Freeman v Kellerberrin Farmers Co-Operative COMPANY Ltd

[2008] WASC 182

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   FREEMAN -v- KELLERBERRIN FARMERS CO-OPERATIVE COMPANY LTD [2008] WASC 182

CORAM:   HASLUCK J

HEARD:   24 JULY 2008

DELIVERED          :   22 AUGUST 2008

FILE NO/S:   CIV 2527 of 2003

BETWEEN:   STUART MAXWELL FREEMAN

First Plaintiff

RHONDA JANICE CRISP
Second Plaintiff

AND

KELLERBERRIN FARMERS CO-OPERATIVE COMPANY LTD
First Defendant

NORMAN LESLIE MILLS
Second Defendant

ROBERT GRANVILLE LAMPLUGH
Third Defendant

MALCOLM TREVOR ALCOCK
Fourth Defendant

Catchwords:

Practice and procedure - Discovery - Champerty and maintenance - Application for discovery and production of evidence relating to funding of litigation - Documents not related to pleaded issues - Whether evidence of any funding agreement ought be disclosed - Whether alleged funding agreement constitutes an abuse of process - Application for discovery dismissed

Legislation:

Rules of the Supreme Court 1971 (WA), O 37 r 6(2a)

Result:

Application dismissed

Category:    B

Representation:

Counsel:

First Plaintiff                :     Mr P Mendelow

Second Plaintiff            :     Mr P Mendelow

First Defendant             :     Mr G I Chitty

Second Defendant         :     Mr D J Pratt

Third Defendant           :     Mr D J Pratt

Fourth Defendant          :     Mr D J Pratt

Solicitors:

First Plaintiff                :     S E Kawalsky

Second Plaintiff            :     S E Kawalsky

First Defendant             :     Muries Lawyers

Second Defendant         :     Jackson McDonald

Third Defendant           :     Jackson McDonald

Fourth Defendant          :     Jackson McDonald

Case(s) referred to in judgment(s):

Bandwill Pty Ltd v Spencer‑Laitt [2000] WASC 210

Blythe v The State of Western Australia [2008] WASCA 10

Campbell's Cash and Carry v Fostif Pty Ltd (2006) 229 CLR 386

Capital Webworks Pty Ltd v Adultshop.com Limited [2005] FCAFC 232

Chandler v Water Corporation [2004] WASC 95

Clairs Keeley (a firm) v Treacy [2003] WASCA 299; (2003) WAR 139

Clairs Keeley (a firm) v Treacy [2004] WASCA 277; (2004) 29 WAR 479

Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd [2007] FCAFC 52

Mulley & Marney v Manifold (1959) 103 CLR 341

HASLUCK J: 

The proceedings

1. It appears from the statement of claim in these proceedings that in or about late September 1999 the plaintiffs entered into a written agreement to purchase from the first defendant the Kellerberrin Hotel and related business operations. 

2. At that time the plaintiffs lived in Dorrigo in the State of New South Wales but in due course they moved to Kellerberrin in order to conduct the hotel business.  In these proceedings they contend that misrepresentations were made to them as to the profitability of the business and certain other matters in respect of which they are entitled to damages. 

3. The second, third and fourth defendants are alleged to have been shareholders and directors of the first defendant at the material time.  It is therefore alleged that the plaintiffs are entitled to relief against these parties also pursuant to provisions of the Trade Practices Act 1974 (WA) and the Fair Trading Act 1987 (WA). The defendants deny liability.

Events after commencement of the proceedings

1. After the proceedings had been on foot for a number of years an article was published in the Merredin Wheatbelt Mercury on 25 April 2007 to the effect that the first defendant was facing an expensive court battle with the former licensees of the Kellerberrin Hotel, Stuart Freeman and Rhonda Crisp.  The article contained a passage to this effect:

   The Merredin Wheatbelt Mercury tried to attend a co‑operative shareholders meeting last Friday but was denied access. 

   A consulting accountant employed by Mr Freeman and Ms Crisp was at the meeting to discuss findings in the case. 

   Agtion Consultancy Services director Lindsay Johnston said his clients, Mr Freeman and Ms Crisp, had borrowed money from a litigation funding group for the court case. 

