and directions as to how those powers are to be exercised.  Section 183 articulates a criterion, appropriate and necessary to ensure justice is done in the proceeding which must be satisfied and then grants a power if it is.  It is a direction as to the exercise of federal jurisdiction.  It is quite different, for example, from the law at issue in Rizeq, the drug‑dealing law which determined rights or duties for persons outside courts.  Section 183 is all about what is done in courts.

EDELMAN J:   This was a provision that would provide for a maximum term of 20 years in prison for the commission of a particular offence.  Is that within section – is it picked up by section 79 or not?

MR KIRK:   That may raise its own series of issues but it would probably be seen as an incident of the criminal law regulating conduct of persons outside ‑ ‑ ‑

EDELMAN J:   It just shows the very, very fine line between conferring powers on courts and norm creating provisions.

MR KIRK:   Whether or not the line is fine, in our respectful submission, here it is clear that 183 is over it.  It is a power directed to a court.  That is its very nature.  It is long established.  Queen Victoria Memorial Hospital establishes this, as it happens, that it is beyond Commonwealth power to grant powers to courts which are inconsistent with Chapter III. The same must apply in relation to 51(xxxi). The Commonwealth cannot get around 51(xxxi) by giving certain powers to State courts rather than federal courts. Queensland, at paragraph 18, quotes from the plurality in Burns v Corbett (2018) 92 ALJR 423 at paragraph 43 that:

adjudicative authority in respect of the matters listed in ss 75 and 76 of the Constitution may be exercised only as Ch III contemplates and not otherwise.

Section 183 is clearly an exercise of adjudicative authority in a matter plainly within federal jurisdiction for the reasons I articulated earlier.  In substance, Queensland’s submissions are contrary to what was established in those two cases and should be rejected.  Unless I can assist your Honours further, they are the submissions for BMW.

KIEFEL CJ:   Yes, thank you, Mr Kirk.  Mr Leopold.

MR LEOPOLD:   Your Honours, I will be dealing with statutory construction, and comparatively briefly with judicial power, endeavouring of course to avoid the territory already covered by our learned friend, Mr Kirk.  Mr Free will be dealing with section 51(xxxi).  We adopt the written and oral submissions of BMW. 

I want to turn immediately to some matters of background.  This is a matter in which the first and second respondents brought representative proceedings against the appellants, the two Westpac entities.  Later the third and fourth respondents became involved.  There are now four applicants in total in the proceedings.  The represented group, it is said, may exceed 80,000 group members. 

Only the four named representative applicants have signed a funding agreement with the funder, JKL, the fifth respondent.  None of the group members has signed a funding agreement.  The underlying claims are a range of claims under statutory law, for example, the Corporations Act, and also a general law, particularly in equity.  The relief sought includes monetary relief, damages, equitable compensation, account of profits and the like.

A common fund order was made by the primary judge, Justice Lee, on 28 September 2018.  Perhaps I will turn straight to that order and its characterisation.  It is to be found in the core appeal book in the Westpac matter, from page 36.  It is an order said to be made pursuant to not only section 33ZF of the Act, but also section 23 and rule 1.32. 

The reasons of both the primary judge and the Full Court were expressed only in terms of section 33ZF.  In fact, section 23 and rule 1.32 were not mentioned at all in the reasons for judgment of the primary judge.  The appeal to the Full Court was conducted on the basis that it stood or fell on section 33ZF.  We will briefly address section 23 in any event and, in particular, Jackson v Sterling Industries. 

Now, Order 2 is on page 36 which is subject to an undertaking from JustKapital which was given – which was duly given after this, picks up and incorporates the funding terms which are set out in annexure C and annexure C starts at page 42.  Perhaps the most important definition is the definition of “Resolution Sum” which appears at the bottom of page 44 of the core appeal book.  It picks up any money paid pursuant to a settlement or judgment and, in particular, or of most importance for present purposes picks up any judgment in favour of the group members, any of the group members.

Clause 2 on page 45 obliges the funder to pay what are called the “Project Costs” of the whole group by paying legal costs after the event, insurance and the like, and we accept that this clause 2 provides that the funder is obliged to fund the project costs, must do so and we accept that the previous arrangement which the funder had with the four named applicants was that it could be terminated on 14 days’ notice whereas clause 20 on page 52, we acknowledge, provides that these funding terms incorporated by reference into the order:

may only be terminated by order of the Court –

On page 45, clauses 3 and 4 provide that any resolution sum or, indeed, any money according to 4(a) received from the applicants or any of the group members gets pooled into a bank account.  Clause 6 which is on page 46 provides for the funder’s commission which in 6(a) gives it back the moneys outlaid on the project costs and in 6(b) gives it the lesser of an additional three times those project costs or 25 per cent of the net resolution sum.  It uses the words at the end of 6(b) “as approved by the Court”. 

It is not entirely clear what that means but it is probably reserving to the court at final hearing the opportunity to change the figures if it thinks just.  It is probably not saying that the order stands for nothing unless and until approved by the court at final hearing because that would raise advisory opinion issues so it probably means the court has the opportunity at final hearing to change the figures if thought just but may not necessarily do so.  We note that at the conclusion of clause 6 there is also a reservation:

but not exceeding any such amounts as the Court determines to be fair and reasonable in all the circumstances.

Back to clause 5 on the bottom of page 45 and going over to 46, there is a priority:

Subject to any Court order, the Lawyers will: 

(a)       first, pay to the Funder –

the amounts which it ends up entitled to:

(b)       second, pay to themselves –

et cetera.  There is a specified priority going down:  administration expenses and then, finally, the group members. 

Now, the effect of those orders, amongst other things, is to impose on the lawyers a personal obligation to deduct from any sum received from any of the group members amounts payable to the funder first in priority being amounts received from group members who have no contractual or other legal relationship of any kind with the funder. 

Our learned friend, Mr Kirk, has already addressed on this.  But from the group members’ perspective the order erodes or diminishes their equitable rights because their equitable rights include the right to assign in equity for value the fruits of their causes of action, which are choses in action, that principle deriving obviously from Glegg v Bromley, but referred to by this Court in Peldan v Anderson 227 CLR 471 at paragraph 27. I need not go to it, but it is in the joint bundle of authorities, volume 6, tab 49.

So the order erodes the equitable right to assign 100 per cent of the fruits of their choses in action and at the same time clause 5, by compelling the lawyers, which is picked up by the order, to pay first in priority to the funder money which would otherwise go to the group members has the effect of a charge or perhaps a lien on the fruits of the group members’ rights of action because through that judicial order it provides that clog on the ability of the group members to deal with their equitable right to assign, for value, the fruits of their causes of action.  It therefore interferes with the rights of the group members in the sense referred to in the cases on the principle of legality.  It activates section 51(xxxi).  It is an acquisition.  It is, in our respectful submission ‑ ‑ ‑

KIEFEL CJ:   But is it an acquisition on just terms?

MR LEOPOLD:   It is not an acquisition on just terms, in our respectful submission.  It is an acquisition, but not on just terms – and my learned friend, Mr Free, is going to deal with that.  I should say at this point, in answer to a question put by his Honour Justice Edelman earlier, that advance costs orders ‑ which are discussed in a decision of Justice Finkelstein which is in volume 2 of the joint bundle of authorities at tab 16 ‑ are, in our respectful submission, substantially different in that, first, they are made pursuant to express powers conferred on the court to make orders of the costs, such orders of the costs as the court thinks just, and, secondly, because a common fund order has the effect of taking away or eroding something which is the very subject matter of the causes of action of the group members so we submit that there is a substantial difference.

There is a preliminary point that we want to make and it is this.  The first to fourth respondents in their submissions at 16 and 27 and the Commonwealth in its submissions at 6 suggest that prior to the making of the common fund order there was already a pre‑existing commitment by the applicants on behalf of the group members in respect of the moneys, if any, to which the entire group is entitled. 

In other words, it is said, in effect, that the four applicants by signing their funding agreements in 2017 and 2018 with the funder somehow committed the group members to pay a share of their resolution sum when it eventuated, despite the fact that the group members were not parties to any such contractual bargain.

I should mention that that submission is put to enliven a consequential submission that there was already an existing expense of the litigation before the common fund order was made and that is said to justify statements of the Full Court to the effect that the order reflected traditional equitable principles by adjusting or redistributing pre‑existing costs and expenses which were already a common responsibility of the whole group.

The starting point, though, in the submission is incorrect.  In entering into their funding agreements the four applicants have no power to bind the group members.  We can refer briefly to where your Honours can find the funding agreement of Mr Lenthall, which is in a book headed “Appellants’ Book of Further Materials”.  Your Honours will see, if your Honours go to clauses 13 and 15 – I do not want to take a lot of time over it – that they do purport to commit to JKL a share of the entire outcome sum from any group members or the entire settlement sum from any group members.

Our submission is that it was plainly ineffective to achieve that end.  The proposition that four representative applicants who, pursuant to Part IVA, choose to bring representative proceedings somehow therefore gain the power to bind contractually group members who are not parties to the contracts is, in our submission, incorrect and flies in the face of the principle accepted by this Court in Lumbers v Cook that one cannot force liabilities on people behind their backs. 

It follows that, in our submission, the funding agreements create, in accordance with the law of contract, a “cost” only to the extent of the four named representative applicants’ share of any final resolution sum.  There was no pre‑existing cost prior to the common fund order having been made in respect of the entire resolution sum.

At this point, we wanted to put to your Honours a submission based on a flavour in the written submissions of the respondents and the interveners, which is to be found in first to fourth respondents at 28, the fifth respondent at 17 and 35, and the Commonwealth at 19.  The flavour is this.  First, there is surely power under 33ZF to make a funding equalisation order; and, secondly, it is not such a big leap from there to a common fund order under 33ZF, particularly given that both a funding equalisation order and a common fund order are said to reflect the same equitable values and, further, given what according to the respondents is just under 33ZF need not be constrained to reimbursement or readjustment of expenses strictly so called – that is what is put against us. 

In our submission, there is, in fact, a fundamental conceptual difference between funding equalisation orders and common fund orders.  It is not the tiny step that it is said against us.  Definitionally, our learned friend, Mr Kirk has already told your Honours what a funding equalisation order is.  In short, it is summarised in Money Max in which – I do not want to take your Honours to it now but as a reference it is summarised in Money Max, volume 5 of the joint bundle of authorities, tab 41 at paragraph 5.

