Hamilton v Meta Platforms, Inc
[2023] FCA 1148
•29 September 2023
FEDERAL COURT OF AUSTRALIA
Hamilton v Meta Platforms, Inc. [2023] FCA 1148
File number: NSD 899 of 2020 Judgment of: CHEESEMAN J Date of judgment: 29 September 2023 Catchwords: PRACTICE AND PROCEDURE – application to permanently stay proceedings under s 23 of the Federal Court of Australia Act 1976 (Cth) or r 1.23 of the Federal Court Rules 2011 (Cth) – where the representative applicant is self-represented – where the representative applicant is also the executive director and sole shareholder of the litigation funder – where the representative applicant is a legal practitioner but is not acting as a solicitor in the proceeding – where the representative applicant has financial interests in the outcome of the proceeding separate to his claims as a representative applicant – whether a permanent stay is required to prevent the administration of justice from being brought into disrepute – Held: application granted. Legislation: Federal Court of Australia Act 1976 (Cth) ss 22, 23, 33N, 33ZE
Federal Court Rules 2011 (Cth) r 1.32, 10.43(4)(c)
Cases cited: Akai Pty Ltd v People’s Insurance Co Ltd [1996] HCA 39; 188 CLR 418
Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 2) [2020] FCA 1355
Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd (No 6) [2010] FCA 704; 270 ALR 504
Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218
Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27; 226 CLR 256
Bolitho v Banksia Securities Ltd (No 4) [2014] VSC 582
Brady v NULIS Nominees (Australia) Limited atf the MLC Super Fund [2021] FCA 999
BHP Group Limited v Impiombatao [2022] HCA 33
Campbells Cash and Carry Pty Limited v Fostif Pty Limited [2006] HCA 41; 229 CLR 386
Chen v Monash University [2016] FCAFC 66; 244 FCR 424
Clairs Keeley (a Firm) v Treacy (2004) 29 WAR 479
Clurname Pty Ltd v Commonwealth Bank of Australia [No 1] [2015] FCA 153
Clyne v NSW Bar Association [1960] HCA 40;104 CLR 186
Dyczynski v Gibson [2020] FCAFC 120; 280 FCR 583
Epic Games, Inc v Apple [2021] FCAFC 122: 286 FCR 105
Giannarelli v Wraith [1988] HCA 52; 165 CLR 543
Hamilton v Meta Platforms, Inc (Service out of Jurisdiction) [2022] FCA 681
Jago v District Court (NSW) [1989] HCA 46; 168 CLR 23
Kayler-Thomson v Colonial First State Investments Limited (No 2) [2021] FCA 854
Kelly v Willmott Forests (No. 4) [2016] FCA 323; 335 ALR 439
Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd [1997] FCA 9; 72 FCR 261
Myers v Elman [1940] AC 282
NPP Australia Limited v Ripple Labs, Inc [2020] FCA 1237
Parkin v Boral [2022] FCAFC 47; 291 FCR 116
Paschke v Secretary, Department of Social Services [2023] FCAFC 143
Perera v Getswift Ltd [2018] FCAFC 202; 263 FCR 92
PNJ v The Queen [2009] HCA 6; 83 ALJR 384
QGC Pty Ltd v Bygrave [2010] FCA 659; 186 FCR 376
Ridgeway v The Queen [1995] HCA 66; 184 CLR 19
Rogers v The Queen [1994] HCA 42; 181 CLR 251
Timbercorp Finance Ltd (in liq) v Collins and Tomes [2015] VSC 461
Timbercorp Finance Ltd (In Liq) v Collins and Tomes [2016] VSCA 128
Timbercorp Finance Ltd (In Liq) v Collins and Tomes [2016] HCA 44; 259 CLR 212
Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507
UBS AG v Tyne as trustee of the Argot Trust [2018] HCA 45; 265 CLR 77
Wigmans v AMP Limited [2021] HCA 7; 270 CLR 623
Williams v Spautz [1992] HCA 34; 174 CLR 509
Wilkinson v Wilson Security Pty Ltd [2022] FCA 756
Victoria International Container Terminal Ltd v Lunt [2021] HCA 11; 271 CLR 132
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 190 Date of last submissions: 31 January 2023 Date of hearing: 2 – 3 February 2023 Counsel for the Applicant: The Applicant appeared in person Counsel for the First Respondent: Mr M Darke SC and Ms K Lindeman Solicitors for the First Respondent: Corrs Chambers Westgarth Counsel for the Second Respondent: Mr R Yezerski Solicitors for the Second Respondent: Herbert Smith Freehills
ORDERS
NSD 899 of 2020 BETWEEN: ANDREW PAUL STUART HAMILTON
Applicant
AND: META PLATFORMS, INC.
First Respondent
GOOGLE LLC
Second Respondent
ORDER MADE BY:
CHEESEMAN J
DATE OF ORDER:
29 SEPTEMBER 2023
THE COURT ORDERS THAT:
1.This proceeding (NSD899/2020) is permanently stayed.
2.For the avoidance of doubt, the permanent stay of this proceeding does not prevent the claims the subject of this proceeding from being brought by the applicant or group members in another proceeding.
3.The applicant pay the respondents’ costs of the interlocutory applications as agreed, or failing agreement as assessed by a Registrar of the Court on a lump sum basis.
4.The parties be granted leave to apply to vary order 3 by filing and serving submissions (of no more than 3 pages) in support of any variation they contend for within 5 business days of these orders.
5.In the event that a party applies to vary order 3 by filing and serving submissions under order 4:
(a)The opposing party or parties is/are to file and serve any submissions in response (of no more than 3 pages) within 5 business days of service on them of the submissions under order 4;
(b)The party or parties served with submissions under paragraph (a) is/are to file and serve any submissions in reply (of no more than 2 pages) within 3 business days of service on them of the first mentioned submissions.
6.The submissions referred to in Orders 4 and 5 should be easily legible using a font size of at least 12 points and one and a half line spacing throughout, including in any footnotes and annexures.
7.The applicant is to give notice to Group Members and SUFB Token Holders of the orders which I have made in determining the present applications and provide a link to the reasons for judgment when published on the Court’s website.
8.The form in, and means by, which the notice in Order 7 is to be given are to be agreed by the parties and a proposed short minute of order in relation thereto is to be provided to my Associate within 5 business days of these orders, with any areas of disagreement to be indicated in mark up.
.Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
CHEESEMAN J
INTRODUCTION
These reasons concern interlocutory applications brought by the respondents, Meta Platforms, Inc. formerly Facebook, Inc. and Google LLC, as first and second respondents respectively, seeking identical relief, namely, that the substantive proceeding be permanently stayed, or alternatively, an order that the proceeding not continue as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth).
The substantive proceeding is a representative proceeding commenced by Mr Hamilton, as representative applicant, under Part IVA of the Act against Meta and Google. Mr Hamilton refers to the proceeding, and promotes the proceeding, using the description “the Crypto Ad Ban Case”. Mr Hamilton is self-represented. He qualified as a lawyer but is not the solicitor on the record in this proceeding. There is no solicitor on the applicant’s side of the record.
Mr Hamilton was successful in obtaining leave to serve out of the jurisdiction following an ex parte application: Hamilton v Meta Platforms, Inc (Service out of Jurisdiction) [2022] FCA 681 (Hamilton (Service Out)). Familiarity with the reasons in the Hamilton (Service Out) decision is assumed for the purpose of these reasons.
In obtaining leave to serve out of the jurisdiction, Mr Hamilton was required under the then requirements of r 10.43(4)(c) of the Federal Court Rules 2011 (Cth) to establish that he has a prima facie case in relation to at least one cause of action or remedy claimed in the proceedings. Although Mr Hamilton brought the application in respect of representative proceedings, he did not need to establish a prima facie case in respect of all potential categories of group members. For the purpose of that application, it was sufficient for Mr Hamilton to establish that he, as a group member, had a prima facie case in respect of one of his pleaded claims. That requirement is “not particularly onerous”: Australian Competition and Consumer Commission v Yellow Page Marketing BV [2010] FCA 1218 at [23] (Gordon J, when her Honour then was on this Court). A prima facie case is made out where, upon a broad examination rather than an intense scrutiny of the material before the Court, inferences are shown to be open which, if translated into findings of fact, would support the relief claimed: Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd (No 6) [2010] FCA 704; 270 ALR 504, 507 at [8] (Bennett J) and the cases cited therein. A detailed analysis of the evidence is not called for: NPP Australia Limited v Ripple Labs, Inc [2020] FCA 1237 at [27] (Burley J). Mr Hamilton succeeded on the ex parte application in establishing that findings of fact were available and inferences were open to be drawn that established a prima facie case for the relief claimed in respect of one of the claims pleaded. The decision did not require or extend to a substantive assessment of the merits of the claims pleaded.
The claims against Meta and Google can be traced to the period between 29 January 2018 and about July 2018 during which it is alleged that Facebook and Google each introduced measures which prohibited, or substantially restricted, advertising related to cryptocurrency and, more broadly, the cryptocurrency industry. Mr Hamilton alleges that the restriction on advertising applied not only on the Facebook and Google platforms but also affected advertising on other platforms that sourced their advertising content from Facebook and/or Google. The restrictions on advertising about which Mr Hamilton complains were progressively modified by each of Facebook and Google, with the most recent modifications alleged to have taken effect in May 2019 (Facebook) and sometime between October 2018 and September 2019 (Google). Mr Hamilton seeks relief in respect of alleged contraventions of the Competition and Consumer Act 2010 (Cth) (the CCA) (including in respect of restrictive trade practices, misleading and deceptive conduct and accessorial liability) and tortious conduct (including deceit, malicious falsehood and conspiracy): Hamilton (Service Out) at [3]. Mr Hamilton alleges that the respondents’ conduct substantially reduced the advertising opportunities available to the cryptocurrency industry, including those persons engaged in the supply of cryptocurrency related goods and services.
The proceeding is funded by JPB Liberty Pty Ltd (or the Funder). Mr Hamilton is the sole shareholder, one of the two directors and Chief Executive Officer of the Funder. The other director, Maree Carmel Hamilton, is a non-executive director and is Mr Hamilton’s mother. Mr Hamilton says that JPB Liberty has entered into a formal written litigation funding agreement (LFA) with approximately 650 Group Members, defined in the LFA as Funded Class Members. JPB Liberty has a right to partake in the Funded Class Members’ share of any proceeds of the litigation. One of the means by which JPB Liberty is funding the litigation is by issuing crypto tokens known as “Sue Facebook Tokens” (SUFB Tokens). SUFB Tokens are issued as a reward for financial and non-financial contributions to the litigation. The holders of SUFB Tokens have a right to participate in any proceeds of the proceeding. The participation rights of both JPB Liberty and SUFB Token Holders are defined in the LFA.
