Melbourne City Investments Pty Ltd v Myer Holdings Ltd
[2017] VSCA 187
•20 July 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0008
| MELBOURNE CITY INVESTMENTS PTY LTD | Applicant |
| V | |
| MYER HOLDINGS LIMITED | Respondent |
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| JUDGES: | OSBORN, WHELAN and FERGUSON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 9 June 2017 |
| DATE OF JUDGMENT: | 20 July 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 187 |
| JUDGMENT APPEALED FROM: | [2016] VSC 655 (Sifris J) |
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PROCEDURE – Abuse of Process – Applicant created as vehicle for bringing class actions against listed corporations – Applicant held shares in respondent purchased for less than $1000 –Applicant not concerned with being compensated for loss nor with bring the proceedings for the benefit of the group members – Applicant sought to profit through orders for payment to it for acting as representative plaintiff and funding litigation – Proceeding stayed by trial judge as abuse of process because predominant purpose for bringing proceeding to gain collateral advantage that was improper – Proceedings are designed to redress wrongs - Relief applicant sought not for that purpose but to gain benefit of ancillary orders – Such relief ‘outside the scope of the remedy’ as discussed in the authorities – Appeal dismissed - Williams v Spautz (1992) 174 CLR 509, Goldsmith v Sperrings Ltd [1977] 1 WLR 478, Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509, Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386, Farey v National Australia Bank Ltd [2016] FCA 340, Treasury Wine Estates Limited v Melbourne City Investments Pty Ltd (2014) 45 VR 585, Melbourne City Investments Pty Ltd v Leighton Holdings Limited [2015] VSCA 235 considered - Supreme Court Act 1986 ss 33V, 33ZF.
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| APPEARANCES: | Counsel | Solicitors |
For the Applicant | Mr N O’Bryan with | Portfolio Law |
| For the Respondent | Mr I Waller QC with Mr P Liondas | Clayton Utz |
OSBORN JA
FERGUSON JA:
Introduction
Melbourne City Investments Pty Ltd (‘MCI’) was created as a vehicle for bringing class actions against listed corporations for contravention of the continuous disclosure provisions in the Corporations Act 2001 (Cth). MCI holds small parcels of shares in many publicly listed companies, with the cost of each parcel of shares being less than $1000. MCI has put itself in a position where, if there is a breach of the continuous disclosure obligations by any of those companies, it is able to start a class action acting as the representative plaintiff.
In this regard, MCI holds 400 shares that it purchased in Myer Holdings Limited for just over $700. MCI is the lead plaintiff in a securities class action against Myer. It alleges that Myer breached its continuous disclosure obligations under the Corporations Act and that Myer engaged in misleading and deceptive conduct.
Mark Elliott is the sole director and secretary of MCI. BSL Litigation Partners Limited (‘BSLLP’) (a company associated with Mr Elliott[1]) is the sole shareholder of MCI. In giving evidence, Mr Elliott accepted that at best, MCI’s damages would be limited to the hundreds of dollars.
[1]Mr Elliott is one of the directors and is a major shareholder through his superannuation fund and another company which he controls.
MCI has begun other securities class actions against some other publicly listed companies in which it holds shares. BSLLP has been the litigation funder in some proceedings in which Mr Elliott has acted as solicitor for the plaintiff. At present, there is no litigation funder involved in the current proceeding and Mr Elliott is not the solicitor for MCI. However, Mr Elliott gave evidence that if MCI received a favourable result in the litigation, most likely it would apply under s 33ZF of the Supreme Court Act 1986 for an amount to reimburse it for its time and effort in acting as representative plaintiff and it may also seek additional compensation to the extent that it acts as a funder for the litigation.[2] Section 33ZF empowers the Court to make any order in a group proceeding that the Court thinks appropriate or necessary to ensure that justice is done in the proceeding. MCI also relies on s 33V which requires court approval for settlement of a group proceeding and gives power to the Court to make such orders as it thinks fit with respect to the distribution of any money, including interest, paid under a settlement.
[2]See Melbourne City Investments Pty Ltd v Myer Holdings Limited [2016] VSC 655 (‘Reasons’) [142].
Myer applied for a stay of the proceeding on the basis that it is an abuse of process. A judge granted that application.[3] The judge held that the predominant purpose of the proceeding is to generate income or revenue for interests associated with Mr Elliott which is not a legitimate predominant purpose.[4] Although it was not necessary to decide, the judge also held that permitting the case to proceed would bring the administration of justice into disrepute.[5] The judge granted a permanent stay.
[3]Reasons [157].
[4]Reasons [130].
[5]Reasons [156].
MCI seeks leave to appeal from the orders made. For the reasons which follow we would grant leave to appeal but would dismiss the appeal.
Legal principles – abuse of process
Abuse of process may take many forms. Here, Myer contends that the proceeding should be stayed because it has been brought for a predominant purpose that is improper.[6] Bringing a proceeding to gain a collateral advantage is an improper purpose.[7] The party alleging the abuse bears the heavy onus of establishing an abuse of process.[8] The power to stay a proceeding on such grounds will only be exercised ‘in the most exceptional circumstances’.[9]
[6]Williams v Spautz (1992) 174 CLR 509, 529 (Mason CJ, Dawson, Toohey, McHugh JJ).