But the key thing about a funding equalisation order is that no additional money at all goes to the funder and those people who have not signed a funding agreement put money into the pool as if they had and it is all readjusted between all the group members to achieve equality between all class members.

KIEFEL CJ:   Do you deny that there is power to make such an order?

MR LEOPOLD:   A funding equalisation order, your Honour – we do not deny.  In fact, we say there is.

KIEFEL CJ:   Where does it arise?

MR LEOPOLD:   The power can be made under 33ZF possibly, certainly under 33V and 33Z – 33V(2) and 33Z(2).  It is possible that it does not need to be decided for the purpose of this case that it can be made under 33ZF.  The reason why it might be able to be made is that it was directly within the contemplation of Parliament in 1991 when Part IVA was enacted.  It was referred to or something like a funding equalisation order was referred to specifically by the Australian Law Reform Commission and it reflects traditional equitable principles which go back some 150 years or so reflected, for example, in a case in the joint bundle of authorities called Stanton v Hatfield (1836) 48 ER 344 at 345 to 346, joint bundle of authorities, volume 9, tab 73.

There is a tendency, I should say, in case I lapse into this lingo, there is a tendency in the authorities to call those who have signed a funding agreement with the funder, funded group members, and those who have not signed such an agreement, unfunded group members.

Just returning to what we say is the fundamental conceptual distinction between funding equalisation orders and common fund orders, we deal first with an analysis of a funding equalisation order.  One way of looking at it is that a funding equalisation order has two separate streams, the first of which is a contractual stream, the second of which is a judicial order stream. 

The first stream, the private contractual stream, is a contractual relationship between the funded group members and the funder.  It involves the funder and some group members contractually agreeing that money will pass from the funded group members to the funder in the event of a successful outcome.  The contractual promises on the part of those funded group members are effectively performed in the event of a successful outcome in the sense that the funder receives its full contractual entitlement pursuant to those private contractual promises with the funded group members.

The second stream of a funding equalisation order is the judicial order stream.  When making a funding equalisation order, the court makes an order to adjust the rights and obligations as between the entire group, that is, as between the funded group members and the unfunded group members, but only as between them. 

The funder is not involved in the process indeed is aptly described as a disinterested entity in the making of the order.  It gets no more and no less as a result of the order.  In effect, it is just a redistribution of money between the group members and that is so whether the funded group members are reimbursed out of the common fund or whether one uses what, on the face of it, is the slightly more complicated formula in Money Max of the unfunded group members putting money in and pooling it all together and then redistributing it amongst all the group members so that everybody shares equally.  If one does the arithmetic either way it ends up exactly the same.  They both reflect the traditional equitable principles which go back before Stanton’s Case well over 150 years ago. 

So, the result of a funding equalisation order is to achieve an equal sharing between all group members of the pre‑existing contractual obligations undertaken by the funded group members and the equal sharing reflects the successful outcome of the litigation which the funded group members achieved by undertaking those contractual obligations for the benefit of all – for the benefit of the entire group and that is how it knits aptly within the traditional equitable values. 

So, that judicial order is, in effect, equity’s response to the bearing of a burden by some group members and not by others or they all took the benefit and it might be seen as reflecting the doctrine – a form of the doctrine of equitable contribution.

A common fund order is conceptually fundamentally different.  First of all, there are not two separate streams at all.  There is just a judicial order which transcends completely, or replaces completely, all the pre‑existing contractual promises and entitlements, or perhaps if it is done the way it is done here, varies them, and likewise, replaces the entitlement on the part of the funder.  It is no longer a contractual entitlement, it is now purely an entitlement pursuant to a judicial order.  That is the first difference.

The second is there is no redistribution of moneys at all.  The third is the court is under a common fund order, in effect, conferring a reward on the funder and in doing so creating an additional entitlement on the funder over and above that which it had under the pre‑existing contractual entitlements.  It therefore does not focus on incurred expenses, expenses incurred by the funded group members, which is the focus of a funding equalisation order.

Fourth, the quantum of the reward to the funder, qua all group members, may depart from the amount agreed by the funded group members under the pre‑existing funding agreement.  It may not necessarily be at the same rate, and it was not at the same rate in this case.  It depends instead on the court’s perception of what amounts to a fair market return. 

Fifth, the group as a whole bears the correlative additional obligation, although, in substance, it is imposed on the unfunded group members.  They are the only ones who pay more.  As I said, there are about 80,000 of them here and that is correlative to the additional entitlement conferred on the funder.  All of that is sourced wholly in an exercise of judicial power if private contractual obligations are completely superseded.

Now, we submit, with respect, that the Full Court failed to appreciate – or in its reasons for judgment appears to have failed to appreciate that fundamental distinction because time and again, with respect, it referred to a common fund order as a redistribution of a “cost” or an “expense” as if that cost or expense had already been incurred.

We will take your Honours to two examples but the more comprehensive references of the Full Court doing that appear in footnote 12 on page 5 of our written submissions in‑chief.  But if we could go to the first of the two examples which is to be found in the core appeal book at page 101, paragraph 91.  Your Honours see that the first sentence ends by saying that this is a discussion about the “nature and purpose of the order itself”, so it is focusing on the common fund order that was made by the primary judge.  Then at line 27, their Honours said, halfway through that line:

there is every reason in fairness and equity to have the cost of such funding –

the cost of such funding:

shared equally. 

First of all, that called in aid principles of equity but none was applicable because with a common fund order there is no equitable sharing of any burden.  It is an additional obligation by some and an additional entitlement of another.  Second, the words “there is every reason in fairness and equity to have the cost of such funding shared equally” is an exercise, with respect, in circular reasoning because the additional “cost” is not a cost at all.  Rather, it is an impost created by the court so as to confer on the funder by judicial order the benefit of a much higher funding commission. 

EDELMAN J:   Is not the underlying assumption one that I think Mr Kirk accepted, which is that, if one were to think of the chose in action as though it were a valuable right, a locked chest, where the funder is the key that opens the chest, there is a cost that comes with that, and that cost, although the orders are being made in advance, is what the Full Court is concerned with?

MR LEOPOLD:   With respect, nevertheless it is not an incurred cost.  To draw in aid principles of equity the way their Honours did and the way our opponents do is, with respect, incorrect because the equitable principles depended on the burden having been borne and then the court sharing it because certain circumstances enlivened an order to share it. 

EDELMAN J:   But as I read the Full Court, I think what they are saying is that it is essentially a burden that would necessarily have to be borne in order to realise the value of the chose in action.

MR LEOPOLD:   If that is all they are saying, with respect, then they have not trespassed in the way I have first said, but they have sought to enable an application of equitable principle when none would otherwise be available.  For example, the next sentence:

The benefit inures to all, and should be paid for by all.

One can understand that in the end after a common fund order has been made everybody is paid the same share of their fruits and everybody at that point is bearing it equally.  But it is on the face of it seeking to draw an analogy with the history of equitable doctrine which is not available.

EDELMAN J:   That is what I was going to say, why is it not available to think of this as an inchoate cost that is necessary in order to realise the value of the chose in action?

MR LEOPOLD:   Because it would be novel to treat the imposition of a new cost on those who have been joined to an action by applicants, may not yet have even learnt of the action, to impose an obligation on them to equalise by saying you are paying the same amount as the applicants have.  Yes, we respectfully accept that that does end up achieving equality in the sense that each group member will have paid the same share, but it is just equality in the name of equality, not anything that reflects any equitable principle and not anything contemplated by the ALRC in its report and therefore not contemplated by Parliament when it enacted 33ZF.

KIEFEL CJ:   That might be a convenient time, Mr Leopold.  The Court will adjourn until 2.15.

AT 12.48 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

KIEFEL CJ:   Yes, Mr Leopold.

MR LEOPOLD:   May it please the Court.  Going back, just for a moment to the key to the chest analogy of his Honour Justice Edelman before lunch – we are not sure if it is implicit in that analogy that the funder here held the only key to the chest because if that is implicit we certainly say the funder here did not hold the only key to the chest. 

I will come to the evidence a little later if I have time.  But the evidence was that “absent funding” the litigation may not be economic.  But the finding was not “Absent funding by this funder, JKL” or “Absent funding by a litigation funder”, it was just “absent funding” and there are other forms of funding which we will come to as well.

Our learned friend, Mr Kirk, dealt at a little length with the proposition that there are very clear words in the statute, then in Part 10, and the same applies to Part IVA, when Parliament intended to interfere with particular rights.  We just wanted to take a moment to give the provisions in Part IVA, and say something about them.

First, Parliament used very clear words in sections 33C, 33E – these are at page 4 of volume 1 of the joint bundle of authorities, page 4 behind tab 3.  A combination of 33C; 33E; 33J, the opt‑out provision, and in 33ZB, the “everybody who does not opt out is bound” provision made very clear that the right of an individual to take control of their own causes of action was taken away and that it could be litigated on behalf of that individual by a representative party pursuant to 33C and if there was no opt out by the individual those rights were lost forever. 

A second example is in 33ZA(2) where, as Mr Kirk pointed out, some moneys are to be paid out to the administrator of a fund, if any is set up – there will nearly always be a fund set up if there is a pool of money.  What would otherwise be the “entitlement” of the group member is diminished by payment out to the fund administrator.  The same applies to 33ZJ(2) which is the irrecoverable legal costs.  They, too, come out of the common fund and thereby eat into the rights of the individual group members.

Lastly, 33ZE is a provision which suspends the limitation periods, in doing so, takes away from prospective defendants a provision like section 63 of the Limitation Act (NSW) which, after the expiration of the limitation period, extinguishes the cause of action. That is taken away from the defendant by the suspension of the limitation period.

We should say, whilst on 33ZA that, in our submission, that makes rather plain the proposition put by Mr Kirk before lunch that any monetary award is covered by any provision referring to “damages”.  It is not just damages strictly so called, but any monetary award.  The fund which may be set up under 33ZA would hardly have been set up only in relation to damages strictly so called as opposed to a pool of money resulting from any monetary award of any kind in favour of individual group members.

EDELMAN J:   Would it include a debt?

MR LEOPOLD:   Yes, it would include a debt - any money resulting from the suit by a representative party on behalf of a group member of any kind which results in any form of monetary award.  Mr Kirk also referred to the series of provisions, 33Z, 33ZA and 33ZJ, and spoke of those provisions pre‑empting the exercise of power – sorry, I beg your pardon, spoke of a common fund order pre‑empting the exercise of power under those provisions.