   'I am not at liberty to disclose the name of the group, but they are based in New South Wales,' he said.

2. I pause to note that the author of the article was not identified and no further information was provided as to the nature of the so‑called 'borrowing' or the involvement of the litigation funding group referred to.

Subsequent events

1. Shortly after the article was published, by letter dated 1 May 2007, the solicitors for the second, third and fourth defendants wrote to the solicitor for the plaintiffs.  Henceforth, for ease of reference, I will call these defendants 'the defendants'.  The letter contained a passage in which the solicitors asked to know whether the plaintiffs were in fact being funded by litigation funders and if so, under what circumstances. 

2. It was said further that the defendants reserved their rights to have the action struck out for maintenance or champerty.  Further, it was said, if the plaintiffs were impecunious, the defendants reserved their rights to apply to the court for security for costs.  I will call this the 'defendants' 1 May letter'.

3. The solicitor for the plaintiffs replied by letter dated 16 May 2007.  It was said that the defendants were not entitled to security for costs.  It was said further that 'no abuse of process has taken place' and reference was made to a recent decision of the High Court: Campbell's Cash and Carry v Fostif Pty Ltd (2006) 229 CLR 386. I will call this the 'plaintiffs' 16 May letter'.

Further correspondence

1. There was further correspondence between the parties in which the solicitors for the defendants continued to press for information as to whether the plaintiffs were being funded by litigation funders and as to the terms of any such arrangement. 

2. The solicitor for the plaintiffs refused to provide any such information and disputed that any failure on the part of his clients to confirm or deny the existence of a funding agreement constituted a basis for the court to draw an inference that there was in existence a funding agreement.  He said that there was no obligation on the part of the plaintiffs to disclose how the plaintiffs were funding the proceedings.  I will call this the 'plaintiffs' 29 April letter'.

Application for orders

1. By an application dated 26 March 2008 the defendants then sought the following interlocutory orders:

   1.The plaintiffs produce to the Court and to the solicitors for the second, third and fourth defendants any document evidencing or recording any arrangement between the plaintiffs and any third party in relation to the funding of the plaintiff's claims in the within proceedings.

   2.The grounds for the application are:

   (1)The second, third and fourth defendants believe that plaintiffs are funded by a litigation funder.  The solicitors for the plaintiffs have failed or refused to confirm whether such is the case.  In this regard, the second, third and fourth defendants rely upon the affidavit of Robert Granville Lamplugh, sworn 26 March 2008.

   (2)The plaintiffs seek orders for production and inspection of any documents evidencing or recording any funding agreement pursuant to Order 26 Rule 10 SCR, alternatively, Order 52 Rule 2 SCR, alternatively, in the inherent jurisdiction of the Court.

The Lamplugh affidavit

1. The application was supported by the affidavit of Robert Granville Lamplugh sworn 26 March 2008 which contained the following paragraphs:

   4.The matters contained within this affidavit are true and correct to the best of my information and belief.

   5.At all material times, I was the chairman of the first defendant.  I remain the chairman of the first defendant.

   6.I verily believe that the plaintiffs are funded by a litigation funder.  The ground for my belief is an article that was published in the Merredin Wheatbelt Mercury on 25 April 2007.  In this article, it was confirmed by Mr Lindsay Johnston of Agtion Consultancy Services that the plaintiffs were funded by a litigation funding group for the Court case.  A copy of the article is attached hereto as Attachment 'RGL‑1'.

2. I note in passing that attachment RGL‑1 is the article from the Merredin Wheatbelt Mercury containing the passage about the litigation I mentioned earlier. 

3. The Lamplugh affidavit refers also to correspondence exchanged between the solicitors which includes the letters mentioned earlier and related exchanges. 

4. It is said finally at par 8 of the affidavit that it is evidence from the correspondence that the plaintiffs have refused to disclose whether or not they are being funded by a litigation funder and if so, the identity of the litigation funder.

The defendants' submissions

1. Counsel for the defendants contended at the hearing before me that it is to be inferred from the plaintiffs' failure to go into evidence as to the existence of a funding agreement, even in the face of the defendants' application, that a funding agreement exists.