Mr Hamilton brings the proceeding on his own behalf and on behalf of Group Members as defined in the further amended originating application. The definition of Group Members is very broad – it includes persons who “owned, controlled, or had legal entitlements whose value was based on the price of” specified cryptocurrencies during the period from 29 January 2018 to the present (the relevant period). The list of specified cryptocurrencies numbers 33 in total and includes Bitcoin, Ethereum, and ZCash. The definition of Group Members extends to seven other categories of person having a connection of some sort with the supply of goods or services relating to cryptocurrency. The class is not limited to persons who have signed funding agreements with JPB Liberty. Group Members are defined as an “open class” – persons who did not know about the proceeding or consent to becoming a Group Member when the proceeding was commenced will be included in the class: Clurname Pty Ltd v Commonwealth Bank of Australia [No 1] [2015] FCA 153 at [4] (Foster J).
For purposes of the present applications, it is not necessary to recount the detail of each category captured by the Group Members definition other than to observe that the definition’s reach is extensive – it will cover a large and geographically diverse group of persons. For example, the subcategory of Group Members who owned or controlled one or more of the 33 specified cryptocurrencies is not geographically limited and will include any person in the world that owned any of the specified currencies in the relevant period. The Group Members definition also includes “Persons who provided specialised cryptocurrency related professional advice” and “Persons who published media websites or video channels on websites such as YouTube or organised conferences or events specialising in cryptocurrency related content during the Relevant Period”. In bringing this proceeding as representative applicant, Mr Hamilton submits that he is acting on behalf of Group Members numbering in the “millions in Australia and tens of millions spread all over the world”. Many, if not the vast majority, of the Group Members will have no knowledge of the proceeding.
In applying for a permanent stay, the respondents contend that to permit the proceeding to continue in its current form would bring the administration of justice into disrepute for two principal reasons. First, Mr Hamilton is in an intractable position of conflict vis-à-vis Group Members such that continuation of the proceeding with him as representative applicant, sole shareholder and Chief Executive Officer and director of the Funder, and without the benefit of legal representation, will bring the administration of justice into disrepute. Secondly, the manner in which Mr Hamilton’s interest in the proceeding has been structured involves him in, in substance, obtaining prohibited contingency fees through the issuance of SUFB Tokens to him by JPB Liberty as a reward for his non-financial contributions to the litigation.
It bears emphasis at the outset that the respondents acknowledge that if a permanent stay is granted it would not preclude the underlying claims against the respondents being pursued in other proceedings, including a different representative proceeding, if such proceedings were otherwise properly constituted and were conducted in a way that did not bring the administration of justice into disrepute. When a class action is commenced, the running of any limitation period is suspended and does not begin to run again until either the group member opts out of the proceedings or the proceedings are finally determined: s 33ZE of the Act.
As an alternative form of relief, the respondents seek a de-classing order under s 33N of the Act on the basis that Mr Hamilton is not capable of adequately protecting Group Members’ interests. The respondents submit that there are two reasons why Mr Hamilton cannot adequately protect Group Members’ interests. First, he is prevented from doing so because of his pervasive conflicts of interest. Secondly, because he is not equipped to do so having regard to the way in which the claims advanced in this proceeding are framed, coupled with the complexities inherent in representative proceedings generally, and the specific complexity of the present proceeding. Mr Hamilton resists the de-classing order, contending that s 33N does not provide a general power to de-class due to alleged conflicts of interests arising from litigation funding arrangements. He further submits that it would not otherwise be in the interests of justice to de-class the proceeding.
CONCLUSION IN SUMMARY FORM
For the reasons which follow, I am satisfied that this proceeding should be permanently stayed for the first reason advanced by the respondents. To permit the proceeding to continue in the current form would bring the administration of justice into disrepute. Although Mr Hamilton sought to advance a number of ways in which the proceeding may be managed so as to mitigate the issues identified by the respondents, I am not satisfied that the conflicts inherent in Mr Hamilton’s multi-faceted interests in the proceeding are capable of being appropriately managed, including by the means he has put forward in his submissions on this application.
Having reached this conclusion, it is not necessary to consider the respondents’ applications in the alternative for a de‑classing order pursuant to s 33N of the Act.
EVIDENCE
In support of its application, Meta relies on two affidavits of Mark Anthony Wilks, solicitor for Meta, affirmed on 8 November 2022 and 6 December 2022. Meta also tendered two exhibits to those affidavits. Google relies on an affidavit of Leon Chung, solicitor for Google, affirmed on 12 October 2022, and one exhibit thereto. Google and Meta’s evidence was admitted without objection. Evidence in one application is evidence in the other.
Mr Hamilton relies on two affidavits. First, his own affidavit sworn 20 November 2022 and an exhibit thereto. Secondly, an affidavit of David Hans Lange sworn 20 November 2022 and the annexure thereto. Mr Hamilton also relies on an amended conflicts of interest policy dated 3 February 2023 for JPB Liberty and tendered on 3 February 2023. Mr Hamilton’s evidence was admitted without objection. Mr Hamilton’s evidence is an amalgam of evidence and submission and I will treat it as such. In the course of the hearing, Mr Hamilton also read in the whole of tab 20 of the court book, being the Applicant’s Concise Court Book for service application dated 14 July 2021, which included his affidavits sworn on 27 August 2020, 6 September 2020, 10 December 2020, 1 March 2021 and 12 July 2021. Google objected to various portions of the material seeking limitations for those portions to be treated as submission. Mr Hamilton agreed to those limitations and I will treat those portions as submissions.
FACTUAL BACKGROUND
Overview of Mr Hamilton’s involvement and interest in the proceeding
At the heart of this application is the respondents’ attack on Mr Hamilton’s pervasive conflicts arising from his numerous duties and interests. To elucidate the nature and extent of the conflicts it is useful to begin by enumerating the various roles Mr Hamilton has in, or in connection with, the proceeding.
First, Mr Hamilton is the representative applicant, he is referred to as the Representative in the LFA. He resides in Israel. It is convenient to extract the broad description of Mr Hamilton’s claims from Hamilton (Service Out) at [22]:
22Mr Hamilton’s overarching contention is that the Ad Ban Provisions caused a substantial reduction in advertising opportunities for cryptocurrency-related goods and services which resulted in a substantial reduction in demand for those goods and services. Mr Hamilton contends that the operation of the Ad Ban Provisions has resulted in the loss of a “substantial economic benefit” from the cryptocurrency industry, which has in turn caused group members to suffer loss or damage, of which his personal claim is an example. Broadly, and without being exhaustive, Mr Hamilton claims he suffered loss occasioned by: (1) a reduction in the profitability of cryptocurrency mining, which was the primary business of Green Freedom Limited (Israel), a company wholly owned by Mr Hamilton; (2) diminution in the value of his investment in STEEM, a cryptocurrency, which Mr Hamilton contends experienced severe decline following the introduction of the Ad Ban Provisions; (3) loss of the business opportunity to operate a successful cryptocurrency consulting practice specialising in investment in the cryptocurrency industry which Mr Hamilton says he established with his wife under the name, Grant Hamilton Crypto Advisory, before introduction of the Ad Ban Provisions; and (4) a reduction in the value of his unsold cryptocurrency holdings.
Mr Hamilton frames his claim as a claim for damages, including aggravated damages and exemplary damages, under s 82(1) of the CCA and s 22 of the Act respectively, declaratory relief under s 163A of the CCA and/or s 21 of the Act, a permanent injunction under s 80 of the CCA requiring the respondents to cease the alleged contravening conduct and other relief under s 87(1) of the CCA including a public apology and the provision of certain services to group members at no cost, and without restriction, for a period of time equal to the period of the alleged contravening conduct. An asserted source of loss included in the [FASOC] is a claim for “loss of amenity for users of blockchain based social media platforms”. Mr Hamilton submits that his cryptocurrency holdings were relatively small (under A$10,000) compared to other Funded Class Member who had holdings in the US$1 to 10 million range in the early 2018 period for which the majority of market based causation damages are claimed. This submission is advanced by Mr Hamilton in the context of seeking to justify his various interest in any litigation proceeding derived from the funding arrangements in place.
Secondly, Mr Hamilton appears as a litigant in person, that is, a self-represented litigant. Although Mr Hamilton was admitted as a solicitor of the Supreme Court of New South Wales in 1996 and entered the register of legal practitioners of the High Court of Australia in 2005, Mr Hamilton is not the solicitor on the record in this proceeding. He describes himself as a litigant in person who happens to have legal experience and is adamant that he is not acting as a solicitor or barrister for anyone in this proceeding. As mentioned, there is no solicitor on the record. Despite the fact that the LFA and the JPB Liberty Conflicts of Interest Policy (CMP) both refer to the role that “Lawyers” are intended to play in relation to the arrangements between Mr Hamilton, JPB Liberty, and others interested in the litigation on the applicant’s side of the record, no lawyers are presently retained to perform the role(s) allocated to the “Lawyers” under the LFA and CMP. Mr Hamilton is controlling and directing the way in which the proceeding is conducted on the applicant’s side of the record.
Thirdly, as mentioned, Mr Hamilton is the sole shareholder of the Funder and as such has a financial interest in the Funder and through the Funder in the Funder’s interest in any litigation proceeds.
Fourthly, in addition to being the sole shareholder of the Funder, Mr Hamilton is one of two directors of the Funder. He is also the Funder’s Chief Executive Officer. As mentioned, the other director is a non-executive director and is his mother. The Funder is under Mr Hamilton’s control.
Fifthly, Mr Hamilton controls JPB Liberty’s Hive accounts “@jpbliberty” and “@jpbliberty1”. Mr Hamilton describes Hive as a decentralised, blockchain based content sharing platform, akin to a social media network. The Hive platform is the one of the main ways in which Mr Hamilton communicates with Group Members and others about this proceeding, amongst other things. Mr Hamilton thus controls communication in relation to the proceeding with Group Members through his control of JPB Liberty and his operation of the relevant Hive accounts.
Sixthly, Mr Hamilton is the “Representative” under the LFA. “Representative” is defined as a Funded Class Member who is a representative applicant or plaintiff in the Class Action. In addition to the control he has over the conduct of the proceeding by virtue of his status as representative applicant, as the Representative under the LFA, Mr Hamilton is given express authority to control the conduct and direction of the proceeding in a number of ways including authority to determine which claims will be pursued in the proceeding at any stage.
As the Representative, he is responsible in consultation with JPB Liberty, the Lawyers and Counsel, to determine whether an application for a Common Fund Order will be made: cl 4.1, LFA. As mentioned, this proceeding is brought on behalf of Group Members who are part of an “open class” as defined in the further amended originating application dated 26 November 2021. Clause 4.3.1 of the LFA provides a mechanism for automatically amending the LFA to avoid conflict with any Common Fund Order made. Common Fund Order is defined to mean where the Class Action is pursued on an “open class” basis, and in the course of those proceedings the Court makes orders requiring all Class Members (whether Funded Class Members or not) to pay to JPB Liberty a percentage of a common fund comprising any amounts they may receive in any settlement or judgment in the proceeding (including any Litigation Proceeds) or any other amount, as approved by the Court.