We adopt that submission, but I just want to develop it slightly.  We submit that six provisions, which I will now identify, form an integrated, interrelated and co‑ordinated set of distributions and actions which can only work together if any one of them is purported to be exercised in a pre‑emptive way prior to the time after the monetary award is yielded.  Then there is potential for inconsistency or tension.

The provisions are 33Z(2), the provision for the payment of money to the administrator of the fund out of ‑ I am sorry, it is 33Z(2), “making provision for the payment or distribution” to the group members in tandem with 33Z(4), the giving of directions to group members as to establishing their entitlement; in tandem with 33ZA(1), the establishing of a fund, which would usually happen, one would think, in relation to the receipt of a monetary award; in tandem with 33ZA(3), a provision within 33ZA which requires that notice be given to group members as to the manner of establishing their claim.  Obviously, that works in tandem with the directions under 33Z(4).  Then there is 33 ‑ ‑ ‑

GORDON J:   Sorry, what 33ZA(3) does is it specifies what the order must contain.

MR LEOPOLD:   Yes, it requires that notice be given, though.  So it works in tandem with the directions which would be given under 33Z(4), ZA(3)(a) requiring:

notice to be given to group members in such manner as is specified in the order; and –

specifying the manner in which they should seek to establish their entitlements and the entitlements are the subject of the directions under 33Z(4).  Then the two payments out of the fund to others, that is 33ZA(2), the payment to the administrator of the fund, and 33ZJ(2), the irrecoverable legal costs. 

When those six provisions are viewed together, it is easy to see – incidentally, 33ZJ(2), in practical reality may well be a very considerable sum of money.  It may well be 35 per cent or 40 per cent of many millions of dollars of solicitor/client costs.  The irrecoverable component could well be several million dollars.  In practical reality as well, it would be likely to be a considerable time before the representative applicant and any sub‑representative applicant under 33ZJ(2) would be in a position to propound the claim for irrecoverable legal costs.  There would be a number of calculations that had to happen – bills put together.  It could not happen overnight; it is likely to happen many months later and in respect of a considerable sum of money. 

If any one of those powers is exercised beforehand in a pre‑emptive way under 33ZF by way of a common fund order, it has the prospect of operating inconsistently with any of those six provisions which are meant to operate, in our submission, in a co‑ordinated and interrelated and integrated package. 

GAGELER J:   Mr Leopold, I may be misunderstanding you but are you saying that the terms of the funding agreement cannot be implemented consistently with Division 4?

MR LEOPOLD:   I am putting that the terms of the funding agreement, if made as they were well before the period covered by those provisions, which is after the receipt of a damages award, give rise to the strong prospect not just of cutting across those provisions but of giving rise to tensions between each provision and inconsistency between the operation of those provisions. 

One answer given by our learned friends is that it is only interlocutory, it is revisable, it was only to give certainty.  That was actually something said by Justice Lee, quoted by the Full Court in paragraph 10, that it was an order to give certainty.  The more they back off the contention that it was an order that was immediately binding and effective and seek to say that it is interlocutory, revisable, merely to give certainty, they back themselves into the advisory opinion corner.

It was a binding and effective order.  The order made had the potential to operate in a way which was quite inconsistent with the amount that might be paid out, for example, to the representative applicant by way of irrecoverable legal costs.  That may well have eaten up the entire sum of the monetary award, for example.

BELL J:   Mr Leopold, a little earlier you accepted that it was open to the court to make a funding equalisation order.  I just want to be clear on where you say the power for the making of that order comes.

MR LEOPOLD:   Power is in 33V(2) and 33Z(2) and it is arguably within 33ZF but we do not necessarily concede that.  There is a power to do it, we would think, under 33V(2) and 33Z(2), particularly because of the historical analogy that such an order has with the traditional principles of equity.

BELL J:   Yes, thank you.

MR LEOPOLD:   We put the Nystrom submission - the Anthony Hordern submission that our learned friend, Mr Kirk, put before lunch as well but we would put it that the elaborate provision made in particular by the six provisions I just mentioned constitutes one set of powers which are to be exercised in each case only after the monetary award is received and it would operate in conjunction with each other and that is the one set of powers to deal with the payment out of money and the other matters that are dealt with by those provisions.

We turn now to another proposition in our outline, which is that the construction of Part IVA and, in particular, of 33ZF, is influenced by the fact that there is no provision for giving notice of any application for a common fund order or that a common fund order has been made.  The notice provisions are set out in 33X, which are on page 13 of the joint bundle of authorities, and deal particularly with opt out and the like, various important matters to group members, and 33X(5) specifies that notice must be given – or notice may be given at any stage of any matter that the court thinks fit, but there is no specific provision that notice be given that a common fund order has been sought or made.  Section 33X(6) requires that any notice under that section:

must be given as soon as practicable after the happening of the event –

and that tends to demonstrate that Parliament regarded the events specified within 33X as attracting the giving of notice as being events which would impact on group members in a substantial way, significant events such as events affecting their rights, and that ‑ ‑ ‑

GORDON J:   Including the ones set out in subsection (1).

MR LEOPOLD:   Well, yes, that is correct.  Yes, thank you, your Honour.  We should say that that approach conforms entirely with what one gleans from the explanatory memorandum which is in volume 9 of the joint bundle of authorities, page 3662 ‑ it is behind tab 78 ‑ paragraph 33.  Your Honours see particularly the last two lines which, in our submission, reinforces the approach that had Parliament intended that 33ZF should empower the court to make an order eroding the fruits of group members’ causes of action that would have been the subject of a notice provision but it was not.

Whilst on the explanatory memorandum so I do not have to come back to it later, could we just point out on page 3654, paragraphs 3 and 4, paragraph 3:

The procedural reforms in the Bill confer no new legal rights.

It might be said that certainly 33C and 33E are procedural reforms, in a way.  They certainly do not – they confer a right on a representative in a sense to bring an action, but they do not confer any new legal rights.  That certainly is consistent with an approach to 33ZF that there was no right conferred on a funder to apply to a court for a reward for funding services which would be taken out of the fruits of the cause of action of an individual group member or group members.  We point out that paragraph 4 specifically notes in the last sentence, starting in the fourth line, that the Bill was very much based on the ALRC report which we will come to in a moment.

We point out that the absence of any requirement for notice to group members that a common fund order has been sought, or has been made, may well lead to a situation in which group members who make a positive decision not to opt out, having received an opt‑out notice, make a positive decision not to opt out without ever being informed of the fact that a common fund order was made, if it has been made.  So the opt out could be quite deliberately refrained from by group members without even knowing, because there was no notice provision and therefore no notice, of any common fund order. 

Now, we wanted to come to the next proposition, which is the context that sections 22 and 23 of the Federal Court of Australia Act provide in construing section 33ZF - those two provisions appear on page 3, tab 3 of volume 1 of the joint book of authorities – and to submit to your Honours that the key language in 33ZF is justice in “the proceeding” before the court.  It is our submission that a common fund order has an insufficient connection with the doing of justice in the proceeding, and accordingly, cannot properly be made under 33ZF.

The need for a connection with the doing of justice in the proceeding is emphasised not only by the text in 33ZF itself, but also the colour which that language takes from sections 22 and 23, those provisions governing the jurisdiction of the court. The proceeding in the present case is a proceeding in which damages are claimed from Westpac. If one goes to section 22, those claims for damages in a proceeding against Westpac are, within the meaning of section 22, fourth line, legal and equitable claims to give rise to, fifth line:

all matters in controversy between the parties –

Now, in our submission, the context of section 22 indicates that the power under 33ZF to do what is:

appropriate or necessary to ensure justice is done in the proceeding –

must be at least a step in connection with the determination of the legal and equitable claims which give rise to justiciable controversy between the applicants and the group members, on the one hand, and Westpac, on the other hand.

The expression “justice” or “the doing of justice in the proceeding” in 33ZF also takes colour from section 23 or the way section 23 in particular has been construed by Jackson v Sterling Industries.  Section 23 provides:

The Court has power, in relation to matters in which it has jurisdiction –

If we could take your Honours to volume 3 of the court book, tab 33, Jackson v Sterling Industries, it was of course a case in which the court was held not to have power to order that a sum of money actually be held as security for the plaintiff as a condition, in effect, of the defendant being permitted to defend.  Section 23 permitted a Mareva injunction order but not the provision of security for the prospective judgment.  At 619, Justices Wilson and Dawson, at point 3 on the page, said: 

it cannot be suggested that either the power to grant relief under s. 23 or an implied power to prevent an abuse of process extends to the creation and enforcement of rights in addition to those for the protection or enforcement of which the jurisdiction of the Court is invoked.

Pausing there, that language takes one back to the legal or equitable claims in the proceeding referred to in section 22; that is, the enforcement of rights, et cetera. Continuing on at 619, their Honours said:

The power given by s. 23 is expressly limited to the making of orders in relation to matters in which the Court has jurisdiction –

“Matters in which the Court has jurisdiction”, again that takes one back to the power to determine all matters in controversy between the parties – section 22. “In relation to” is important. It demonstrates the need for connection with a justiciable controversy, which is at the heart of our contention. Next, at 619 your Honours see, skipping a couple of lines:

Nor could that Court’s implied power be employed to create and enforce new rights -

which is of course what we say is precisely what the common fund order does.  At the bottom of 620, in the reasons of Justice Brennan, the very last line:

The relief which the Court is authorized to give does not extend beyond the grant of remedies appropriate to the protection and enforcement of the right or subject‑matter in issue.

Again, that demonstrates the need for any order to be in connection with matters in controversy between the parties within the meaning of section 22. His Honour went on at 621 in the first full paragraph starting “The power”. Your Honours can see that sentence starting “The power”. That test “in reasonable protection of”, et cetera, we say, is not satisfied in relation to a common fund order, which merely facilitates or maintains an action but does not do what is required to fall within the scope of the jurisdiction of the court under sections 22 and 23 and therefore, we say, section 33ZF.

At 626 to 627, just at the bottom of 626, your Honours can see seven lines from the bottom, “Notwithstanding”, finishing at the top of the next page, Justice Deane, with whom Justices Mason and Brennan agreed, again using the phrase, “in relation to the proceedings before it”:

to make as “appropriate” in relation to the proceedings before it –

In our submission, all of that gives context and scope to what “justice in the proceeding” means in 33ZF.  It is an expression referable to the determination of the legal and equitable claims being the matters in controversy between the parties in the sense that, for any order to do justice in the proceeding, it must have a real connection with the matters in controversy.  The Full Court at paragraph 91, page 101 of the core appeal book, referred in the third‑last line to placing:

the group action on a known and stable foundation, and reduce or eliminate the risk of the action not proceeding. 