2. The defendants' outline of submissions included these submissions:

   11.It is submitted that any agreement that the plaintiffs have entered into with a litigation funder is relevant to whether the within proceedings are being improperly maintained so as to amount to an abuse of process.  Accordingly, it is submitted that such documents are liable to production pursuant to one or more of Order 26 r 10, Order 36 r 11 or Order 52 r 2 SCR.

   12.Further or alternatively, the Court has an inherent jurisdiction to control its own processes so as to ensure that the Courts are not being used in a manner that is inimical to the due administration of justice.  The Court ought to be informed of any litigation funding agreement so that it may scrutinise such agreement to determine whether it presents an improper risk to the due administration of justice.  In the exercise, of that jurisdiction, and so that there is a proper contradictor, any funding agreement should also be disclosed to the other parties to the proceedings.

Evidentiary issue

1. At the hearing of the defendants' application counsel for the plaintiffs applied to strike out par 6 of the Lamplugh affidavit on the grounds that it infringed the rule against hearsay and, in any event, did not comply with O 37 of the Rules of the Supreme Court concerning the presentation of affidavit evidence. 

2. More particularly, it was said to be contrary to O 37 r 6(2a) which states that an affidavit containing statements of information or belief must set out the sources or grounds of that information or belief.

3. It was said on behalf of the plaintiffs that if the paragraph in question were struck out that there was no or no sufficient evidence before the court to suggest that documents were in existence concerning a funding agreement, with the result that orders of the kind applied for should not be made.

4. I digress briefly to note that counsel for the defendants contended that the disputed paragraph did not offend the rule against hearsay because it was not proffered as evidence of the truth of the assertions made.  The evidence went simply to explain the belief of the deponent which, in turn, explained the subsequent exchanges of letters by the solicitors for the parties. 

5. On the defendants' case, it was open to infer from these exchanges (being principally the failure or refusal of the plaintiffs' solicitors to deny specifically that funding arrangements had been made) and this provided a sufficient foundation for the proposed orders.

Further observations

1. It was said also on behalf of the plaintiffs that even if the disputed paragraph be received in evidence the defendants' application was misconceived.

2. Counsel for the plaintiffs submitted that the defendants were seeking production of documents in circumstances in which the existence of any such documents were unrelated to any matter in dispute on the face of the pleading.  There was no admissible evidence shedding light on whether any such documents existed.  There was no evidence of any abuse of process on the part of the plaintiffs, and there was therefore no justiciable basis to compel the plaintiffs to provide evidence as to how they were paying for their legal costs.

3. It was said further that the defendants were unfairly attempting to use the newspaper article as a fishing expedition and as a preliminary to seeking security for costs or seeking a stay or striking out of the plaintiffs' claims on the grounds of maintenance and champerty.

4. Counsel for the plaintiffs submitted that it was never incumbent upon the plaintiffs to have to respond to the request for information in the exchanges between the solicitors with the result that no inference could be drawn of the kind contended for by the defendants to support a finding that funding arrangements or documents existed.

5. Counsel submitted that if a proceeding is not an abuse of process, the fact that a third party provides financial assistance to a plaintiff to enable the plaintiff to prosecute the proceeding is not, in itself, a ground for granting a stay and could therefore not be used as a basis for requiring the production of documents as a matter preliminary to applying for a stay or for security for costs.

6. Put shortly, it was said that the application to produce on the basis of the inherent jurisdiction of the court was misconceived as there was no evidence that the proceeding was an abuse of process.  Further, it was based on an ulterior motive to elicit evidence in support of an application for security for costs which, of itself, constituted an abuse of process.

7. As to the admissibility issue, counsel for the plaintiffs contended that the newspaper article did not constitute evidence to which the court could have regard in that no deponent had given evidence to prove the truth of the content of the relevant passage. 

8. Further, the Lamplugh affidavit did not identify the original source of the hearsay information with the result that there was no compliance with O 37 r 6. In any event, the newspaper article merely referred to a borrowing, but a loan is not evidence of a champertous arrangement constituting an abuse of process.