Seventhly, Mr Hamilton is the sole arbiter in relation to the issue of SUFB Tokens. The number of SUFB Tokens to which a person is entitled by reason of their financial or non‑financial contribution to the litigation is at Mr Hamilton’s “sole discretion as sole shareholder of JPB Liberty”. In response to questions posed by the respondents, Mr Hamilton confirmed that where the relevant contribution is financial, SUFB Tokens are “issued or sold at a price determined by [Mr Hamilton] reflecting the stage of preparation for proceedings and progress of proceedings.” Mr Hamilton has further confirmed that where the relevant contribution is not financial, SUFB Tokens “issued or transferred for non‑financial contributions were assessed by [Mr Hamilton] on a discretionary basis according to [his] determination of value of each contribution and sometimes with input from the recipient.” Mr Hamilton is frank in acknowledging that to date, his decisions to issue SUFB Tokens for financial or non‑financial contributions have been “made on a purely discretionary basis, without documenting the basis or the policies and procedures”. He says that as sole shareholder and director of JPB Liberty he made these decisions “on a discretionary basis to advance the proceedings.” Mr Hamilton’s control over the terms on which the proceeding is funded is both through his control over JPB Liberty and his oversight of the issuance of SUFB Tokens.
Relatedly, Mr Hamilton, or persons associated with him, hold a substantial number of the SUFB Tokens currently on issue. In correspondence Mr Hamilton asserts that as at 23 October 2022, approximately 48% of the SUFB Tokens on issue were held by him or persons associated with him. There was some debate about the accuracy of this figure. It was common ground that Mr Hamilton, or persons associated with him, hold a substantial number of the SUFB Tokens currently on issue. I have approached my consideration of the present applications on that basis. As a consequence of his control over the issuance of SUFB Tokens, Mr Hamilton has caused JPB Liberty to issue a substantial number of SUFB Tokens to himself for what he describes as the financial and non‑financial contributions he has made to the litigation.
Based on the above analysis, it is plain that Mr Hamilton, has a financial interest in the litigation that significantly exceeds his own claim for relief in the proceeding. It is also plain that Mr Hamilton is able to exert control over the way in which the claims pursued in the proceeding are framed and resourced, and whether individual categories of claims are pursued or continued in the proceeding. Finally, Mr Hamilton also has significant control over the ultimate distribution of a substantial proportion of any litigation proceeds because he has complete control over the issuance of SUFB Tokens and the terms on which the tokens are issued for financial and non‑financial contributions.
The funding arrangements
It is next necessary to address the funding arrangements in more detail.
Litigation Proceeds
The LFA defines “Litigation Proceeds” as:
…any money, benefits, services and/or, if JPB Liberty so accepts pursuant to clause 7.8, any Specified Property, for which any Claim and/or Proceeding is Settled, or for which Judgment is given, in favour, or otherwise for the benefit (directly or indirectly), of You or an External Controller of You, and includes:
(a)any interest (including any interest earned on money while held in the Trust Account);
(b)any costs recovered pursuant to a Costs Order or by agreement;
(c)any ex gratia payments or any compensation (whether statutory or otherwise) directly or indirectly in relation to the Claims; and
(d)if a Respondent (or any property, assets or liabilities of any Respondent) is, or comes, under the control of an External Controller, any amounts or property distributed or paid by the External Controller of such Respondent in relation to the Claims or any Settlement or Judgment in respect thereof.
Clause 7.8 of the LFA provides:
7.8.The parties agree that their preference is for the Claims to be resolved for an amount of money and agree that JPB Liberty is, so far as possible, to receive its share of any Litigation Proceeds by way of cash payment out of any monetary component of any Litigation Proceeds. However:
7.8.1.JPB Liberty may decide, in consultation with You (or, if the Claims are to be Resolved as part of a Class Action, the Representative) and the Lawyers but in JPB Liberty’s sole discretion, to accept that a Litigation Proceeds may consist, in whole or in part, of specified property other than money (Specified Property); and, if so,
7.8.2.JPB Liberty must notify You (or the Representative, where applicable) and the Lawyers, in writing, of its decision and identify the Specified Property.
Pursuant to cl 7.8, JPB Liberty is authorised to determine in its sole discretion whether a settlement may be by way of, or include, a non‑monetary component. If a settlement includes a monetary and non‑monetary component, JPB Liberty is entitled “so far as possible” to receive its share of the Litigation Proceeds by cash payment out of the monetary component. Clause 7.11 provides that:
7.11In the event the monetary component of any Litigation Proceeds is insufficient to pay JPB Liberty and the Token Holders their full entitlements under this Agreement despite the Lawyers selling as much of the Specified Property for cash as possible, JPB Liberty and You shall use their best endeavours to agree on the way in which the non-monetary component of the Litigation Proceeds is to be fairly valued and shared between them (and, if applicable, the Lawyers in relation to any Remaining Costs) so as to ensure that JPB Liberty and the Token Holders receive, in total, from the Litigation Proceeds their full entitlements under this Agreement and, once having reached agreement, instruct the Lawyers to give effect to it accordingly. JPB Liberty will pay the Lawyers’ reasonable costs and expenses incurred in assisting the parties under this clause 7.11 as part of the Litigation Costs.
The LFA provides that the Litigation Proceeds will be paid into the “Lawyers” (as defined) trust account. Lawyers is defined as (as written):
Lawyers means the firm of Australian solicitors selected by JPB Liberty to either be the solicitor on the record for the Proceedings or to advise and assist the Representative, where the Representative chooses to be self-represented via an director who is an experienced Australian legal practitioner, or any other solicitors appointed in their place in accordance with this Agreement…
The statement that “where the Representative chooses to be self-represented via an director who is an experienced Australian legal practitioner” does not make sense. The present circumstances are that Mr Hamilton is “self-represented”. There is no solicitor on the record. There is no suggestion that “Lawyers” have been appointed to advise or assist Mr Hamilton. Mr Hamilton is not “self-represented via an director who is an experienced Australian legal practitioner”. He is each of these things — “self-represented”, a “director” of the Funder and by his own account “an experienced Australian legal practitioner”. To the extent that the clause suggests that there is some independent person Mr Hamilton is operating “via” this is not the case. Mr Hamilton has not engaged legal advisers. In conducting the proceeding, he is not aided, or in receipt of advice or assistance by independent legal representatives with a primary duty to the Court.
In Mr Hamilton’s submissions on this application, he did not suggest that as a litigant in person who is also admitted as a legal practitioner that he regarded himself as owing a primary duty to the Court. To be clear he was silent on this issue. He did recognise that legal representatives appearing for the parties in representative proceedings owed what he described as a derivative obligation as officers of the court to protect group members’ interests. He was however clear that he did not regard himself as acting as a legal representative in the proceeding. Even if he does regard himself as an admitted practitioner as owing a primary duty to the Court, he eschews that he is acting as a legal practitioner for the applicant or group members.
The LFA provides that, after reimbursement of “Litigation Costs” and GST, any Litigation Proceeds are next to be applied to payment of a “Funding Commission”.
Funding Commission
The Funding Commission is comprised of two components.
The first component is a commission payable to JPB Liberty of 5% of the Litigation Proceeds (save where the balance of the Litigation Proceeds after the payment of Litigation Costs is insufficient to pay all of the Funding Commission payable under the LFA, in which case the Funding Commission is reduced to 16.667% of the balance). The second component of the Funding Commission is a commission of 25% of the Litigation Proceeds which is payable in aggregate to SUFB Token Holders (save where the balance of the Litigation Proceeds after the payment of Litigation Costs is insufficient to pay all of the Funding Commission payable under the LFA, in which case the Funding Commission is reduced to 83.333% of the balance).
The SUFB Tokens are described on JPB Liberty’s website as follows:
Web 3.0 Litigation Funding
In Web 3.0 Litigation Funding, each Class Action is funded by a Crypto Token sale. 25% of damages awarded in the Class Action (after costs) will be paid out to Token holders and 5% to JBP [sic] Liberty. The Tokens will be listed on Crypto exchange(s) providing liquidity for token owners during the lengthy litigation process.
A New Asset Class
JPB Liberty has created a new asset class, enabled by Web 3.0 technology:
•direct investment in individual high value class actions
•via a publicly tradable, liquid crypto token
•providing a share in the proceeds of successful claims
•with payout in A$, US$ or cryptocurrency at successful case conclusion.
Traditional litigation funding only allows investment on a portfolio basis with conservative case selection via private equity or the few publicly listed litigation funders.
A Tradable Token
The “Sue Facebook” Token (SUFB) is currently listed on the Hive-Engine decentralised exchange. A Hive cryptocurrency account is required to use this exchange so all SUFB token holders are eligible class members under the Crypto Class Action. This will provide investors the ability to trade in and out of the token during the years it may take to bring the case to conclusion.
…
How it Works
The first token for the Crypto Ad Ban Case is the “Sue Facebook” Token (SUFB). It is a Hive Engine token on the Hive blockchain.
These tokens will collectively have the right to 20% - 30% (depending on the case) of the total damages pool of all class members who have signed the Funding Agreement with JPB Liberty. The precise entitlement of each token will depend on the total number of tokens issued (fixed for each case) and the percentage of damages allocated to token holders in the Funding Agreement.
Investors will purchase these tokens from JPB Liberty with cryptocurrencies such as Bitcoin & Ethereum and will receive tokens which sit in their Hive wallet. These cryptocurrency funds will be used by JPB Liberty to fund the running of the class action. JPB Liberty will generally retain a percentage of the tokens itself and the total amount raised will be capped to the needs of the case (generally less than $10 million).
During the case, investors may trade their tokens on crypto exchanges where they are listed. It is expected that the market value of each token will reflect the market’s assessment of the likely payout on the token at the conclusion of the litigation. JPB Liberty will provide updates for class members and token holders on significant developments as the litigation proceeds.
On successful conclusion of the case (Court ordered damages or settlement) investors will be paid out their share of the damages pool according to their token holdings and paid out tokens will be destroyed. The form of payment will likely be A$ or US$, but an investor may request payment in cryptocurrency. Exact details will depend on the terms of settlement and Court orders at the conclusion of the case.
On unsuccessful conclusion of the case (final adverse Court decision or discontinuance of proceedings) any remaining funds from the token sale after payment of all costs, including the other side’s costs, will be returned to token holders on pro rata basis in proportion to their holding…
The terms on which SUFB Token Holders are entitled to participate in the “Litigation Proceeds” in the Crypto Ad Ban Case are set out in the LFA as described above. Through these arrangements persons who stand to benefit from the payment of any Funding Commission include those persons who hold SUFB Tokens at the relevant time.