There are two things about that.  One is granting to a funder a share of the fruits of the litigation well before resolution is remote from anything to do with the resolution of matters in controversy in the proceeding and, secondly, as to the known and stable foundation, reducing or eliminating the risk, et cetera, 33ZF does not confer power to make orders directed to maintaining, or maintaining the economic viability of the proceedings.  It is not sufficiently “in relation to” or connected with the doing of “justice in the proceeding”.

All a common fund order does is to place a financial model within the scope of the proceeding, with a view to maximising the chance of the proceeding being economically sustained, or at least that is the theory.  It is an order which not only creates rights, but creates rights in favour of a person not a party to the justiciable controversy, that itself also being a factor bearing on the absence of any judicial power exercised in relation to the making of a common fund order.

Could we take your Honours briefly to the ALRC report.  We delivered to your Honours’ associates some supplementary pages which had a couple of extra paragraphs in them.  The first couple of references come from those supplementary pages.  At the end of 109, the Commission makes the point that:

that person will have to take action, at some stage, to obtain monetary relief.  The group member will have to identify himself or herself and prove that he is or she is, in fact, a member of the group.

The same point is made in the last three lines of paragraph 116.  That, in our submission, suggests that when the Full Court said that book building was problematic, and Justice Lee said that book building was a waste of time, or it was wasted exercise – I have to give your Honours a reference in the moment – that really overlooked the fact that the practical reality is that group members, on whose behalf the claim is being agitated, must at some point come forth to identify themselves, register, provide details.  To say that it is a waste of time is just to say that it should not be done then, but it has to be done at some stage.  It is not a waste, it is not problematic.

So 259, and the last part of 261, which are also in the supplementary pages, demonstrate that the Commission was of the view that, with one exception which became 33ZJ, group members should only be liable for any costs to the extent that they were pursuant to contractual obligations into which the group members entered, pursuant to an indemnity that they were prepared to sign or some other contract, which suggests that the Commission had in mind not having that obligation imposed on group members by something equivalent of a common fund order.

Perhaps I can go to 315 to 318 – I am sorry, I have just been told your Honours do not have those additional extracts.  We thought we provided them; we will do so later.  At 315 to 318, which are in the court book, volume 9, page 3629, your Honours will see in particular that although the Full Court had said that the Commission had contemplated litigation funding by third parties, in fact one sees from 315 that what the Commission had in mind was those who had a particular interest in the action, such as trade unions and special interest groups – that is, 315 – and, again, at 318, line 5, consumer organisations or environmental groups.

Further, that in 317, in the quoted passage, affirmed in the next paragraph, the Commission, although recommending the abolition of maintenance, declined to recommend champerty and, in the last line of 317 reaffirmed that recommendation, and, lastly, at the end of 318, made it clear that although contingency…..type funding by solicitors might be appropriate – that is the last three lines or so – that should not be extended to third parties.

There is reference in the first to fourth respondents’ submissions at paragraph 12 to a post‑Fostif world and, likewise, the Full Court at paragraph 104 said:

After Fostif, funding costs and commission can be seen, in appropriate circumstances, as legitimate expenses . . . of the venture under Pt IVA ‑

In fact, all that was held in Fostif was that in the four jurisdictions in which maintenance and champerty had been abolished at that time – and that is still the position, there are still only four of the eight – that litigation funding should not be seen to be an abuse of process or contrary to public policy.  But there is nothing that one would get out of Fostif, paragraphs 85 to 96, that litigation funding which facilitates positively – that an order which positively facilitates litigation funding is something that ought to be embraced.

There were other matters I had hoped to reach but one has to stick to the timetable.  Mr Free will now address on 51(xxxi).

KIEFEL CJ:   Yes, Mr Free.

MR FREE:   If it please the Court.  Your Honours, the submissions on 51(xxxi) proceed from the assumption that, contrary to the other submissions advanced, section 33ZF on its proper construction empowers the court to make common fund orders.  On that assumption, in our submission, the law therefore authorises an acquisition of property in section 51(xxxi) terms.  My learned friends, Mr Kirk and Mr Leopold, addressed on the nature of how a common fund order operates.  In 51(xxxi) terms, on the taking side of things, in my submission, plainly there is a taking of property for section 51(xxxi) purposes.

KIEFEL CJ:   At what point does that occur?

MR FREE:   When the order is made, in my submission, your Honour.  The order interferes with or modifies the rights of group members to the proceeds of their cause of action.  Now, the ultimate implementation of that order will depend on both the successful outcome – that is, the delivery of a resolution sum – but also the possibility of it being varied, but, nevertheless, the order once made immediately alters the nature of their rights in respect of the causes of action and the fruits of those causes of action.

GORDON J:   The problem is though once ‑ they have the ability to opt out so, in a sense, it is a choice for them, is it not?

MR FREE:   Your Honour, I was going to come in a moment to compulsion but I can deal with that now.

GORDON J:   It also affects the first question, and that is, in a sense, the question asked by the Chief Justice about timing.

MR FREE:   Yes, your Honour.  Can I deal, your Honour, immediately with the question of compulsion.  At the level of principle it is certainly the case that section 51(xxxi) is concerned with acquisitions by force of law, not by agreement.  That has been settled in, for instance, Paliflex, in this Court where the Court followed Tooth – drawing a distinction between agreements and compulsion.

What occurs in the context of a common fund order is an order made in the context of Part IVA where there are rights of opt out, but there is no initial opt in, so group members are not in any sense consenting to be members of the group initially.  There is no question of them being brought into the proceedings involving any notion of agreement or consent.

The question is really then:  is there something in the nature of the opt‑out regime that might transform their role into a consensual one and, in our submission, there is not.  The opt‑out regime contains, as you have heard from Mr Leopold, notice requirements, but they are notice requirements that operate at a level of generality, not direct personal notice to every group member.

So, in effect, attempts will be made to notify all group members of their rights but there is no requirement that all group members in fact be notified of their rights and, as the Full Federal Court held in Femcare v Bright, in fact one must proceed on the basis that it is likely that a number of group members will never be notified that they are involved in a group proceedings.

So you have what the appellants in Femcare v Bright referred to as a class of passive, ignorant group members who do not know that they have been brought in to proceedings, are not notified of the proceedings being on foot and of their opt‑out rights, and that class of group members which must be accepted to be if not an inevitability at least a highly probable outcome in any group proceeding.

In respect of that class it cannot possibly be said that they consent to a common fund order.  Their failure to opt out in circumstances where it cannot be assumed that they even know that they are in the proceedings cannot be equated to agreement.

GAGELER J:   Mr Free, was Femcare v Bright the challenge to the entirety of Part IVA?

MR FREE:   It was, your Honour.

GAGELER J:   And it was rejected, was it not?

MR FREE:   The proposition there was that the use of the rights constituted an acquisition of property.

GAGELER J:   Do you challenge Femcare v Bright?

MR FREE:   No, we do not, no.  The particular proposition there was that the acquisition of the group members’ rights specifically in respect of the use of their right to bring proceedings in respect of their cause of action was unconstitutional.  That argument was rejected.  We do not seek to challenge that and we do not see that as an answer to the proposition we put about the different type of acquisition which occurs through a common fund order.

GAGELER J:   If the rights are pursued to judgment and the judgment is adverse to the plaintiff, then the rights are extinguished, such as they were?

MR FREE:   Yes, your Honour.  That is an acquisition of a quite different right in respect of group members’ cause of action, in my submission.  The point we seek to draw from it, in answer to Justice Gordon’s question – and I hope partially in answer to the Chief Justice’s question – goes to the question of whether or not this is a compulsory acquisition that arises by virtue of the common fund order and, for the reasons I have given, we say that it is.

The nature of the modification is significant.  As has been observed in decisions of this Court, including in Cunningham & Ors v Commonwealth (2016) 259 CLR 536, at paragraph 59, one needs to consider the degree or extent of the acquisition or alteration of rights which occurs because there are cases where slight alterations have been held not to constitute acquisition. In our submission, there is nothing slight about the acquisition which occurs in this case. We are talking about, effectively, a quarter of the proceeds of each group in this cause of action.

I focus on the taking side, on the acquiring side, what the funder acquires is directly symmetrical to what the group members lose, in my submission.  So this is not a case where there is any controversy about saying that there is both a taking and an acquisition.  Group members’ loss is the funder’s gain. 

Applying a settled understanding of what the funder must acquire in order to constitute a constitutional acquisition, in JT International SA v Commonwealth (2012) 250 CLR 1 – that is in volume 4 of the joint book at tab 35; I do not need to take your Honours to it – there the majority of the Court embraced what Justice Mason had said in Tasmanian Dams that what is required is that the Commonwealth or another acquires an interest in property, however slight or insubstantial it may be.  By that measure, what the funder acquires by way of an entitlement to be paid sums pursuant to the common fund order, even if that is subject to the possibility of variation, we say is a proprietary interest for section 51(xxxi) purposes.

The Court in Cunningham, again at paragraphs 59 in the judgment of Justice Gageler, also at paragraph 32 in the judgment of the Chief Justice and Justices Kiefel and Bell, emphasised that one needs to understand the characteristics of the property that is acquired, and the nature of the changes to the rights in assessing any acquisition. In that context, we emphasise that the rights of group members to the fruits of their causes of action have an independent existence and have a proprietary character that does not depend upon Part IVA of the Federal Court Act.

Part IVA is one available procedure by which causes of action may be converted into the fruits of those causes.  But it is not the case that the property only exists once transformed into the fruits, or that its existence as property depends upon Part IVA, or any class action procedure.

EDELMAN J:   Its value might, though?

MR FREE:   Its value might depend upon some process of realisation, your Honour, certainly not exclusive to this process of realisation. 

BELL J:   How do you describe the identifiable benefit or advantage relating to the ownership or use of property?

MR FREE:   An entitlement to be paid a share, or a proportion rather, I should say, of the successful outcome of proceedings, arising from the entitlement of group members.

EDELMAN J:   Which, in effect, does not extinguish the right, but reduces its value?

MR FREE:   Yes, indeed.  In cases, for instance, like Smith v ANL, your Honour, modification of a proprietary right is a form of acquisition.  So there the causes of action that Mr Smith had were effectively extinguished, but replaced with a statutory equivalent – but subject to a six month time limit.  His right, in one sense, was preserved, but it was modified because it was now subject to a time limit and the Court by majority concluded that that type of modification was acquisition.