9. I must now turn to some legal principles bearing upon the defendants' application.

Legal principles

1. In Chandler v Water Corporation [2004] WASC 95, being a decision of my own, I noted at [36] that there is no doubt that the tort of maintenance and champerty remains part of the law of Western Australia. Maintenance is generally defined as the giving of assistance or encouragement, by a person who has neither an interest in the litigation nor any other motive recognised as justifying the interference, to a party to litigation. Champerty is a particular form of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action.

2. The law on the subject was reviewed at length by the Full Court in Clairs Keeley (a firm) v Treacy [2003] WASCA 299; (2003) WAR 139. It was explored also by the Full Court in a later decision, involving the same parties, Clairs Keeley (a firm) v Treacy [2004] WASCA 277; (2004) 29 WAR 479. In the latter case the court made these observations:

   Consequently, it is necessary to balance the competing interests in the course of assessing that risk to the due administration of justice which has been introduced by the funding arrangements.  In seeking that balance one important consideration should, we think, be whether or not the litigation is, in truth, still that of the plaintiff or defendant.  That is to say, the funded party should still be in a position to benefit from a successful outcome and should be entitled to make informed decisions which are critical to the litigation.  If the funder's level of control is such that, in reality, it will be making decision of that kind, or even if the funded parties are not to be given sufficient information to enable them properly to make decisions of that kind, there will be a substantial risk that the funder's intervention will be inimical to the due administration of justice and that the court's processes will be misused for commercial gain.  [125]

3. More recently, the relevant rules were reviewed by the High Court in Fostif's case.  A convenient summary of the reasoning in that case is set out in Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd [2007] FCAFC 52 at [39] as follows:

   This approach is reflected in the reasons of Gummow, Hayne and Creenan JJ at [91], [93] and [95].  Those reasons may be summarised as follows:

   •There is no overarching rule of public policy that bars the prosecution of funded litigation by reference to the share of the proceeds or the degree of control over the litigation extended to the funder.

   •The relevant question to ask is not whether the agreement, of itself, discloses champerty or maintenance; rather, it is necessary to identify what exactly was feared; in particular, what exactly is the corruption of the Court processes that is feared.  By way of example, their Honours referred to such matters as inflaming damages, suppressing evidence or suborning witnesses.

   •The question of whether there is an abuse of process is not solved by identifying a general rule of public policy that may be invoked by a defendant; each case must be determined on its own facts.

1. In the course of the hearing I was referred also to Capital Webworks Pty Ltd v Adultshop.com Limited [2005] FCAFC 232. In the Capital Webworks case Moore J made these observations at [32]:

   It cannot be doubted that a Judge of this Court can take steps to avoid the abuse of the Court's processes which might include ordering a party to provide evidence on that issue at least when the Judge reasonably suspects that the processes are being abused.  There is nothing novel about a Judge requiring a party to furnish evidence.  It can, for example, be done in aid of enforcing a Mareva injunction: see, for example, the observations of Deane J in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622 ‑ 623. However, in the present case it is not entirely clear why it was necessary for the affidavit to be ordered. On the evidence adduced to this point, it can be inferred that a third party (which may or may not be at arms length to the appellant) has lent money to the appellant to provide security ordered by Nicholson J. The evidence does not suggest anything more. Even if the lender is at arms length and anticipates repayment of the loan from the proceeds of the litigation if the appellant is successful, such a situation falls well short of one which would constitute an abuse of process. If, in addition, the lender was entitled to some or all of the proceeds of the litigation, that, of itself, is unlikely to render the principal application an abuse of process. There is nothing to suggest that there has been any 'trafficking' in the litigation or that the appellant does not control the litigation. It must be remembered that the position of the respondents, in relation to any costs the appellant might ultimately be ordered to pay, has been protected to this point by the provision of security of costs.

2. Finally, I must take account of certain observations made by Templeman J in Bandwill Pty Ltd v Spencer‑Laitt [2000] WASC 210. His Honour said that the fact that an action is being maintained illegally is not a defence to the action. A court will be reluctant to prejudge in interlocutory proceedings an issue which does not afford a substantive defence when the parties seeking a stay must show that the abuse of process is plain and obvious. The jurisdiction to stay proceedings should be sparingly exercised and only in very exceptional circumstances.