At present, Mr Hamilton’s evidence is that a total approaching 3 million SUFB Tokens have been issued. As mentioned, Mr Hamilton is one of the largest holders, if not the largest holder, of SUFB Tokens through his direct and related holdings. According to documents produced by Mr Hamilton, he presently holds about 297,000 SUFB Tokens personally, his family’s superannuation fund owns about a further 20,000 SUFB Tokens, and his family members hold about a further 67,000 SUFB Tokens. The largest holder of SUFB Tokens is JPB Liberty. It appears to own slightly more than about 2 million SUFB Tokens. JPB Liberty holds over two thirds of all the SUFB Tokens on issue.
JPB Liberty has resolved that any SUFB Tokens retained by it in its @jpbliberty1 Hive account will be “burnt” prior to any “Resolution” (which is defined in the LFA as the time at which any Litigation Proceeds are received). JPB Liberty has confirmed that resolution in what is described as public internet posts. The LFA and CMP do not refer to JPB Liberty having any obligation to burn any SUFB Tokens retained by it prior to any “Resolution”. Leaving aside the question of whether that resolution (or its publication) creates any binding obligation on JPB Liberty to act consistently with it, the apparent intended effect is that all SUFB Tokens remaining with JPB Liberty at the time of any Resolution will be destroyed, with the result that the total body of SUFB Tokens will be reduced to only those SUFB Tokens issued by JPB Liberty to persons or entities other than JPB Liberty. In that event, the 25% Funding Commission payable to Token Holders would be shared by Token Holders other than JPB Liberty (whose tokens will be “burnt”).
Funds raised by initial issuance are to be used to fund the proceeding and any residual issuance funds held by JPB Liberty at the conclusion of the proceeding after payment of all costs are to be returned to Token Holders on a pro rata basis in proportion to their holdings. Prior to any Resolution, JPB Liberty is able to trade in or finance against its holding of SUFB Tokens as an alternative to, or in addition to, issuing SUFB Tokens at Mr Hamilton’s direction in his capacity as the Representative. I was not taken to any part of the arrangements that suggested that when Token Holders, including JPB Liberty, sell SUFB Tokens in secondary trading that they are obliged to apply the proceeds of such sales to funding the present proceeding. On JPB Liberty’s website it is acknowledged that during the case, investors may trade their tokens on crypto exchanges where they are listed and that it is expected that the market value of each token will reflect the market’s assessment of the likely payout on the token at the conclusion of the litigation. In this context, JPB Liberty acknowledges on its website that it will issue “updates for class members and token holders on significant developments as the litigation proceeds”.
JPB Liberty has an interest in controlling the timing of new issuance with a view to the price of SUFB Tokens in any secondary trading. In the CMP, (at cl 3.2), it is recognised that because JPB Liberty’s funding model relies upon the sale of a share in the Litigation Proceeds to Token Holders, conflicts of interest involving the Token Holders must be taken into account. It is then asserted that the Token Holders’ interests are generally the same as those of JPB Liberty. Depending on the circumstances, that may or may not be correct — it may be in JPB Liberty’s interests at a particular time for tokens to be trading at a premium, and at other times, for tokens to be trading at a discount. As the major token holder, there is potential for JPB Liberty’s interests in relation to the trading and issuance of SUFB Tokens to diverge and conflict with those of minority holders. Because of the confluence in the position of JPB Liberty as the issuer of SUFB Tokens and Mr Hamilton’s authority as Representative under the LFA to determine the terms of issuance and to whom tokens are issued, Mr Hamilton has at his disposal an ability to take steps to avoid his and his associates holding in SUFB Tokens being diluted. This is a potential source of conflict between Mr Hamilton and minority Token Holders. It has the potential to impact the funding of the proceeding to the extent that the funding is derived from Token issuance and in this way potentially impact Group Members’ interests even though the majority of Group Members are not Token Holders.
For present purposes, on the assumption that JPB Liberty’s holdings of SUFB Tokens are to be burnt, Mr Hamilton submits that it is appropriate to disregard JPB Liberty’s Tokens when assessing the likely share of the 25% component of the Funding Commission that will enure to any individual SUFB Token Holder. That ignores the potential for JPB Liberty to profit from offloading its holding of SUFB Tokens in any secondary market at a time when a favourable resolution is looking likely, or has been agreed, but before the obligation to burn its tokens is triggered, namely at the time when any Litigation Proceeds are received.
If JPB Liberty’s holding of SUFB Tokens is excluded, the total body of SUFB Tokens presently on issue will reduce to about 813,000. A total of about 297,000 SUFB Tokens are held by Mr Hamilton in his personal capacity, representing approximately 36.5% of the issued SUFB Tokens, of which about 132,000 were issued for financial contributions and about 165,000 were issued for non-financial contributions Mr Hamilton’s superannuation fund holds approximately 2.5% of issued SUFB Tokens. His family holds approximately 8.3% of issued SUFB Tokens. Based on these figures, Mr Hamilton and those associated with him hold approximately 47.3% of SUFB Tokens currently on issue (excluding those held by JPB Liberty). If there was a Resolution within the meaning of the LFA and the spread of SUFB Tokens remained unchanged, Mr Hamilton would be personally entitled to approximately a third of the 25% component of the Funding Commission personally, and over 40% of the 25% component of the Funding Commission would be paid to him, his family and his related entities. Payment of that part of the Funding Commission (pursuant to entitlements under the SUFB Tokens held by Mr Hamilton and interests associated with him) would be in addition to the 5% commission that JPB Liberty is entitled to receive independently of the commission payable to Token Holders. That additional 5% commission would ultimately be to Mr Hamilton’s benefit through his sole ownership of JPB Liberty.
In this way, even on the assumption that Mr Hamilton urges, namely that it is appropriate to exclude JPB Liberty’s directly held SUFB Tokens because they will be “burnt” upon Resolution, the returns that Mr Hamilton and JPB Liberty expect to recover as a result of the 5% commission and Mr Hamilton’s share of the 25% commission are significant. In May 2020, JPB Liberty represented in a public internet post that the total claim value for persons who had “signed up” to the action exceeded $1 billion Australian dollars. In Mr Hamilton’s estimation, the value of JPB Liberty’s 5% funding commission may exceed AUD$50 million and the commission payable to Token Holders may exceed AUD$250 million, with Mr Hamilton and those associated with him being entitled to receive approximately 47.3% of that amount, that is approximately $118 million.
Distribution Priorities for Litigation Proceeds
Clause 7 addresses the procedure in respect of any receipt of Litigation Proceeds. The clause is framed as an irrevocable instruction. All payments in each priority level are to be made pari passu and pro rata. The first priority is to apply the Litigation Proceeds to the reimbursement of all Litigation Costs, as defined by cl 10.1.1, incurred by JPB Liberty, which includes all of JPB Liberty’s out of pocket costs and expenses in relation to the litigation (plus GST). The second priority is to pay to JPB Liberty an additional amount “on account of GST” being equal to the sum of the GST payable by JPB Liberty in respect of the consideration received by it for any taxable supply made to Funded Class Members under or in connection with the LFA. The third priority is to: (1) pay to JPB Liberty an amount equal to 5% of the Litigation Proceeds; (2) pay into the Token Holders Pool an amount equal to 25% of the Litigation Proceeds; and (3) pay to the Lawyers each Funded Group Member’s share of any Remaining Costs (as defined).
Where the balance of the Litigation Proceeds following the payment of the first two priorities, namely Litigation Costs and GST Reimbursement, is less than 30% of the Litigation Proceeds, the balance is to be shared 16.667% to JPL Liberty and 83.333% to the Token Holders. The fourth priority, assuming there is a surplus after the first to third priorities are met, and subject to any equalisation order, is to pay the balance of the Litigation Proceeds to or as directed by the Funded Class Members.
Litigation Costs are defined expansively and include the pre-proceedings costs; pre-litigation investigation and litigation management costs; any costs involved in the provision by JPB Liberty of any security for costs; any adverse costs order payable by JPB Liberty in accordance with the terms of the LFA; the costs of quantifying any adverse costs order; the reasonable legal fees and disbursements of the Lawyers; any other costs or expenses which are expressly stated to form part of the “Litigation Costs” payable by JPB Liberty under the terms of the LFA and all of JPB Liberty’s out of pocket costs and expenses paid or incurred in relation to the Litigation, including in relation to any consultants engaged by JPB Liberty and any GST payable thereon. Adverse costs orders are to be paid first from any Litigation Proceeds in the relevant trust account with JPB Liberty to pay any balance outstanding after any payment from trust.
As apparent from the reimbursement process outlined above, JPB Liberty has taken on certain exposures in connection with the proceeding including committing to pay: all “Litigation Costs”, JPB Liberty’s costs and expenses associated with managing the litigation, the reasonable legal fees and disbursements of any Lawyers retained by or advising Mr Hamilton, any security for costs ordered to be provided by the applicant; and any adverse costs order made against the applicant. In the context of this last exposure, it is relevant that Mr Hamilton lodged an application for no adverse costs order under s 82(4) of the CCA which is pending, subject to outcome of the present application. He has indicated that if he is successful in obtaining such an order he intends to continue the proceeding, the inference being that if he does not, he will not.
Mr Hamilton acknowledges that JPB Liberty aims to make a profit on the proceeding. He submits that his financial interest in the proceeding, directly and through JPB Liberty, is “no different from any other class action where the [representative] applicant and/or funder takes the risk of their own legal costs and adverse costs orders, and group members are not liable for any legal costs”. Mr Hamilton submits that the only conflict of interest arising out of the arrangements in place in respect of this proceeding “is the risk of an applicant accepting a low settlement offer that does not properly reflect the value of the group members’s [sic] claims or otherwise seeking to discontinue or abandon proceedings because a [representative] applicant / funder may determine that risk outweighs potential reward”. He says his own interest in the proceeding is such that the balance between risk and reward is appropriately struck.
Conflict Management Policy
The CMP is directed to providing information about JPB Liberty, disclosing potential conflicts of interest and methods to manage such conflicts if they manifest and providing information about dispute and complaint resolution procedures: cl 1.2 CMP.
The LFA provides in cl 5.4 that during the term of the LFA, JPB Liberty will:
5.4.1.comply with the requirements of the Regulations by implementing the Conflicts Management Policy; and
5.4.2. provide clear and timely disclosure to You of any material breach of the Regulations by JPB Liberty in relation to the subject matter of this Agreement.
On the first day of the hearing, Mr Hamilton tendered an updated version of the CMP as at 3 February 2023. The CMP was amended in two respects, each of which are outlined below.
The CMP includes the following information:
2.1JPB Liberty provides litigation management services and possibly financial services for funded litigation schemes involving class actions.