Coming back to the notion about this property having an independent existence, the respondents submit in various ways that there is no property being acquired because the causes of action of the group members have no value without being realised in litigation and are practically worthless without a funder being present to help transform them into valuable fruits.  In that context Westpac is said to have an idealised conception of the nature of the property. 

We submit that that criticism is unfounded.  Firstly, in constitutional terms as far as 51(xxxi) is concerned, the character of the rights of group members as property exists and does not depend upon the transformation through a process into value.  They exist as property whether or not converted into value and it is the affectation of that property which engages 51(xxxi). 

As far as the characterisation of section 33ZF is concerned, we say the criticism is also fundamentally unsound because it suggests that section 33ZF should be characterised as a law which facilitates only the vindication of otherwise worthless causes of action.  Part IVA operates in respect of all causes of action whether they might be independently capable of being run economically to completion or not. 

So one application of them may be to the types of claims where individual claims are small but, through being run as a class action, they are made economic.  But Part IVA is in no way limited to that class of causes.  We say when one is dealing with the characterisation of the law it would be wrong to assume that it operates only in respect of causes of action that are uneconomic or worthless unless a funder happens to transform them.

I have dealt, your Honours, with the point about the acquisition occurring by compulsion and not by consent.  Can I come then to the question of characterisation.  Characterisation depends on the practical and legal operation and effect of the law in its various operations.  The principles are well settled.  One looks to both the legal rights, powers, liabilities and duties created but also the practical operation of the law. 

That operation, as I sought to demonstrate, does authorise the court to effect an acquisition on the assumption that that may be done under section 33ZF.  As Justice Kirby observed in Smith v ANL (2000) 204 CLR 493 at 529, although that is not the end of the characterisation, once one has identified a law which effects or authorises an acquisition then you are well on the way to the characterisation of the law as being one with respect to the acquisition of property. As his Honour observed there, that follows from the very nature of how section 51(xxxi) works by abstracting from other legislative powers the power to acquire property other than on just terms.

Of course, it is not the end of the analysis.  There are certain characteristics of either a law or a head of power that may take a law which apparently has the character of a law with respect to acquisition outside that section, but there needs to be a particular reason why that is so, a particular characteristic of the law or the power that is being exercised.

In our submission, section 33ZF does not fall within any of the established categories of laws which, while effecting an acquisition of property, are not caught by section 51(xxxi), and nor does it come within any of the novel exceptions which are suggested in this case.  Can I start by just addressing those, the more novel submissions arising from our friend’s written submissions?

The first is that, because of the generality of section 33ZF, it is not properly characterised as a law with respect to the acquisition of property.  We say that is flawed as a matter of analysis.  A broad general power such as section 33ZF can have many operations and many characteristics, but if in one aspect of its operation it authorises or effects an acquisition of property, that is the thing which gives it the character of a law with respect to the acquisition of property and brings it within 51(xxxi).  The fact that the power is expressed in general terms and might authorise other orders by a court which are not in the nature of an acquisition does not avoid that conclusion.

We say that is an important conclusion or an important analysis of general powers, given the general principles underpinning section 51(xxxi).  They include that section 51(xxxi) is concerned with matters of substance, not form.  Also being in the nature of a constitutional guarantee, it is to be liberally construed and, as Justices Hayne, Kiefel and Bell put it in ICM Agriculture (2009) 240 CLR 140 at paragraph 139, a law may infringe the guarantee:

directly or indirectly, explicitly or implicitly.

So the notion that a power which is expressed in broad terms that encompasses the power to acquire, but also other activities, is somehow outside 51(xxxi) we say is inconsistent with those basic principles.  It is also inconsistent with the core notion of abstracting power from the Commonwealth to legislate with respect to the acquisition of property.  That limitation, which arises in the way explained in Attorney‑General v Schmidt, operates on all Commonwealth legislative power, whether expressed generally or specifically. 

Finally, we say that approach to general powers is consistent with the notion that laws may bear more than one character in constitutional terms, and it has elements of the erroneous proposition that a law may have only a single or true character.  The second novel proposition emerging from the respondents is that a law which confers powers on a court - it is expressed in a few different ways, but generally that a law conferring powers on a court is not subject to section 51(xxxi).  There are variations on the argument.  In JKL’s submission, the emphasis is put on the power to make orders in the course of exercising judicial power directed to the realisation of a chose in action.  That category of laws is said to be outside section 51(xxxi).

It is also put against us that the very nature of the exercise of judicial power by a court means that it is inherently incongruous or inconsistent for the powers of a court to be limited by section 51(xxxi).  The Court, in our submission, should reject each variation of this argument.  It is entirely novel, and there is no authority that is pointed to to support it.  Various cases which have been found to involve acquisitions of property, at least prima facie, sometimes held to be outside section 51(xxxi), but for entirely different reasons, have involved acquisitions where the involvement of a court was a critical feature in the acquisition.

So, for example, the forfeiture orders in Emmerson, Theophanous and Lawler all involved, in different ways, court order either declaring a person to be of a certain status, or ordering forfeiture.  There was no suggestion in any of those cases that the involvement of the Court and judicial power took the matter outside 51(xxxi).

There is no conceptual difference when dealing with judicial powers that are directed to the realisation of a chose in action.  There are some threshold issues as to the nature of the power being exercised by the Commonwealth in conferring section 33ZF, in enacting 33ZF, that is.  In our submission, applying Rizeq, the source of the power is section 51(xxxi).

There is no doubt on the authorities to date that all of the Commonwealth’s powers in section 51 have been understood to be subject to section 51(xxxi).  That is clear, for instance, in Theophanous (2006) 225 CLR 101 at paragraph 55, where their Honours described section 51(xxxi) as abstracting from the Commonwealth’s powers under section 51.

But in any event, it has also been held by this Court that the Commonwealth’s legislative powers elsewhere in the Constitution are constrained, and subject to the abstraction which is achieved by section 51(xxxi). That was the finding in Wurridjal v The Commonwealth (2007) 237 CLR 309 in relation to the – that was the territories power, section 122.

That was followed in ICM Agriculture (2009) 240 CLR 140 in relation to section 96 grants and associated legislation and conditions. The point was expressed there at paragraph 135 in the judgment of Justices Hayne, Kiefel and Bell as being that the abstraction principle applies to all heads of Commonwealth legislative power, so the proposition that Commonwealth legislative power when exercised to confer powers on courts is inconsistent with that authority as to the way in which the abstraction of power works under section 51(xxxi), read in the context of the Constitution as a whole.

Now, to the extent that the argument is that there is something inherently incongruous about courts in the exercise of judicial power being subject to section 51(xxxi), in our submission there is nothing in either the exercise of judicial power or in the character of laws which confer such a power that makes it incongruous or inconsistent to apply the just terms requirement.

It is not correct, as suggested in some of our learned friends’ submissions, that the exercise of judicial power characteristically involves the acquisition of property without compensation.  The core concept of judicial power, as your Honours heard earlier from Mr Kirk, is that it involves the determination of existing rights, not the creation of new ones or taking away property rights from one person and giving them to another.

Various examples are given in our learned friends’ written submissions to orders which courts make in the course of exercising judicial power.  Some of those have been touched on by Mr Kirk and Mr Leopold, and I will not repeat them, but they deal with either limited or temporary modification of rights for the purposes of facilitating the judicial determination of disputes.  They do not support the much broader notion that courts, in the exercise of judicial power, are routinely engaged in the acquisition of property such that it can be said that it would be incongruent to apply the limitation in section 51(xxxi). 

Adopting that principle as urged by the respondents and, in effect, recognising that judicial power or certain classes of the exercise of judicial power sit outside section 51(xxxi), it would also run counter to the same basic principles I alluded to earlier about the nature of the constitutional guarantee:  the Commonwealth cannot achieve indirectly what it cannot achieve directly; the concern with substance not form.  If the Commonwealth could through, effectively, the medium of the exercise of judicial power, authorise the acquisition of property without just terms then the scope of section 51(xxxi) would be radically reduced.

No analogy can be drawn with the cases in which incongruity of the relevant kind has been found in this case, such as Emmerson, Lawler and Theophanous, where there is, for instance, forfeiture or a sanction and the critical point to identifying the incongruity is in saying that to impose such a sanction for breach of a rule of conduct but at the same time compensating it would be inconsistent with the very nature of the exercise.  In our submission, no analogy can be drawn with the principles in those cases.

It is telling, in our submission, that the respondents and the interveners, while on the one hand seeking to invoke this notion of incongruity or inconsistency, at the same time also contend that 33ZF does secure just terms for group members.  I will come in a moment to address on why we say that submission itself is wrong and that just terms are not a characteristic of this law.

Just on the question of incongruity, the very fact that the respondents are pointing to the possibility of just terms in trying to identify some countervailing benefit exposes the weakness in the suggestion that it is somehow incongruous or inconsistent for this power to be subject to such a requirement.

Your Honours, can I say something briefly about Airservices Australia, which is invoked by various of our friends.  That case involved a statutory lien over property as a mode of security for the enforcement of existing debts, and it was held not to be a law with respect to the acquisition of property.  It is important to emphasise the nature of the fees that existed in that case and the corresponding debts and the statutory lien that was created.

The fees only became payable by Compass, the relevant airline, under a separate set of provisions because Compass engaged in the commercial activity of operating an airline.  It did so, of course, voluntarily, and so its liability for charges arose from a consensual commercial activity and that was the fee for service that was identified and it was also the subject of determination by the Court.

The companies who owned the relevant planes operated by Compass were held by the Court not to be strangers to Compass’ activity, they benefited commercially from it, they could be taken to know about the charges and had the capacity to arrange their affairs.  The way the scheme operated ‑ the scheme imposed the service regime through Airservices Australia and the fee‑charging regime.  That gave rise to a debt.  The debt then triggered the end provisions which operated against the aircraft.

That was the context in which Justice McHugh, Justice Gummow with whom Justice Hayne agreed, concluded that it was incongruous to have the power to impose the statutory lien subject to a just terms requirement because it was securing an existing debt and, in our submission, the analysis in the judgment of Chief Justice Gleeson and Justice Kirby is to the same effect.

There is no analogy with a common fund order.  At best, our friends can say that the group members receive a benefit from the common fund order which might fit the description of a service and that the imposition of the obligation to pay a share of proceeds is, in effect, in the nature of a fee.  That is a very loose analogy, in our submission, with the very different scenario in Airservices where engaging in a commercial activity voluntarily, giving rise to a debt, then triggered related security provisions which operated against the aircraft owners who were no strangers to that operation.