[7]Ibid 526–30 (Mason CJ, Dawson, Toohey, McHugh JJ).
[8]Ibid 529 (Mason CJ, Dawson, Toohey, McHugh JJ).
[9]Ibid.
The leading authority on abuse of process of the improper purpose kind is Williams v Spautz.[10] In that case, Dr Spautz was dismissed from his position as a senior lecturer at the University of Newcastle. Dr Spautz then instituted more than 30 different proceedings. In some of the proceedings, Dr Spautz alleged criminal defamation and conspiracy against persons who occupied positions of authority at the University. Some of them sought a stay on the basis that the proceeding was an abuse of the process of the court. By majority, the High Court held that the proceedings should be stayed, on the basis that the predominant purpose of Dr Spautz in bringing the proceedings was improper.[11] He sought to use the threat of proceedings and maintenance of them as a means of securing his reinstatement as a lecturer at the University.[12] Mason CJ, Dawson, Toohey and McHugh JJ endorsed[13] the articulation of the relevant principle by Lord Evershed MR in Re Majory:
that court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused.[14]
[10]Ibid.
[11]Ibid 530 (Mason CJ, Dawson, Toohey, McHugh JJ). At 539, Brennan J referred to the proceedings as not having been commenced or maintained for a legitimate purpose.
[12]Ibid 530 (Mason CJ, Dawson, Toohey, McHugh JJ).
[13]Ibid 528.
[14][1955] Ch 600, 623–4.
Their Honours went on to state that the criterion for abuse of process is whether the predominant purpose of bringing the proceedings is improper.[15] They cautioned that the concept of abuse of process must be kept within reasonable bounds:
To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event.
Thus, to take an example mentioned in argument, an alderman prosecutes another alderman who is a political opponent for failure to disclose a relevant pecuniary interest when voting to approve a contract, intending to secure the opponent’s conviction so that he or she will then be disqualified from office as an alderman by reason of that conviction, pursuant to local government legislation regulating the holding of such offices. The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor. But the immediate purpose of the prosecutor is within that scope. And the existence of the ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor’s favour.
It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers.[16]
[15]Williams v Spautz (1992) 174 CLR 509, 529 (Mason CJ, Dawson, Toohey, McHugh JJ), 539 (Brennan J).
[16]Ibid 526–7 (footnotes omitted).
The plurality also drew on the observations of Bridge LJ in Goldsmith v Sperrings Ltd:[17]
Bridge L.J identified one difficulty when he said:
What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired byproduct of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it. (Emphasis added.)So would we. But his Lordship, by implication, evidently sees no difficulty with the case in which the plaintiff does not wish to pursue his or her cause of action to a conclusion because he or she intends to use the proceedings for a collateral and improper purpose.[18]
[17][1977] 1 WLR 478.
[18]Williams v Spautz (1992) 174 CLR 509, 522 (footnotes omitted).
Their Honours held that the commencement and maintenance of the proceedings was predominantly undertaken for an improper purpose and were properly stayed by the trial judge.[19]
[19]Ibid 530–531.
Brennan J delivered a separate judgment. He too focussed on the proper purpose of legal proceedings and stated:
The purposes which legal proceedings are designed to serve are the protection or vindication of particular legal rights or immunities, the maintenance or affection of particular legal relationships, and the imposition or enforcement of particular legal penalties, liabilities and obligations. The means by which these purposes are achieved in a proceeding consist in the verdict which might be returned or the order which might be made in the proceeding, in the consequences that flow naturally from a verdict that might be returned or from an order that might be made (for example, the vindication of a plaintiff’s reputation flowing from a verdict in a civil action for defamation) and in compromise of the claims made in the proceeding. The achievement of any of the purposes mentioned by any of the means mentioned is within the scope of the remedy for which a proceeding is designed. But a proceeding may be intended to produce and may be capable of producing results that are not within the scope of the remedy.[20]
[20]Ibid 532–533.
Brennan J phrased the test as one based on whether there was a substantial legitimate purpose in bringing or maintaining the proceeding. Having referred to Goldsmith v Sperrings Ltd[21] and the passage set out at [10] above he continued:
I respectfully adopt the phrase ‘reasonable relationship’ to formulate a test similar to (though it may not be identical with) the test propounded by Bridge LJ in this passage. I would formulate the test in this way: if there be a reasonable relationship between the result intended by the plaintiff and the scope of the remedy available in the proceeding, there is no abuse of process. If there be mixed purposes - some legitimate, some collateral - I would restate his Lordship’s test that ‘but for his ulterior purpose, [the plaintiff] would not have commenced proceedings at all’. So expressed, the test casts on the other party an onus of proving what the plaintiff would not have done if he had not formed the intention of obtaining a collateral advantage. That onus may be impossible to discharge. If that onus were discharged, the other party would establish that the plaintiff had not commenced or maintained the proceeding for any substantial legitimate purpose. The gravamen of the test, I apprehend, is that the plaintiff did not commence or maintain the proceeding for any substantial legitimate purpose. I would state the test in that way. Substantiality is a matter of degree, ascertained by reference to the intention attributed to the plaintiff in all the circumstances of the case. At the end of the day, the court must determine, by reference to the intention attributed to the plaintiff, not merely whether the collateral purpose of the proceeding outweighs any legitimate purpose but whether the plaintiff entertained any substantial intention that the proceeding should achieve a legitimate purpose.