2.2In providing financial services, JPB Liberty is exempt from the requirements that would otherwise apply under Chapter 7 (Financial Services and Markets) of the Corporations Act 2001 (Cth) (“Corporations Act”) provided JPB Liberty complies with the Regulations and maintains adequate practices for managing any conflicts of interest that may arise in relation to any funded litigation.
2.3JPB Liberty has this conflicts management policy which stipulates the principles, practice and procedures to be followed by JPB Liberty in relation to identifying and managing any conflicts of interest that may arise in relation to, and as a result of, JPB Liberty’s funding of litigation (“Policy”). This policy is available by request to [email protected].
The relationship between JPB Liberty and Mr Hamilton is described as follows (cl 2.6 CMP)
2.6The legally experienced self-represented applicant currently bringing the Crypto Class Action proceedings is Andrew Hamilton who is also the sole shareholder of JPB Liberty Pty Ltd. Andrew Hamilton is bringing proceedings on the basis that that the Court grants him an order under s 82 (4) of the Competition and Consumer Act 2010 (Cth) that he not be liable for any legal costs of the respondents in the proceedings. If this order is not granted, proceedings will be discontinued and may be refiled later on another basis.
Clause 3 is a lengthy clause which is headed “Conflicts of Interest”. The following potential conflicts are identified:
(1)A divergence of interest between JPB Liberty, individual Group Members and “the lawyers” in relation to the funded litigation: cl 3.1, CMP.
(2)A divergence of interest between Mr Hamilton as representative applicant, JPB Liberty and individual Group Members: cl 3.1, CMP.
(3)A divergence of interest between Token Holders and other stakeholders on the applicant’s side of the record: cl 3.2, CMP.
A basic illustration of the potential conflicts of interests is provided in cl 3.3, CMP:
3.3ASIC considers that a divergence of interests may arise because:
3.3.1. JPB Liberty wishes to keep the legal and administrative costs of the funded litigation low to maximise its return;
3.3.2.the lawyers have an interest in maximising their fees; and
3.3.3. you have an interest in minimising the returns of both JPB Liberty and the lawyers.
A representation qualifying the likelihood of such conflicts manifesting is made in cl 3.4, CMP:
3.4In many instances your interests, our interests, the applicant’s interests and those of the Token Holders will be aligned. This is because the applicant, JPB Liberty and the Token Holders do not receive any payment unless you recover damages or a settlement and our & the Token Holders’ return is normally a percentage of any Litigation Proceeds. It is not in our interests for your claim to be resolved for an amount that does not reflect a reasonable settlement or to be pursued in a way which does not maximise the chances of successfully resolving it.
A statement acknowledging that even so, a conflict may still arise is included in cl 3.5, CMP:
3.5Nevertheless, in some cases a conflict may arise. We have set out below a description of the main circumstances in which conflicts may occur and the way in which we deal with them. If we identify a conflict which arises during the course of your funded litigation which has not been disclosed to you, we will bring it to your attention.
The conflicts arising as a result of the “conflicting loyalties” the lawyers owe to JPB Liberty and Group Members are explained as follows (as written):
3.6.1. the lawyers are appointed by JPB Liberty;
3.6.2. the lawyers have a retainer agreement with you and you are their client;
3.6.3. JPB Liberty is paying the lawyers’ fees and expenses;
3.6.4. JPB Liberty is providing day-to-day instructions to the lawyers;
3.6.5. the lawyers may have a pre-existing relationship with JPB Liberty or with you or another client in the litigation; or
3.6.6. the lawyers may see JPB Liberty as a future source of work.
Immediately after this explanation of potential conflicts arising from the lawyers’ involvement, the CMP then moves to making representations about the absence of conflicts of interest in the period during which Mr Hamilton is acting as a litigant in person. The CMP represents that the absence of legal representation at the liability phase of the proceeding is a positive attribute of the arrangement and that Mr Hamilton conducting the proceeding as a self-represented applicant reduces the risk of conflicts manifesting. The relevant clauses of the CMP are cll 3.7 to 3.8. Clause 3.8 was amended during the hearing. As amended to clauses are as follows:
3.7 While the proceedings are conducted by Andrew Hamilton as self represented applicant there are no conflicts of interest between the applicant and JPB Liberty because their interests are the same. There are also no conflicts of interest involving the lawyers and their fees, because there are presently no lawyers.
3.8In these circumstances, the only potential area of conflict of interest is between those of Andrew Hamilton/ JPB Liberty and the class members. Andrew Hamilton as applicant, owes a
fiduciaryduty to the class members and any settlement must be approved by the Court. Andrew Hamilton’s remuneration for his time and skills commitment (via shareholding in JPB Liberty and being a Token Holder) is dependent upon success in the proceedings, the same as the class members.(strikethrough added to show amendment)
The amendment to clause 3.8 was limited to striking out the reference to “fiduciary” in the description of the duty owed by Mr Hamilton to Group Members. The amendment of cl 3.8 reflects the fact that on this application Mr Hamilton contends that as representative applicant he does not owe a fiduciary duty to Group Members, whereas before the amendment, contrary to Mr Hamilton’s argument on this application, the CMP expressly acknowledged not only that a duty was owed, but that the duty was fiduciary in character.
In the CMP it is further represented that there is no potential for conflict between the interests of Mr Hamilton and sub-groups of Group Members arising at the liability phase of the proceeding because “the potential liability of the respondents arises from broad circumstances affecting all class members, not the specific circumstances of a particular class member or sub‑group of class members”: cl 3.9, CMP. On this basis it is said that “conflicts between [Mr Hamilton] and the class members over which claims to pursue do not arise at the liability stage”: cl 3.9, CMP. It is then acknowledged that such conflicts may arise at or during any damages phase in which case “[s]eparate lawyers for each sub-group may be appointed at that time”: cl 3.9, CMP. In cl 3.10, CMP it is then represented that:
3.10 JPB Liberty plans to appoint lawyers (and cease Andrew Hamilton’s self representation) prior to the assessment of damages, in which case the potential conflicts in 3.6 above may arise, but to a lesser extent because the class members will not have had to pay for the costs of Andrew Hamilton’s self representation and where s 82 (4) order is made and liability of the respondents is established, the respondents will have to pay most of the costs of the lawyers.
It is acknowledged that the interests of “JPB Liberty/Andrew Hamilton” and Group Members may differ in relation to issues such as litigation strategy; decisions as to which claims should be pursued; and how funding is to be applied: cl 3.11, CMP.
The balance of cl 3, which is lengthy comprising cl 3.12 to 3.35, sets out how the potential conflicts are to be managed in the LFA, the CMP and via notices to Group Members. For the purpose of this application the following clauses are relevant (as written):
3.13 JPB Liberty may want your claim to settle and you may not, or vice versa. This may happen because:
3.13.1. JPB Liberty and you have different views about the prospects of success of your claim;
3.13.2.JPB Liberty may be financially exposed if your claim is lost (because JPB Liberty has paid the legal costs (which are minimal while the applicant is self represented) and has agreed to pay any adverse costs order (which will not apply if a s 82 (4) order is not granted)) but you are not so exposed;
3.13.3. JPB Liberty wants to make a return on the money it has invested in the litigation;
3.13.4. you may have other motives for settling your claim that are non-monetary, such as preserving a relationship with the defendant;
3.13.5. you may consider the return to you (after paying JPB Liberty’s fee and the legal costs) to be inadequate; or
3.13.6. the fee provisions in the LFA may provide for a higher return to JPB Liberty if the litigation resolves at a later point in time.
3.14. These potential conflicts are relevantly addressed in this Policy and the LFA which provides:
3.14.1. for the independent and conclusive resolution of any disputes in relation to settlement by referring the dispute to the most senior counsel (barrister) retained in the litigation or to advise the self represented applicant to decide whether the proposed settlement is fair and reasonable or not; and
3.14.2. in the case of a funded class action where proceedings have not yet started, that a settlement cannot occur unless at least 50% of funded claimants by value who are affected by the settlement vote in favour of it and counsel gives an opinion that the settlement is fair and reasonable in all of the circumstances.
3.15. In addition, in funded class actions where proceedings have commenced, settlement cannot occur without the Court’s approval.
3.16. Because the LFA requires any Litigation Proceeds to be paid into a lawyer’s trust account, and lawyers to sign settlement documents, JPB Liberty will ensure that lawyers are appointed to advise the applicant on any non-derisory settlement offer received by the applicant and, if the decision is made to send a settlement offer for Court approval, to appear in relation to that aspect of proceedings.
3.17. Moreover, unless prevented by confidentiality obligations (which will not be voluntarily agreed to by JPB Liberty) all settlement offers will be published by the @jpbliberty account on the Hive blockchain and notified to Other Funded Persons made to the applicant or proposed to be made by the applicant by their preferred contact method. Where at least 30 Other Funded Persons indicate they want external legal advice on whether the settlement offer should be be accepted, JPB Liberty will appoint lawyers to advise the applicant on this.
3.18.The Court will be assessing potential and actual conflicts of interest at a very early stage of proceedings and the applicant and/or JPB Liberty may make undertakings to the Court or put in place additional procedures to manage any actual or potential conflicts of interest that are identified.
3.19. The lawyers (which will be appointed prior to any settlement) are authorised by the LFA to sign any document and take any step on your behalf that is necessary to give effect to a settlement which is reached in accordance with the LFA (and approved by the Court, if applicable).
Clause 3.17 was amended in the version of the CMP dated 3 February 2023. The amendment is illustrated by the following marked up version of the clause:
3.17. Moreover, unless prevented by confidentiality obligations (which will not be agreed by the applicant or
voluntarily agreed toby JPB Liberty) all settlement offers* made to the applicant or proposed to be made by the applicant will be published by the @jpbliberty account on the Hive blockchain and notified to Other Funded Persons made to the applicant or proposed to be made by the applicant by their preferred contact method. Where at least 30 Other Funded Persons indicate they want external legal advice on whether the settlement offer should be made or be accepted, JPB Liberty will appoint lawyers to advise the applicant on this.Clause 3.20 of the CMP identifies that a conflict may arise where JPB Liberty does not want to continue to fund a Group Member’s claim and the Group Member seeks to continue the funding in respect of their claim, or conversely a Group Member may want to terminate funding when JPB Liberty does not. Clause 3.21 purports to address this potential conflict as follows:
3.21.1. the LFA specifies the rights which JPB Liberty and you have to terminate the LFA and the consequences of any of those rights being exercised;
3.21.2. the LFA provides dispute resolution procedures in the event a dispute arises between JPB Liberty and you; and
3.21.3. the LFA may include the cost of any appeals as part of the funding or may state that JPB Liberty is not obliged to fund any appeal unless JPB Liberty decides, in its absolute discretion, to do so.
However, cl 6.9 of the LFA provides that JPB Liberty has absolute discretion as to whether to cease funding any claim on 14 days’ written notice, and cl 15.1 of the LFA provides that JPB Liberty may terminate the LFA entirely with 14 days’ written notice.