Your Honours, can I say something very briefly about the Commonwealth’s alternative test for characterisation?  I might leave this primarily for reply but can I just make this observation, your Honours?  The Commonwealth in its submissions at paragraph 42 urges on the Court a very different test of characterisation which is, essentially, that if a law is directed to an end within power and that acquires property only as a necessary or characteristic feature of the means selected to achieve an objective within power, then the law would not ordinarily bear the character of being a law with respect to the acquisition of property.

In our submission, there is no authority for that test of characterisation.  It is said to be supported by what your Honour Justice Gageler said in Emmerson and in Cunningham but, in our submission, that involves a clear misreading of your Honour’s analysis in those cases.  In particular, in Cunningham at paragraph 59 it is clear that your Honour was talking about laws where acquisition without compensating or rehabilitating the former owner is the relevant necessary or characteristic feature and that, therefore, engaged the traditional understanding of incongruity.

The Commonwealth has taken features of what your Honour has said but excised that critical component and instead it becomes a very different notion of characterisation which, in our submission, is contrary to the basic principle established in Schmidt about the way in which 51(xxxi) abstracts from the Commonwealth’s other heads of power.

The last subcategory of characterisation that I need address, your Honours, is the line of authority dealing with genuine adjustment of competing rights, claims or obligations and this was an aspect of why the Full Court in the Westpac matter considered that the law was not a law with respect to acquisition of property.

That analysis is drawn initially from Australian Tape Manufacturers and the obiter comments of four of the judges in that matter but also from the finding of the Court in Nintendo v Centronics Systems.  It is important, in our submission, to emphasise the context of Nintendo.  Nintendo involved an acquisition arising, allegedly, from the commencement of the Circuit Layouts Act.

Importantly, that Act replaced existing protections under the Copyright Act and the Designs Act, so it was not the case that it was creating wholly new forms of intellectual property, it was replacing existing protections with a new regime.  That, in our submission, provides an important context to what their Honours said about:

a law which is not directed towards the acquisition of property as such but which is concerned with the adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity ‑

Similarly, in Mutual Pools where Chief Justice Mason was the only judge to apply the same analysis, the law came into force to deal with a very particular problem that had arisen as to the refunding of a tax.  As it was put, the law sought to regulate what should happen now with some of that money as between the Commonwealth builder and the consumer where money from the unlawful tax had been, in some cases, passed on to the consumer and in some cases not.

It is in that context, in my submission, that one has to understand Chief Justice Mason’s application of the principle about a law which is concerned with the adjustment of competing rights in a particular relationship.  There is no equivalent characteristic of the law at issue in this case, in our submission, your Honours. 

The first point to note is that one is concerned with the character of the law itself.  What was characteristic of the law in Nintendo and in Mutual Pools was that the law itself came into force in the context of particular relationships and adjusted existing rights and obligations in those relationships.  There is no equivalent when one comes to consider 33ZF of the Federal Court Act.

It is a general power given to the court, even if it might be said that the making of a common fund order by the court, under section 33ZF, alters rights and obligations as between group members, applicants and funders.  It cannot be said that the law has the characteristic of adjusting rights as between people in a particular relationship.  At most, that would be a description of the consequence of a common fund order.

The other point we would make in that context is that it is particularly inapt to describe section 33ZF and Part IVA of the Federal Court Act as being concerned with the adjustment of rights.  Part IVA is a regime for the determination of existing legal rights.  That is its quintessential function.  It is not a regime for the adjustment of existing rights.

Finally, your Honours, can I deal with the topic of just terms.  There is some variability in the tests which have been articulated in this Court for what constitutes the requirement of just terms in section 51(xxxi).  They are referred to in the written submissions – I do not need to take your Honours to all of the variations because in my submission what each of them involves is the core notion of compensation for the value of the property which is taken.  So, for example, the Commonwealth cites Grace Brothers¸ where the relevant reference is to:

a true attempt to provide fair and just standards of compensating or rehabilitating the individual –

So where the Court in Grace Brothers talks about a measure of latitude to the Parliament in how it might deliver such just terms, the core component of those just terms is compensating or rehabilitating the individual.

The other critical point to note about how this applies in section 51(xxxi) is that it is a characteristic of the law itself; that the law must provide for acquisition on just terms.  That is a necessary condition of validity, that the law itself have that character.

So it is not enough to point to the possibility that an exercise of power might deliver just terms, that, for example, some common fund orders might fit the description of just terms.  It has to be a characteristic of the law that it is providing for acquisition on just terms and it is the absence of any characteristic in section 33ZF, in our submission, to require that that which is taken from group members is compensated for, in one way or another, which signals the invalidity.

So it is not enough, in our submission, to point to the fact that group members through the implementation of a common fund order, may receive benefits, and that those benefits in some way might offset the loss of their property rights.  That is not the same thing, in our submission, as demonstrating that the law itself provides for acquisition on just terms.

BELL J:   This part of the argument assumes that a common fund order can be made within power under section 33ZF?

MR FREE:   Yes, your Honour.

BELL J:   Such an order would only be made upon the court’s consideration it is appropriate or necessary to ensure that justice is done in the proceeding.

MR FREE:   Yes, your Honour.

BELL J:   At the point the court makes that order, it might be difficult to determine the value of the interest of an individual group member.  But the court, on this analysis, is concerned with an exercise of determining, subject to subsequent review, at the point of settlement or judgment, an appropriate sum by way of the amount that will be deducted for the third party funder.

MR FREE:   That is so.

BELL J:   It does so against a broad approach that it is to ensure that justice is done in the proceeding.

MR FREE:   Indeed, your Honour.  So the state of satisfaction as to justice being done in the proceeding may involve the consideration of all kinds of factors – the interests of group members, lead applicants in the conduct of the proceeding.  It is not focused on the value of that which is taken from group members.  It may be as part of the analysis, but there is no attempt in the provision or requirement in the provision that the court has to ensure that what the group members lose in their rights to their cause of action is offset on the other hand by a benefit of the same value.  There is no requirement to be satisfied of that and being satisfied that it is appropriate or necessary to ensure justice is not the same thing.

BELL J:   I understand your argument.

MR FREE:   If the Court pleases, those are our submissions.

KIEFEL CJ:   Yes, thank you, Mr Free.

MR LEOPOLD:   Your Honours, I said I would provide a pair of references, which is this.  It was paragraph 34 on core appeal book page 24 that the primary judge said that book building is:

an endeavour conducive of wasted costs –

It was at core appeal book 80 to 81, paragraph 19, that the Full Court said that book building was:

costly and problematic.

I do have those copies here of those extra pages from the Australian Law Reform Commission Report No 46.  If this is a convenient time to hand them up, I will do so.

KIEFEL CJ:   Yes.

MR LEOPOLD:   They are our submissions, may it please the Court.

KIEFEL CJ:   Thank you.  Yes, Mr Gleeson.

MR GLEESON:   May it please the Court.  Your Honours, as the argument has developed today, you have an important concession by both appellants that FEOs – fund equalisation orders – are valid exercises of statutory power and we would take the concession not subject to any constitutional problem.

That is an important starting point because what follows from that is that the standard of justice, where that term is used in the part, allows, at least in some circumstances, for orders which recognise four matters:  firstly, that a Part IVA proceeding can be supported by litigation funding; secondly, that a funder can receive a reward for services which includes not just reimbursement of expenses but also a premium for risk; thirdly, that a reward can be received out of the fruits of the action in some circumstances; and, fourthly, that obligations can be imposed on group members to contribute to the proper costs of the action without their consent in some circumstances.

All of those matters are accepted and, in a sense, the whole of, we would submit, both appellants’ case comes down to this:  should you accept what is called the existing expense limitation that the orders can only build off an existing contractual commitment by someone to pay a sum of money to a funder which is then adjusted in equity?  That, we submit, is really the first issue that has been crystallised today.  We submit, having regard to the text of 33ZF and the other provisions, having regard to the objects and purposes of the part and having regard to equity, no such limitation should be accepted.  I will come to equity in one moment.

If you reject the existing expense limitation, the consequence, we submit, is that a common fund order can be made at least at the stage of settlement or judgment.  Mr Kirk said that you do not need to answer that question; Mr Leopold was a little elliptical in his position on it.  We submit that question does need to be answered.  If a common fund order can be made on settlement or judgment then the court can proceed to the next question, which is can it be made on an interlocutory basis in advance of settlement or judgment under ‑ ‑ ‑

KIEFEL CJ:   That may be so but it is not said to arise under 33ZF(1), is it, the power to make the order?  

MR GLEESON:   The way we approach it is this, your Honour.  The power to make it on settlement or judgment will be either any one or more of 33V(2), 33Z, or 33ZF to the extent there is any difficulty with the earlier powers.  They are the three mentioned by Mr Leopold.  He embraces the first two.  He says the third may be.

KIEFEL CJ:   If it was 33Z(1)(g) that would put the Federal Court in a different position from the Supreme Court, potentially.

MR GLEESON:   We would say it can be done under there but it is not the only place it can be done.  It can be done under a range of parts of those provisions.  What I am seeking to crystallise is we submit that it is important to decide can it be done ever.  If it can be done on settlement or judgment, which we say it can, then the next question logically is can it be done in advance of settlement or judgment under section 33ZF.

GORDON J:   Just so I am clear, does that submission treat the CFO in that submission as equivalent to an FEO?

MR GLEESON:   No. 

GORDON J:   I will ask a different question:  to what are you referring when you say the CFO in that submission?

MR GLEESON:   I am saying the CFO in particular.  I am saying each of the CFO and the FEO can be made on judgment or settlement.  That is the first step.  The second step is each of them could be made on an interlocutory basis under ZF.

Just to complete the last two matters we think have been joined today, the third question is a more conceptual one, which is when the court makes either an FEO or a CFO, is it responding to an existing demand of justice consistent with equitable principle or is it creating fresh rights out of the ether on any matters including, according to Mr Kirk, policy matters which it thinks fit, and is it, as per the question your Honour Justice Gordon raised, fashioning a new contract and imposing it on the group members?  We would submit the Court is engaged in the former exercise, which is what keeps it amply within the statutory provisions and also keeps it within the concept of judicial power.

Your Honours, the fourth key matter, we submit, arises in relation to acquisition, which is when and how are group members’ rights affected by the CFO so as to constitute a possible acquisition.  The difference between the parties is the appellants say the impact is immediate in the sense that there is a charge over future property and they say the property is immediately worth less, and they say that is the acquisition.