3. I must also refer to Blythe v The State of Western Australia [2008] WASCA 10. That dealt with the appropriate form of an affidavit if a deponent was to adduce evidence by way of information and belief. His Honour Justice Pullin observed at [43] in that case that the objection in question should have been upheld. His Honour made these observations at [43]:

   Being evidence led to prove the truth of what the former student said, it was hearsay evidence and inadmissible unless made admissible by O 37 r 6(2)(a). Order 36 r 6(1) states that save for the exceptions mentioned, an affidavit must be confined to such facts as the deponent is able of his own knowledge to prove. Order 37 r 6(2)(a) provides that an affidavit used for the purposes of interlocutory proceedings may contain statements of information or belief. Preferably statements of information or belief in affidavits should follow the form 'I have been informed by X and verily believe'. See Lewkowski v Bergalin Pty Ltd (Unreported, WASCA, Library No 7675, 26 May 1989). This form is preferable, not because the court requires ritualised behaviour, but because it clearly indicates the source of the information, states the information and states that the deponent believes that what X has said is true. If that form, or something similar, is not followed, there may be a tendency for the drafters of affidavits to drift into bad habits which will produce affidavits inadmissible under O 37 r 6.

1. Let me now return to the circumstances of the present case.

The present case

1. Having regard to the observations made by Pullin J in Blythe's case, I am of the view that the disputed par 6 of the Lamplugh affidavit must be struck out upon the basis that it is inadmissible as hearsay unless made admissible by O 37 r 6(2a). I do not consider that the affidavit and the relevant passage conforms to the requirements of the rule in question because the original source of the hearsay information has not been sufficiently identified.

2. It follows from earlier discussion that this is not necessarily the end of the matter because, on the defendants' case, it can be inferred from the exchanges by way of correspondence that funding arrangements or documents exist.  However, I am not persuaded that the inference contended for can be drawn. 

3. As to that aspect of the matter I take heed of what was said by Menzies J in Mulley & Marney v Manifold (1959) 103 CLR 341 at 343. In that case the plaintiff had received a letter from the Victoria Racing Club indicating that the committee had resolved to exclude him as not being a desirable person. The plaintiff was of the view that it should be inferred from a disparity between what was communicated and what was discovered that there was in existence some resolution additional to that discovered, and that accordingly further discovery should be ordered. Menzies J (sitting alone) observed at 344 that he was not prepared to draw such a fanciful inference. Further, in circumstances in which the discovered resolutions spoke of the secretary being instructed to draft appropriate letters in reply, but no letters in reply were in fact received, Menzies J said that he was not prepared to infer that drafts ever came into existence.

4. It was said also in that case, being observations made in the context of an application for discovery, that the court should not assist a party upon a fishing expedition.  Only a document which relates in some way to a matter in issue is discoverable, although it is sufficient if it would, or would lead to a train of inquiry which would, either advance a party's own case or damage that of his adversary.

5. It emerges from these rulings that I have no persuasive evidence before me that funding arrangements or documents exist or evidence of any kind exists to suggest that there are arrangements amounting to an abuse of process.  I am therefore of the view that there is no basis upon which orders can be made requiring the plaintiffs to produce documents in compliance with orders of the kind proposed by the subject application.

6. Further, and in any event, even if I were minded to give some weight to the evidence in the Lamplugh affidavit that the defendants seek to rely on, I am of the view that the situation would be as described by Moore J in the Capital Webworks case.  There may be some evidence of a lending arrangement but that, of itself, is not sufficient to establish that the lender has such a degree of control that an abuse of process can be inferred.

7. Fostif's case makes it clear that an issue concerning abuse of process in this context must be assessed not by reference to a general policy concerning maintenance and champerty but according to the facts of the particular case.

8. In the present case, even on a view of the evidence most favourable to the defendants, there is simply not enough before the court to justify the orders sought.  For these reasons also, I am persuaded to the plaintiffs' point of view and will rule against the application.

Summary

1. It follows from the reasons I have given that the defendants' application will be dismissed.  I will hear from the parties as to whether any further orders or directions are required.