The LFA provides two dispute resolution mechanisms concerning conflicts of interests and settlement decisions at cll 11.3 and 11.6 respectively.
Clause 11.3 provides that where the Lawyers believe that they may be in a position of conflict, except in relation to Settlement, with respect to obligations owed to JPB Liberty and the group member the Lawyers may seek and prefer the advice of the group member. The CMP envisages there being two stages to the class action: (1) determination of the respondents’ liability; and (2) assessment of damages. It is notable however that JPB Liberty does not intend to appoint lawyers (and cease Mr Hamilton’s self-representation) prior to the assessment of damages: cll 3.9 and 3.10. Thus, for the duration of which Mr Hamilton remains self-represented, the protective effect of cl 11.3 is rendered nugatory. This position is made all the more stark by Mr Hamilton’s submission that he considers the primary obligation on the representative applicant is to pursue their own claim and that the group members’ interests are secondary.
Similarly, the CMP at cl 3.12.3 notes that the LFA states that lawyers may enter into retainer agreements with the group members directly. Clause 11.2 of the LFA provides that the group member may override any instruction by JPB Liberty by giving their own instructions to the Lawyers.
Clause 11.6 of the LFA provides that where there is a dispute between JPB Liberty and the Representative, as to whether or the terms on which the class action should be settled it is to be resolved by seeking advice of counsel. The same dispute resolution mechanism applies in respect of settlement of claims not yet the subject of proceedings with the additional requirement that more than 50% of Funded Class members whose claims are the subject of the proposed settlement vote in favour of it: cl 11.11. There are two points of note:
(1)Clause 11.6 requires a dispute between JPB Liberty, the funder and the Representative, who notionally represents the group members interests. The protective power of clause 11.6 is much diminished where the clause requires as a trigger a dispute as between Mr Hamilton in his capacity as a Representative and JPB Liberty of which Mr Hamilton is the executive director and the sole shareholder.
(2)If counsel’s opinion is that the settlement is fair and reasonable then the group member and JPB Liberty agree that the lawyers are instructed to do all things necessary to settle the class action: cl 11.8. If counsel’s advice is otherwise however, there is not corresponding clause requiring settlement not to proceed.
Additional undertakings offered by Mr Hamilton
During the hearing, Mr Hamilton sought to supplement the arrangements in respect of conflict management in a number of ways. First, Mr Hamilton proffered a series of undertakings:
Firstly, … that JPB Liberty will not issue any further SFUB tokens to myself, the applicant, for non-financial contributions without court approval, as I noted yesterday none have been issued since the start of the proceedings, and that would continue to be the case.
Secondly, I offer to amend the litigation funding agreement conflicts of dispute resolution provisions and the conflicts policy as directed by the court to better protect group members from time to time, as and when required. I note that there is a provision that allows the litigation funding agreement to be amended unilaterally on 14 days’ notice… that provision is provision 17.4.3 of the litigation funding agreement.
…
The third offered undertaking, … is to seek court approval for any issues or sales by JPB Liberty of more than $180,000 tokens. That’s 1 per cent of total, either singularly or in any 365 day period, and taking into account the concerns that seem to be expressed by the respondents that I might go to the court for every one of 18 million tokens, … I would limit that, that I wouldn’t seek that approval more than twice in any 365 day period. That would limit any … impact on the court’s time.
Upon being asked how it would be appropriate for the docket judge allocated to hear the substantive proceeding to be involved in that level of management of the arrangements in place on the applicant’s side in circumstances where such applications may be contested, Mr Hamilton acknowledged his proposal may result in the docket judge being precluded from hearing the substantive proceeding. His suggested solution was to offer to limit any such applications to once in every 365 day period, with such applications to be heard by a judge other than the docket judge. Mr Hamilton said that his expectation is that an application of this type would probably only happen once in the entire life of the proceeding, if at all, because “it would only really happen if a large potential investor sought to come in to support the class action” and Mr Hamilton does not envisage that happening. Smaller issues of tokens would be at Mr Hamilton’s discretion without any need to involve the Court. Only token issues that would result in an issue more than one per cent in the total available issuance would require Court approval.
Mr Hamilton noted that the LFA (on 14 days’ notice) and the CMP can effectively be amended at will by JPB Liberty and accordingly, offered to undertake to maintain in substance the protections in cl 3.17 of the CMP as amended.
CONSIDERATION
Mr Hamilton and the respondents did not agree as to the legal basis for relief sought by the respondents. The parties were also in dispute as to the nature and extent of any obligation owed by a representative applicant to group members in representative proceeding. I will first address the applicable principles and then the application of the principles to the proceeding at hand.
Nature of relationship between representative applicant and Group Members
At the heart of this application is the issue of conflict of interests between Mr Hamilton and Group Members. The respondents’ principal argument is that Mr Hamilton’s multiple roles — as a litigant in person; representative applicant; Chief Executive Officer, director and sole shareholder of the Funder; the largest holder of SUFB Tokens; and the person who controls the issue of SUFB Tokens — create, at the least, a real potential for Mr Hamilton’s personal interests and his duties to the Funder to conflict with his duties to, and the interests of, Group Members.
Mr Hamilton’s submissions oscillated on the seminal issue of the representative applicant’s duty to group members, at times denying any such duty was owed, but ultimately contending that the duty was of limited scope and secondary to the representative applicant’s own interests in successfully prosecuting their own claim. As the argument developed, a central point of contention between the parties was the ambit of the duties Mr Hamilton owes to Group Members in conducting the proceeding and whether such duties are secondary to his own interests in the proceeding.
A substantial portion of Mr Hamilton’s written and oral submissions were devoted to demonstrating that a representative applicant was not a fiduciary of Group Members, in the sense of being legally bound to put the interests of Group Members ahead of his own. The contrary position was expressly recognised by the CMP prior to the CMP being amended during the hearing to delete the adjective “fiduciary” from the statement about the duty owed by Mr Hamilton to the Group Members. In his supplementary submissions, Mr Hamilton submits that a representative applicant in a representative proceeding does not owe fiduciary duties to group members. Mr Hamilton submits that for this reason the starting point for the respondents’ “entire conflict of interest argument” is flawed. Mr Hamilton submits that his primary obligation as representative applicant is to pursue his own claim. He says that Group Members gain the benefit of the litigation without taking on the risks. Mr Hamilton contends that as representative applicant he owes no fiduciary obligation to Group Members because Group Members could have no reasonable expectation that he would act in the interests of Group Members to the exclusion of his own interests. He submits that it is the primary obligation of the Court to protect group members and that any legal representatives acting as such in the proceeding, including the respondent’s legal representatives, have an obligation to protect group members which in his submission is derivative of the legal representatives’ duty to the court.
As the argument developed, the point about nomenclature faded in significance. Both Mr Hamilton and the respondents accepted that the structure and content of Part IVA of the Act imposes statutory duties on a representative applicant. The respondents’ position was that it mattered not how the duty was described, whether as fiduciary or as an implied statutory duty, what is important is the content of the duty owed by a representative applicant to group members in the conduct of common claims. The difference between the parties thus reduced as the argument developed to a contest as to the content and scope of the statutory duty.
The respondents submit that there is a duty on the representative applicant not to act contrary to the interests of group members in conducting the representative proceeding: Parkin v Boral [2022] FCAFC 47; 291 FCR 116 at [126] (Murphy, Beach and Lee JJ). The respondents submit that the duty is not limited to particular aspects of the conduct of the litigation, such as settlement approval or class closure, but extends to the conduct of the proceeding generally. They rely by way of analogy on the duties of a representative applicant’s lawyers to non-client class members which extend to the preparation and prosecution of the proceeding generally, and submit that the duty of a representative applicant to group members must be co-extensive, particularly, where, as here, the representative applicant is acting in person: Kelly v Willmott Forests (No. 4)[2016] FCA 323; 335 ALR 439 at [308] to [309] (Murphy J).
Mr Hamilton submits that the duty is not so wide and is rather a duty not to deprive group members of their substantive rights. Mr Hamilton submits that the duty does not extend to the day‑to‑day management of the case including the making of forensic decisions, decisions about how and where to spend money and decisions where it cannot be ascertained prospectively whether those decisions will make any difference in the end result of the case. Mr Hamilton submits that where it is not possible prospectively to determine how a forensic decision might affect the outcome of a case then it is not appropriate to suggest that a conflict of interest can arise in respect of such decisions. Mr Hamilton contends that there is a meaningful distinction between decisions that affect substantive rights and mere forensic decisions. Further and crucially, Mr Hamilton submits that a representative applicant is justified in pursuing their interests “primarily” and in treating the group members’ interests as “secondary”. Mr Hamilton reasons as follows:
(1)Part IVA of the Act is procedural and not substantive, citing BHP Group Limited v Impiombatao [2022] HCA 33 at [54] (Gordon, Edelman and Stewart JJ) in that it extends the representative applicant’s claim as the vehicle for determining the claims of other group members;
(2)The representative applicant’s claim remains the basis of the claim and “always has to come first” and the group members’ claim “tails on from that, as a procedural matter, not as a substantive” matter; and
(3)It follows that the scheme of Part IVA tends against the imposition of typical fiduciary relationships where the fiduciary undertakes to prefer the interests of the beneficiary over their own interests because the scheme requires the representative applicant to pursue their own claim “primarily” and to “then secondarily protect the interests of group members” in a limited way by not depriving group members of their substantive rights.
I am not persuaded by Mr Hamilton’s submissions. They are contrary to authority and mischaracterise the scheme of Part IVA. For the reasons that follow, I am satisfied that as the representative applicant in the present proceeding, Mr Hamilton owes a duty to Group Members not to act in a way that is contrary to their interests in conducting the proceeding.
In Parkin v Boral the Full Court recognised that a representative applicant owed a duty to group members not to act contrary to the interests of group members: at [126]. The Full Court did not limit the ambit of that duty to particular aspects of, or stages in, the conduct of the litigation, such as settlement approval or class closing. In the circumstances of this case, where Mr Hamilton is acting in person and by his conduct of the proceeding and also by exercising rights conferred on him under the LFA, he can bind Group Members, the duty he owes to Group Members must be at least co-extensive with the duties of lawyers to non-client group members.