Our submission is that the impact occurs, if at all, only if and when fruits of the litigation arise after the services have been rendered by the funder and the lawyers, after they are entitled to reasonable remuneration for their services, and after group members have had a chance to opt out and reject the benefit of those fruits earned on their behalf.  Once it is understood in that sense, there is no relevant acquisition of property in the constitutional framework.

Your Honours, could I just show on the question of – and Mr Leopold put this most vigorously – that equity always recognised the existing expense limitation and equity would never have granted an FEO.  Could I show why that is wrong, both ‑ ‑ ‑

GORDON J:   An FEO or a CFO?

MR GLEESON:   According to him, only ever an FEO and never a CFO.  Could I show why that is wrong by reference to US authority where it is well established and, by analogy with Australian authority, and for this purpose I am expanding on paragraphs 28 and 44 of our submissions, and also I am indebted to the Commonwealth for paragraphs 28, 29 and 33, which have identified some key authorities.

If I could ask your Honours to start with the United States, at volume 9, tab 75, which is the Boeing decision, commencing at 3603.  This is the case which, in Westpac’s submissions, is said to stand for the existing expense limitation.  If your Honours could look at page 3607, in the paragraph under section II, commencing [1], the Supreme Court said that:

Since the decisions in Trustees v. Greenough . . . (1882), and Central Railroad & Banking Co. v. Pettus . . .  (1885) this Court has recognized consistently that a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fee from the fund as a whole.

We emphasise that the entitlement rests in either the litigant or the lawyer, and it is whether they have recovered the fund for the benefit of persons other than himself or his client.  Pettus I will come to in one moment.  The underlying basis of the doctrine is then set out in the next paragraph, that it reflects traditional practice of courts in equity, and:

The doctrine rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its costs are unjustly enriched at the successful litigant’s expense –

and so on – the principle is explained.

Now, if I could ask your Honours to go from there to Pettus which the Court will find in a supplementary bundle of authorities at tab 2, the importance of this is that this is the case where it was the lawyer who recovered the reasonable fee outside any contract.  Could I just show how that is.  On page 120 - it is a suit by the lawyers and the claim is set out over the balance of that page, but at about 10 lines from the bottom the suit:

claimed reasonable compensation for such services as they rendered in behalf of [certain] unsecured creditors . . . who should come in and take the benefit of the final decree, and, also, the benefit of any lien upon said property that should be declared in favour of those creditors; and that in equity they “were the assignees of a part of each claim as filed to the amount of the reasonable value of the services rendered . . . for the benefit of –

such persons.  Then over the page, the relief sought an account and a lien.  So this was a claim by the lawyers against persons with whom they had no contract.

KIEFEL CJ:   This is after the claim had been resolved?

MR GLEESON:   Yes, so it is at the end of the proceeding.  Your Honour is correct, it is at that point.  So it is not a claim by the client saying, “I’ve incurred a fee to the lawyer and I wish to share the burden”.  It is a claim by the lawyers directly against persons who had no contract, and we see in this paragraph the underlying legal principle is a combination of firstly what we might call a quantum meruit, reasonable compensation for the services I have rendered to your benefit, and that might be regarded as a personal claim. 

It is then supported by a proprietary claim in equity for a lien over the property, and in equity this is regarded as an assignment of the fruits to the amount of the reasonable value of the services, that is, to the amount of the quantum meruit.  So immediately we see in the US doctrine not only is there no existing expense limitation, but what the court is doing in the common law method is identifying a quantum meruit and an equitable assignment by way of security for the enforcement of the claim.

EDELMAN J:   How would that principle not be capable then of being generalised so that it might be said if it were a general principle that any time any person enhances the value of another’s property, that person is entitled to reasonable remuneration for the work that is done?

MR GLEESON:   Yes.  Your Honour, it does not tip over into that question, for the reason we see from page 123 at the top that the underlying principle has started with trust law:

that a trust estate must bear the expenses of its administration, and that where one or more of many parties having a common interest in a trust fund takes . . . proper proceedings to save it from destruction and to restore it . . . he is entitled to reimbursement either out of the fund itself or by a proportional contribution –

So that is the origin in equity in the position under the trust fund, where it is an administration which is being preserved and enhanced by the services.  Then the Court says the same rule applies:

to a creditor’s suit where a fund has been realized by the diligence of the plaintiff.

So the critical limitation, it is not just any benefit at all.  It is where, in a suit, a fund has been realised by diligence such that the benefit can be seen in equity to be received by everyone interested in the fund and accordingly it is just that they bear the proper expenses of that realisation.

Now, the limitation, I will come to it, is essentially the limitation under the universal distributing principle, which this Court considered in Atco.  So it is to do with the realisation of a fund for the benefit of an identified group of people.

EDELMAN J:   The leap, though, from the trustee case to this situation, is it the trustees are under a duty to preserve the fund?

MR GLEESON:   Yes.  So the relevant extension here, which is why the statute is important - I will come to that shortly - is that the representative under Part IVA is given the statutory authority to enforce the claims of the group at least as far as the determination of the common questions and potentially through to settlement or judgment.  It is that statutory authority giving the representative that ability to generate a fund, which is the parallel to the trustee or the liquidator or the provisional liquidator or the receiver.

NETTLE J:   That would give you a funds equalisation order, undoubtedly.

MR GLEESON:   Undoubtedly, and what it does ‑ ‑ ‑

NETTLE J:   But it is different here, is it not?  At least, it is put against you, because this is an order in favour of a third party, not the party who has given the authority to prosecute on behalf of what would be the defendant in this application.

MR GLEESON:   Well, I am going to Pettus to show that in Pettus, it is the person providing the services who acquires the rights.  It is the solicitor in Pettus who acquires the quantum meruit and the lien.  The parallel in our case under our order is the solicitor and the funder because as your Honours know, under our order, the solicitors defer 20 per cent of their reasonable proceeds to success of the matter and they have a second call on the fund.

Your Honours will see that in the core appeal book at page 46, order 5(b).  Then the funder has the first call on the fund, under funding term 5(a).  So there is a direct parallel with Pettus that the person whose services have created the fund is entitled to reasonable remuneration secured by an equitable assignment over the fund and that proposition, which we submit has underpinned the whole of the common fund doctrine in America, is relevant and applicable to the statute here.

Your Honours, just to complete the judgment, you will see on page 125 in the first full paragraph the very argument is put that equity is limited to a fund equalisation order and the court rejects that argument in the balance of that page and the following page, and, in particular, on 126 at about point 5 the court really addresses what is close to the present question:  would it have made any difference if the lawyers and the client had included in the fee agreement a promise that the client would pay in addition to their own fees such other fees as the court might allow in respect to other people coming into the action.

GORDON J:   Where do we see that?

MR GLEESON:   It is at about point 6 on page 126:

Had Branch, Sons & Co., and their co‑complainants, expressly stipulated to make such reasonable compensation, in addition to the fees they agreed to pay their solicitors, as the court might allow, in respect of other creditors filing claims, the case, it could not well be doubted, would come within the very letter of the decision in Trustees v. Greenough.  Without at all conceding that an express contract of that character would have added to the power of the court in the premises, it seems to us that the present case is embraced by the reason of the rule –

Then the reason it is governed are circumstances which are effectively our case within the Australian context, which is when the litigation commenced, these other people had property, they had choses in action, but they had no realisable value.  The litigation resulted in them achieving value.  Those people have come in and claimed the benefit of that value, they have had notice of it and they have claimed the benefit of it, they knew that the lawyers were and would claim fees and by taking the fruits they can justly be charged with those fees.  So your Honours will see on 127 at the bottom, the decision below is upheld, there is a lien to secure the compensation, and the court says that:

according to the law of Alabama –

and this is just equitable principle from Chancery, the solicitor:

has a lien upon a judgment . . . to the extent the latter has agreed to pay him; or, if there has been no specific agreement for compensation, to the extent to which he is entitled to recover, viz., reasonable compensation, for the services rendered.

That is supported by an assignment or a lien in equity.

KIEFEL CJ:   Mr Gleeson, you obviously say that these equitable principles inform the exercise of the statutory power but you still need to determine the extent of the statutory power, do you not?

MR GLEESON:   Certainly, your Honour, and our argument is that the limitation that is now being pressed so heavily, you can only respond to one demand of justice, which is the FEO, and you cannot respond to this demand of justice long recognised in equity that is a limitation which is a matter of power we ask you to reject.  If the appeal obviously is only about power and questions of discretion are no longer in play ‑ and in many cases a CFO may or may not be an appropriate exercise of discretion.  But the critical thing ‑ ‑ ‑

KIEFEL CJ:   But is not the point of distinction that from this case one cannot infer that equity would assure someone in the position of the solicitors that they will have the benefit of an order?  This is all done after the event, after it is seen what they have done, whether they have acted with diligence and whether or not someone’s property has increased in value.

MR GLEESON:   We have one question:  can this demand of equity be reconciled with the statute after settlement or judgment?  Then we have a second question:  if it can, can the court exercise this power in advance of settlement or judgment?  I have to deal with both of those.

KIEFEL CJ:   The latter seems to be the key question.

MR GLEESON:   One of our submissions as to why the latter should be resolved our way is that when the court is making the advance order, it is responding to a number of demands of justice, one of them being an assessment of what is likely to be the case at the end of the proceedings.  These considerations of justice, which will apply at the end of the proceedings, we submit are relevant under 33ZF in deciding what is available as a matter of power and appropriate earlier in the proceedings.

Your Honour Justice Keane asked a question about what occurs in the context of liquidators.  There were two parts to the question.  One is:  is there any precedent for the courts exercising powers early, which may guide the liquidator in decisions, including the spending of money, et cetera, in the action?  The second was:  can the court, as it were, early make decisions about remuneration or does it have to wait until the end of the proceedings?

If I could just deal with that, the authority on the first of those questions is in volume 2 at tab 16, which is ASIC v GDK Financial Solutions.  This case was briefly referred to this morning as an example of a pre‑emptive costs order but it goes a little further than that.