I do not accept that a limitation on the ambit of the duty can be drawn by reference to the distinction that Mr Hamilton seeks to draw between decisions which affect substantive rights of Group Members and those which are merely forensic or procedural in nature. That distinction is not sensibly maintainable when considered in context. For example, a forensic decision not to call evidence on a particular issue or a procedural decision not to pursue one or more of the common claims may readily be seen as potentially impacting the substantive rights of Group Members. Both decisions, even though not in relation to settlement per se or class closure, have the real potential to impact Group Members’ interests. Mr Hamilton’s submission that it is difficult to determine prospectively whether Group Members’ interests will be adversely affected by a particular decision may be accepted, but it serves to demonstrate why it is all the more important to the operation of Part IVA for the representative applicant’s interests to be substantially aligned with those of Group Members, as opposed to the interests of the Funder, and to recognise that the representative applicant owes a duty not to act in a way that is contrary to the interests of Group Members. Conflicts may manifest in ways that are subtle and the interests of group members may be negatively impacted in a way that is unintentional. Recognising that a representative applicant owes a duty to group members not to act contrary to the interests of group members requires the representative applicant to be vigilant in keeping group members’ interests front of mind.
Mr Hamilton submits that the authorities cited by the respondents do not support the contention that a representative applicant owes a fiduciary duty to group members in a representative proceeding. Further, that statements to that effect in the authorities relied upon by the respondents are obiter dicta which is not seriously considered. He says that the line of obiter dicta can be traced to Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; 256 CLR 507 at [40] (French CJ, Bell, Gageler and Keane JJ) which Mr Hamilton submits does not actually state that representative applicants owe fiduciary duties to group members. Mr Hamilton submits that I am bound by a line of authority which he describes as being to contrary effect, namely, that representative applicants do not owe fiduciary duties to group members. The line of authority relied on by Mr Hamilton in this respect comprises the decision in Timbercorp Finance Ltd (in liq) v Collins and Tomes [2015] VSC 461 (Timbercorp PJ), the intermediate appeal in Timbercorp Finance Ltd (In Liq) v Collins and Tomes [2016] VSCA 128 (Timbercorp VCA) and the ultimate appeal in Timbercorp Finance Ltd (In Liq) v Collins and Tomes [2016] HCA 44; 259 CLR 212 (Timbercorp HCA).
Mr Hamilton submits that to recognise a duty that is fiduciary in character as owing by a representative applicant to group members would disturb “a finely balanced statutory scheme” and would be inconsistent with the analysis of Part IVA in the High Court’s decision in Timbercorp HCA and Impiombato.
Meta accepts, correctly, that the plurality’s statement in Tomlinson at [40] that representative parties in class actions typically owe fiduciary duties to group members was obiter dicta. However, Meta contends that it was seriously considered obiter dicta and that since Tomlinson there has been a line of binding authorities which affirm this proposition.
It is convenient to extract the relevant passage from Tomlinson at [40] in full:
40 Traditional forms of representation which bind those represented to estoppels include representation by an agent, representation by a trustee, representation by a tutor or a guardian, and representation by another person under rules of court which permit representation of numerous persons who have the same interest in a proceeding. To those traditional forms of representation can be added representation by a representative party in a modern class action. Each of those forms of representation is typically the subject of fiduciary duties imposed on the representing party or of procedures overseen by the court (of which opt-in or opt-out procedures and approval of settlements in representative or class actions are examples), or of both, which guard against collateral risks of representation, including the risk to a represented person of the detriment of an estoppel operating in a subsequent proceeding outweighing the benefit to that person of participating in the current proceeding.
(emphasis added)
That passage is directed to forms of representation which bind those represented to estoppels by the representative. An additional example to the traditional forms of that type of relationship is identified as “representation by a representative party in a modern class action”. A point being that in a representative proceeding, the representative has the capacity to take action that is binding on the represented parties.
As a result of the way in which the arrangements have been structured, SUFB Tokens are an important source of funding the litigation and therefore are important to the prospects of success of the litigation. Mr Hamilton’s interests in relation to the issue of SUFB Tokens are multi-faceted. As already mentioned, Mr Hamilton, being aligned with the Funder and as a substantial holder of SUFB Tokens (directly and indirectly), is interested in the proceeding achieving a successful outcome utilising the lowest funding reasonably possible, whether that funding is provided by JPB Liberty or via issue of SUFB Tokens.
Relatedly, Mr Hamilton has an incentive not to cause JPB Liberty to issue any more tokens in circumstances where he and his associates hold the majority of tokens on issue and the right to participation is pegged at 25% of the Litigation Proceeds regardless of the stage at which a resolution is achieved. The continued issuance of SUFB Tokens to persons other than Mr Hamilton (or persons associated with him) has the potential to dilute Mr Hamilton’s interests in the Litigation Proceeds. He has an interest in issuing SUFB Tokens to himself, and his associates, for minimal financial or non-financial contributions, provided that in his subjective assessment, the proceeding is adequately funded such that he is satisfied that the prospects of success are reasonable.
The position of Group Members is different. It is in Group Members’ interests for as many of the maximum available number of SUFB Tokens (being 18 million) to be issued as is necessary for JPB Liberty to build a “war chest” to use in the conduct of the litigation, and to receive such non-financial contributions from prospective token holders as is necessary to give the litigation the greatest prospect of success. I accept Mr Hamilton’s submission that an excessive outlay will not necessarily result in enhanced prospects of success but that is not the issue. Unlike Mr Hamilton who is aligned with JPB Liberty, Group Members do not have to meet the cost of funding the proceeding as those costs are incurred, they are not exposed to the potential for adverse costs orders, and they will only be required to contribute to reimbursing Litigation Costs under the LFA in the event Litigation Proceeds are generated. In these circumstances, Group Members’ interests are served by resourcing the preparation and prosecution of the proceeding at a level that permits top tier legal representation to be retained and comprehensive, experienced legal services, including in relation to expert evidence, to be supplied, that are appropriate to the complexity and scale of the proceeding. For completeness I note that the point in relation to the potential exposure to adverse costs orders may prove to be moot if Mr Hamilton either obtains an order protecting him against an adverse costs order or discontinues the proceeding if he is not successful in obtaining such an order.
Given that Funded Class Members have agreed under the LFA to allocate 25% of the Litigation Proceeds to SUFB Token Holders collectively, the issuance of further SUFB Tokens does not dilute Funded Class Members’ interests in the Litigation Proceeds whereas it may reduce the prorated return on individual SUFB Tokens, which collectively share in 25% of the Litigation Proceeds. In this way the divergence in the interests of Mr Hamilton and Group Members with respect to the issuance of SUFB Tokens gives rise to a real potential for further conflict of interest to arise between Mr Hamilton and Group Members.
The potential for Mr Hamilton to issue tokens to himself and his associates at an undervalue is real. He is the sole arbiter in relation to the terms on which any SUFB Tokens are issued and the terms on which the Tokens can be issued are not dictated by documented transparent policies or otherwise recorded. The interests of Group Members, whose right of participation in the Litigation Proceeds is of a lesser order of priority than the rights of SUFB Token Holders, demand that the 25% of the Litigation Proceeds that is reserved for SUFB Token holders is reserved to reward those who have made contributions that objectively and demonstrably add value and enhance the prospects of success of the proceeding, regardless of whether the contribution is financial or non-financial. It is in Group Members’ interests that the issue of SUFB Tokens is based on an independent and objective value based assessment so as to give rise to the greatest influx of contributions in return for the 25% participation rights reserved for SUFB Token Holders. There is a risk with the present arrangements of there being effectively two markets for the issue of SUFB Tokens, one of which is for persons not associated with Mr Hamilton and the other is for Mr Hamilton and persons associated with him, with the latter being subject to a risk of issuance at undervalue or not on arms’ length terms. If this occurred, and became public, it could undermine the utility of the SUFB Tokens as a source of funding the proceeding and that could be to the detriment of Group Members generally or in respect of some claims.
Mr Hamilton’s proposed undertaking in relation to involving the Court in approving issuance which exceeds one percent of the total amount of SUFB Tokens that can be issued in a 365 day period does not ameliorate this source of conflict. It would be inappropriate to allocate judicial resources additional to those engaged in the determination of the substantive proceeding to take on the role that Mr Hamilton proposes. Mr Hamilton submits that he would not seek approval more than once in any 365 day period but has not justified how it would be an appropriate application of public resources for this role to be effectively outsourced to the Court. The potential for the process to be controversial and mire the Court in what is essentially unbounded commercial decision-making collateral to the proceeding before the Court is plain. Contrary to Mr Hamilton’s submission, the Court is ill placed to oversee the management of these conflicts, when they arise outside of a settlement context. In any event, the undertaking as framed would leave Mr Hamilton with ongoing unfettered issuance powers in relation to all issuance that is less than designated percentage triggering referral to the Court.
Mr Hamilton’s prosecution of the proceeding against the respondents in these circumstances, with the consequence that Group Members are bound by his conduct and their claims are extinguished by the resolution of this proceeding if allowed to continue, brings – or, at least, has the “real potential” to bring – the administration of justice into disrepute.
Mr Hamilton’s receipt of prohibited contingency fees
The second argument in support of the grant of a permanent stay is that by reason of his receipt of SUFB Tokens for non-financial contributions, Mr Hamilton is in effect receiving fees in the nature of prohibited contingency fees. The respondents submit that given Mr Hamilton is legally qualified and having regard to the nature of Mr Hamilton’s involvement in the proceeding, the absence of independent lawyers, the extent and timing of the issuance of SUFB Tokens to Mr Hamilton for non-financial contributions, the Court should infer that Mr Hamilton is receiving SUFB Tokens in reward for legal work he has done in connection with the proceeding, including in the lead up to the proceeding being filed. The respondents submit that if that be correct then Mr Hamilton is receiving in effect prohibited contingency fees. The respondents submit that this aspect of the arrangements constitutes an additional basis to stay the proceedings on the basis that it is a separate abuse of process or otherwise undermines the proper administration of justice.
Mr Hamilton expressly denied when addressing the Court that he was provided for SUFB Tokens in respect of legal work that he performed. Mr Hamilton submits that the SUFB Tokens awarded to him were for work done prior to filing the proceedings, which work he described as non-legal work, including in establishing a litigation funding company, creating websites, signing up class members, and seeking investments. Mr Hamilton was not cross‑examined on his assertions made during his submissions.
Meta submits that the Court should infer that Mr Hamilton is receiving SUFB Tokens for legal work. Meta illustrates the point by reference to the timing of the original statement of claim, which was dated 13 August 2020. Meta submits that it can be inferred that the statement of claim was prepared by Mr Hamilton in the period from June to August 2020. Mr Hamilton received 15,000 tokens for work done in that period.
Mr Hamilton submits that the 15,000 SUFB Tokens that he received were for work he performed for JPB Liberty and for which he caused JPB Liberty to pay him in SUFB Tokens. Meta submits that if this be correct then it would be contrary to the terms of the LFA for three reasons. First, the LFA defines SUFB Tokens as tokens issued in order to fund the proceeding. Secondly, the purpose of the issuance on Mr Hamilton’s account is not aptly described as a non-financial contribution to the conduct of the proceeding but rather for work done for the Funder’s book build. Finally, the issuance appears to be contrary to cl 6.2 of the LFA which provides that the Funder will not seek reimbursement from any Funded Class Member for any internal overheads incurred as part of the litigation.
Given the manner in which the applications were conducted, and having regard to the seriousness of making a finding that Mr Hamilton as an admitted solicitor has engaged in conduct of the type alleged, I am not satisfied that it is appropriate to infer that Mr Hamilton is being rewarded for legal services by the issue of SUFB Tokens. It is equally possible that Mr Hamilton is being rewarded for non-legal services in the manner in which he asserts even though arguably that may be inconsistent with the LFA. Given that I have concluded that it is appropriate to permanently stay the proceeding because of the real potential for the continuance of the proceeding to bring the administration of justice into disrepute, it is not necessary to determine this alternative basis on which the respondents rely.
For completeness, although Mr Hamilton attacked the precedential value of the authorities on which the respondents relied in relation to the prohibition on the receipt of contingency fees, I accept that the proposition established in Clyne v NSW Bar Association [1960] HCA 40; 104 CLR 186 at 203, remains good authority:
…[A solicitor] must not in any case bargain with his client for an interest in the subject-matter of litigation, or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding…
It is consistent with the continuing legislative prohibition on contingency fees in all Australian jurisdictions other than Victoria: Bolitho v Banksia Securities Ltd (No 4) [2014] VSC 582 (Bolitho (No 4)) at [50] per Ferguson JA. The decision in Bolitho (No 4) predated the insertion of s 33ZDA of the Supreme Court Act 1986 (Vic) in 2020 which created an exception to the legislative prohibition in Victoria.
Although, I have concluded that I cannot infer on the material before me that, to date, Mr Hamilton has been issued SUFB Tokens as a reward for legal services, given the way in which the proceeding is being resourced and the manner in which Mr Hamilton is approaching his own risk/reward calculus through the issue of SUFB Tokens to himself and at his direction, the risk of that occurring in the future cannot be excluded.
Public interest considerations relevant to the grant of relief
Mr Hamilton submits that there is a public interest dimension to this proceeding arising from the private enforcement of Part IV of the CCA, “enhanced” by the proceeding being a representative proceeding and the private, civil enforcement of Division 1 of Part IV of the CCA being a preliminary step in the public enforcement of the criminal prohibitions on cartel conduct. Mr Hamilton submits that there is also public interest in the first judicial consideration of various provisions of the CCA and that for the proceeding to be stayed where the respondents have wielded “power, wealth and influence” in an “arbitrary and capricious” manners as alleged would bring “bring the system of justice into disrepute and undermine the rule of law”. Mr Hamilton cites Epic Games, Inc v Apple [2021] FCAFC 122: 286 FCR 105 (Middleton, Jagot and Moshinsky JJ) as an analogous case.
At paragraph [40] of Hamilton (Service Out) I noted that the Full Court in Epic held that Part IV claims necessarily have a public dimension and I accept that there is accordingly a degree of public interest in the claims the subject of this proceeding. I note for completeness that the stay the subject of consideration in Epic is distinguishable to the stay sought in this proceeding in two respects. First, the stay in Epic was a stay of the underlying substantive claim. That is not the case here where the stay applies to the representative proceeding and group members may continue to pursue their claims either individually or through a differently constituted representative proceeding. Secondly, the stay was granted by the trial judge in Epic because of an exclusive jurisdiction clause which covered the dispute. The relevance of the public interest consideration was that a stay may be refused where the foreign jurisdiction clause offends the public policy of the forum, whether that policy is evinced by statute or declared by judicial decision: Akai Pty Ltd v People’s Insurance Co Ltd [1996] HCA 39; 188 CLR 418 at 445 (Toohey, Gaudron and Gummow JJ). In this proceeding, a stay is sought not because of an exclusive jurisdiction clause but rather because the proceeding itself may bring the administration of justice into disrepute.
I am satisfied that insofar as there is a public interest component to this proceeding, consideration of that factor does not outweigh the other factors I have identified that weigh in favour of a stay. Without being exhaustive, those factors include the following. First, that the grant of a permanent stay of the proceeding does not operate to preclude the prosecution of the underlying claims in separate proceedings, whether by way of a representative proceeding or as individual claims. Secondly, notwithstanding the public interest dimension to the proceeding, it remains the case that due to the potential for conflicts of interests between Mr Hamilton and Group Members, the continuation of the proceeding as constituted is likely to bring the administration of justice into disrepute. Thirdly, that risk is heightened in circumstances where Mr Hamilton is a litigant in person. Finally, the means by which Mr Hamilton has proposed that these conflicts be managed by dedicated and active judicial oversight, extending well beyond settlement approval and class closure determinations, are not consistent with the independence of the Court in fulfilling its judicial function.
Mr Hamilton also relies on the evidence of Mr Lange in resisting the relief sought in the applications on the basis of public interest considerations.
Mr Lange deposes to holding 30,000 SUFB Tokens in a Hive account called @israellycoolblog. Mr Lange is also the executive director of an Israeli registered not‑for‑profit (amuta) called Israellycool Israel Advocacy. Mr Lange deposes that on 16 November 2022 his personal and Israellycool’s Facebook pages were suspended without warning. Mr Lange selected an option which allowed him to disagree with the suspension. On 17 November 2022 the Israellycool Facebook page was published. On 19 November 2022 Mr Lange’s personal Facebook account became available again. Mr Lange deposes that as at the date of his affidavit, 20 November 2022, he remains unable to post to the Israellycool Facebook page.
Mr Hamilton submits that the suspension of Mr Lange’s personal account and the Israellycool Facebook page was not coincidental and was in effect retribution for Mr Lange’s support of this proceeding. Mr Hamilton submits that the suspension is relevant to the public interest which must be considered in determining whether the proceeding ought to be stayed.
I have considered Mr Lange’s affidavit and Mr Hamilton’s affidavit dated 20 November 2022. I am not satisfied on the evidence before me that the suspension of Mr Lange’s personal Facebook account and the Israellycool Facebook page was in response to Mr Lange’s support of this proceeding. To the contrary, in Mr Lange’s blog post annexed to his affidavit, Mr Lange states that he “highly suspects one of the antisemites I have exposed on the website reported the Israellycool Facebook page. This has happened to me a few times before…”.
In any event, for the reasons given at paragraph [177] above, I am not satisfied that the evidence relied on by Mr Hamilton in this respect weighs against my conclusion that the proceeding should be permanently stayed.
Conclusion - Stay of proceedings
I am satisfied that this proceeding should be stayed because it would otherwise bring the administration of justice into disrepute and undermine the integrity of the Court’s processes in relation to representative proceedings. In a representative proceeding, the administration of justice may be brought into disrepute where the manner in which it is conducted principally serves the interests of the representative applicant and the litigation funder and leaves the interests of group members inadequately protected. Such an arrangement is contrary to the scheme of Part IVA of the Act.
In Bolitho (No 4), the issue was whether senior counsel and the solicitor for the applicants should be restrained from acting in the proceeding in order to ensure the due administration of justice and protect the integrity of the judicial process in circumstances where the solicitor (through an indirect shareholding) and the senior counsel (though his spouse’s shareholding) had substantial interests in the litigation funder and therefore had a financial interest in the proceeding. Ferguson JA found that the solicitor’s multiple roles (as solicitor for the applicant and as director, secretary and shareholder of the litigation funder) increased the likelihood of conflicts and gave the appearance that his role as a solicitor and as an officer of the court was compromised: at [53]. While Bolitho (No 4) is not directly on point, the observations of Ferguson JA are apposite. In the present context, her Honour’s observations highlight the potential in a particular case for conflicted representation, where the representative has a substantial financial interest in the proceeds of the litigation, to tarnish the appearance of the due administration of justice.
As I have set out above, there is the very real potential for conflicts of interests to arise and influence Mr Hamilton’ conduct of the proceedings in ways that are to the detriment of Group Members. The conflicts set out above arise from the many and varied roles Mr Hamilton undertakes in and in relation to this proceeding and are not adequately addressed by the LFA, CMP or the undertakings Mr Hamilton has proffered to the Court. Were the conflicts to arise, there are real concerns about how Mr Hamilton would address them in circumstances where he frames his claim as being primary and those of Group Members as being secondary. Even with the best of intentions, the way in which the myriad of conflicts can manifest may be subtle and insidious. The protection of Group Members is not appropriately addressed by Court oversight, particularly in this proceeding where the Court is bereft of an independent solicitor, that is an officer of the Court, acting on record for the representative applicant. I accept that a permanent stay is regarded as a tool of last resort, however, I am satisfied that it is required in this proceeding.
I note that in Wilkinson, Colvin J required notice to be given of a declassing application sought by the respondent in circumstances where the applicant did not oppose the application but sought for group members to be notified that the proceedings would inter alia, not continue as a representative action. The purpose of the notice was to afford group members the opportunity to consider whether they wished to secure legal representation or appoint another representative applicant. The orders provided that if there were no objections from the group members who received the notice, the representative proceedings would be de-classed. Similarly, in Paschke v Secretary, Department of Social Services [2023] FCA 6 (Paschke PJ) (Colvin J) the representative applicant submitted that group members should be notified “before any decision was made to discontinue the case as a class action” citing Wilkinson. Colvin J found that notice was not appropriate where the representative applicant had not demonstrated a proper basis for his commencement of proceeding and where there was no other person proposed as a representative applicant and no indication that any other person wished to maintain the proceedings: Paschke PJ at paragraph [23]
In these applications, Mr Hamilton as the representative applicant did not agitate the issue of notice. Mr Hamilton in his submissions has made clear that he considers the absence of legal representation to be of benefit for Group Members, at least until after the determination of liability. Similarly, Mr Hamilton has not undertaken that he be replaced as a representative applicant or even indicated that there might be a willing alternative representative applicant who is acceptable to the Funder. In these circumstances, I do not consider there to be utility in directing that the stay be suspended to allow a notice to be given to Group Members. I will, however, order that Mr Hamilton give notice to Group Members and SUFB Token Holders of the orders which I have made in determining the present applications and provide a link to the reasons for judgment when they are published on the Court’s website.
De-classing order
As an alternative to a stay, the respondents submit that the Court should exercise its power under s 33N(1) of the Act to de-class the proceeding. As I am satisfied that it is appropriate to grant a permanent stay of the proceedings, it is not necessary to consider the alternative claim for relief.
Costs
The respondents seek the costs of their applications. The respondents have been successful in their applications and costs ordinarily follow the event. I do not see a basis for departing from this course. I will order accordingly. In doing so, I will reserve to the parties a window of opportunity to apply to vary the cost order if they wish to do so.
CONCLUSION
I am satisfied that to permit the proceedings to continue would bring the administration of justice into disrepute. Accordingly, I will order that the proceeding be permanently stayed.
I certify that the preceding one hundred and ninety (190) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Cheeseman. Associate:
Dated: 29 September 2023
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