At paragraph 8 on page 518 there is a discussion about the ability of trustees and representative parties to receive their costs out of a fund and in paragraph 10 there is a reference to courts of equity extending that principle to others, including receivers and liquidators.  In paragraph 11 the liquidators were seeking an advance order as to what would happen and at paragraph 13 the court distinguished a Beddoe order from a pre‑emptive costs order, and the Beddoe order is an example in answer to the first part of your Honour’s question where the court gives directions as to whether a liquidator is entitled to pursue a claim, taking into account:

the potential benefits to the trust, the prospects of success and the likely costs –

and the court can give its blessing to all or part of the procedures.  That is an example of this being an accepted judicial function where the court at an early stage of the proceedings is making an assessment of what is likely to be the position at the end of the proceedings and making orders appropriate to allow the proceedings to go forward, and therefore an important counterpoise to Mr Kirk’s argument that an early CFO is somehow non‑judicial because it is premature and a judge is deciding matters that can only really be decided at the end of the case.  So there is a tradition there with Beddoe orders.  In answer to the second part of your Honour’s question, we have provided an extract from the Corporations Act.

EDELMAN J:   The Beddoe order is not usually that the matter should go ahead.  It is usually in the form that it is not inappropriate to proceed.

MR GLEESON:  Yes, it is in that form.  I accept that, your Honour.  Albeit as a judicial function and perhaps within the supervisory jurisdiction of an administration, it is an exercise of judicial power by reference ‑ ‑ ‑

KIEFEL CJ:   But it is protective of a person in the position of a trustee.

MR GLEESON:   Protective, and that, your Honour, is an important matter we will come to, because one of the critical parts of the statutory framework here is that on the one hand the representative is made the statutory agent of a class and can make all sorts of decisions large and small on behalf of the whole class; on the other hand, the court has a fundamental protective and supervisory jurisdiction over everything done by the representative including all questions of how the proceedings are to be funded. 

One way of viewing the CFO, particularly when it is made early, is it is an appropriate part of the supervisory or protective jurisdiction of the court protecting the rights and interests of the group members, vis-à-vis the funder, the lawyers and the representative.

GORDON J:   Can you just flesh out that last submission for me, I do not quite understand it.  You said to me that the court has protective and supervisory jurisdiction over that statutory representative, including funding.

MR GLEESON:   The submission is this, the representative is given a statutory authority which commences with section 33C and goes on.  To first of all, define and constitute the class, the representative decides how the class will be described and what are the common questions under 33H.  The representative carries forward the matter.  The court has a protective or supervisory jurisdiction over everything done by the representative on behalf of the class and that protective jurisdiction can be seen through a range of provisions.  It can be seen through particular provisions commencing with 33J through to 33Y determining how the opt‑out process occurs under 33J, 33K deciding whether to extend the class, 33Q and R, how to deal with separate issues.

Section 33T being a critical part of the protective jurisdiction that the court can substitute a new representative if the current one is not performing to a test of adequacy.  Section 33X when to give notices, including 33X(5) determining at any stage of the proceedings whether it is appropriate that members be given notice so they can be heard and that is the type of discretionary power which would be available in respect to a CFO.

Through to settlement under 33B, the court must give its approval or not which will contain an element of protection and supervision of the class.  Section 33Z may include an element of protection and supervision, and we would submit 33ZF, the key provision in issue, can include an element of protection and supervision.

KEANE J:   Presumably, it would be said against you that these specific provisions are not pointing to a general overarching power but rather they are specific statements of particular powers and no doubt it will be said against you that their very existence and elaboration tends against the notion that something similarly overarching is contained in 33ZF.

MR GLEESON:   Your Honour, our first answer would be one can see in the specific provisions a supervisory jurisdiction and one can see the court being given a role in addition to its adjudicative role to scrutinise the relations between the representative and the class and any service providers.  We would then say, secondly, that the whole purpose of 33ZF is to indicate that nothing in the specific provisions is in any way to cut down the breadth of what the court can do to ensure that justice is done in the proceedings.

So, 33F could operate across the record.  There could be something that needs to be done in fairness between applicant and respondent and it can also operate on one side of the record, something needs to be done between applicant and the class and the service providers.  So, the very generality of ZF is there to ensure that no narrow view is taken of those earlier provisions.

EDELMAN J:   Provided it is consistent with the earlier provisions.

MR GLEESON:   Provided it is consistent with them and it is consistent with the general objects and purpose of the part which we know from the second reading speech are essentially twofold; they are firstly to deal with the case where you have a significant number of causes of action which individually are not worth much and, therefore, probably uneconomic to litigate and probably will wither on the vine but for the benefits of this new part and that summarises the present type of case.

It is also there, according to the second reading speech, for a second type of case, where the part achieves economies.  In other words, you might have a group of claims, some of which are quite big and which could potentially survive as separate actions but it is wasteful to have multiple actions when one will do.  So, in the light of those very general objects and in the light of the specific powers and being consistent with them, as Justice Edelman has put to me, ZF is there to say, none of this is to read down the court’s general powers over the whole of the proceedings including, as I have submitted, the supervisory powers. 

The brief answer to the second part of your Honour Justice Keane’s question – we have handed up the Corporations Act with an extract from the provisions which deal with remuneration of external administrators and it is apparent from 60‑10 that the question of entitlement to receive money for work is looked at by the creditors or committee of inspection or ultimately the court.  Under subsection (4) it can be worked out on an hourly basis subject to a cap, but critically under 60‑12 it is clear from the criteria the court looks at that the determinations can be either retrospective or prospective.  In the case of a provisional liquidator, which is 60‑16, it is the same, including an express recognition of percentages.

Your Honours, in that bundle of supplementary materials, I would commend to you but not read the document at tab 1 prepared by the Federal Judicial Centre in 2015 which states quite clearly the US position, including on the very first page number 67 an explanation that Pettus stands for the proposition I have put.  The other importance of that chapter is it shows that over a history of in excess of 100 years in the United States this common fund doctrine has been worked out consistent with equitable principle using the traditional judicial method of analogy and respect for principle which the Full Federal Court in our case said is part of the answer to the judicial power argument.  There is nothing foreign to the judicial power in how principle has been developed in respect to these orders. 

Your Honours, could I then move to the other side of this equation of FEO versus CFO by going to the Australian authority which you should have handed up which is Chief Justice Jordan and the Full Court in Ex parte Patience; Makinson v The Minister (1940) 40 SR 96.  My submission will be that the underlying equitable principle in this case is consistent with the Pettus principle in the United States.

Your Honours will see from the headnote that it was a land resumption case where the Crown offered 50 pounds as the value and, through the efforts of the solicitors, the compensation was assessed by the court at 250 pounds and the solicitor sought a charging order on the verdict for the amount of the costs which exceeded 200 pounds.  As can be seen from the headnote, the source of that order was said to be, firstly, a specific provision under the Legal Practitioners Act of 1898 and, secondly, equity.  The court held that there were particular reasons involving the Crown and garnishee principles as to why the statutory remedy could not run but the equitable remedy could run.

Now, at page 98 in the argument of Mr Hardie for the applicant, it will be seen about halfway down the argument that he was seeking to claim on behalf of the solicitors the equitable lien or charge not only against the Crown but as against mortgagees, that is against third parties who had an interest in the property but who had in no way agreed to the legal fees.  His argument was put that:

the claim for compensation is in the nature of a salvage claim and the solicitor is entitled to his costs as against every person having an interest in the resumed land –

Now, Chief Justice Jordan at the foot of page 99 commenced with the solicitor’s general possessory lien at common law but then distinguished that on page 100 from the lien in equity.  If I could read it:

If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client’s right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor.

Then there is some discussion of the remedies that can be given based upon that equitable right.  That, we submit, is the same equitable analysis as per Pettus traceable back to traditional practice in Chancery.

Now, just over the page, which is a continuation of something said by Baron Parke in Barker v St Quinton, this is a claim to the equitable interference of the court to have the judgment held as security for the debt, then:

In practice, however, the solicitor has always been treated as possessing equitable rights in the judgment independently of any declaration of those rights, and the Court’s assistance is invoked not to create the rights but to enforce them –

Now, we seek to submit that that underlying idea of equity falls within the concept of orders necessary or appropriate for justice in the proceedings in section 33ZF and contra the appellant’s suggestion the court is creating rights in the ether, the court is declaring rights in response to fundamental equitable principle.

At page 102, there is further discussion of the equitable basis of the doctrine and the relief that is available in the area and, importantly, in relation to the relief against the Crown which is page 105, middle paragraph, the court held it is not available under the statute but is available in equity.  Then, turning to the mortgagees at page 107 at about point 4, Chief Justice Jordan accepted Mr Hardie’s argument, saying this:

In cases of applications by solicitors for statutory charging orders it has always been held that the solicitor’s claim is in the nature of a claim to salvage, and that the charge will therefore be made upon all the property recovered or preserved as a result of the solicitor’s exertions and not merely on his client’s interest therein –

I emphasise those last words “and not merely on his client’s interest therein”.  That, we would venture to submit, is exactly our case.  The first to fourth respondents have an interest in these proceedings to the extent of their personal choses in action.  Mr Leopold has made the point they do not have an interest in the fruits of the action of the other members of the group.  But the fundamental idea is that the solicitor has provided services to the whole group and has a claim in the nature of salvage over all the property

recovered even though, as Chief Justice Jordan goes on to say, notwithstanding his client may prove to have no interest in certain property.  So, that equitable demand to justice, we say, is within the power of the present statute.

GAGELER J:   Mr Gleeson, how directly are you using these equitable doctrines?  Do you say that there is a quantum meruit available to the funder and there is a lien in equity or do you simply, sort of, call this in aid as a part of the background to explain the justice of the statute?

MR GLEESON:   We certainly do the latter, your Honour.  We certainly say as a matter of power one has to understand are there any outer limits on doing justice in the proceedings and a limit has been proposed to you by Mr Leopold, source to equity, where he says equity went a certain distance and never went any further and, therefore, there cannot be any power.  So, I am relying on these cases, at least, to say that that approach ought to be rejected.

GAGELER J:   I think I followed that but is that as far as it goes?

MR GLEESON:   No, it goes further than that; it goes further than that for this reason.  If your Honours could go back to that – I am sorry, it is 4.15 – the reason is that the funding term 5, paragraph (b) which gives the lawyers an equitable charge over the fund for their fees, I submit, is directly covered by Ex parte Patience.  It is a direct reflection of a quantum meruit.  So, to that extent, we have that, and then as to paragraph (a), the question is would the same principle apply to a funder and, we submit, it would.  So, the second strand of our submission is could it be done in a separate proceeding?  Yes.  Do we need the second branch?  No.

KIEFEL CJ:   Thank you, Mr Gleeson.  The Court will adjourn until 9.45 am tomorrow.

AT 4.17 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 14 AUGUST 2019