For these reasons, I would hold that an abuse of process occurs when the only substantial intention of a plaintiff is to obtain an advantage or other benefit, to impose a burden or to create a situation that is not reasonably related to a verdict that might be returned or an order that might be made in the proceeding.[22]
[21][1977] 1 WLR 478.
[22]Williams v Spautz (1992) 174 CLR 509, 537.
The decision in Dowling v Colonial Mutual Life Assurance Society Ltd[23] was considered by the members of the High Court in Williams v Spautz. In Dowling, Colonial Mutual had taken an assignment of a debt owed by Dowling. Based on non-payment of the debt giving rise to an act of insolvency, Colonial Mutual petitioned for the sequestration of Dowling. Colonial Mutual proceeded this way because it wanted Dowling to be publicly examined as to who had caused him to publish defamatory material about it. Isaacs J held that notwithstanding the ultimate object of Colonial Mutual, it had a legal right to the immediate relief it sought (that being the sequestration order).[24] Colonial Mutual wished to use the proceeding for the very object for which it was designed by law; that is sequestration. Its subsequent purpose (discovery of the identity of those causing Dowling to publish the defamatory statements) could only be achieved by the court compelling Dowling to give an answer in a public examination. Isaacs J contrasted the situation with one where it was shown that Colonial Mutual had threatened Dowling that unless he gave up the names of his supporters, it would bring bankruptcy proceedings. In his Honour’s opinion, those circumstances would have constituted an abuse of process.[25] Powers J held that the proceedings were based on a lawful debt and Colonial Mutual intended in good faith to proceed with the petition for bankruptcy. Consequently, in his Honour’s opinion, there was no abuse of process.[26] Griffiths CJ dissented taking the view that the proceeding was an abuse of process. In the Chief Justice’s opinion, the sole purpose of Colonial Mutual in seeking sequestration (to discover by means of an inquisitorial bankruptcy examination those who had encouraged or funded Dowling to publish) was an illegitimate use of the proceeding and constituted an abuse of process.[27]
[23](1915) 20 CLR 509 (‘Dowling’).
[24]Ibid 519, 524.
[25]Ibid 524.
[26]Ibid 525-526.
[27]Ibid 517-518.
In Williams v Spautz, Brennan J referred to Dowling as an example of a case where the plaintiff intends to obtain relief within the scope of the remedy available in the proceeding such that there is no abuse of process.[28]
[28]Williams v Spautz (1992) 174 CLR 509, 535.
There are a number of authorities that consider abuse of process in the context of group proceedings. Importantly, in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd,[29] the High Court determined that a proceeding brought with the support, and at the direction, of a litigation funder should not be stayed by reason of that characteristic. It was not contrary to public policy nor was it an abuse of process. The litigation funder was to receive one third of any amounts recovered, together with any amount awarded to the plaintiff as costs. The plurality[30] stated that:
many people seek profit from assisting the processes of litigation. That a person who hazards funds in litigation wishes to control the litigation is hardly surprising. That someone seeks out those who may have a claim and excites litigation where otherwise there would be none could be condemned as contrary to public policy only if a general rule against the maintenance of actions were to be adopted. But that approach has long since been abandoned and the qualification of that rule (by reference to criteria of common interest) proved unsuccessful. And if the conduct is neither criminal nor tortious, what would be the ultimate foundation for a conclusion not only that maintaining an action (or maintaining an action in return for a share of the proceeds) should be considered as contrary to public policy, but also that the claim that is maintained should not be determined by the court whose jurisdiction otherwise is regularly invoked?[31]
[29](2006) 229 CLR 386 (‘Fostif’).
[30]Gummow, Hayne and Crennan JJ (with whom Gleeson CJ agreed on this issue).
[31](2006) 229 CLR 386, 434 [89].
Their Honours went on to state:
The difficulties thought to inhere in the prosecution of an action which, if successful, would produce a large award of damages but which, to defend, would take a very long time and very large resources, is a problem that the courts confront in many different circumstances, not just when the named plaintiffs represent others and not just when named plaintiffs receive financial support from third party funders. The solution to that problem (if there is one) does not lie in treating actions financially supported by third parties differently from other actions. And if there is a particular aspect of the problem that is to be observed principally in actions where a plaintiff represents others, that is a problem to be solved, in the first instance, through the procedures that are employed in that kind of action. It is not to be solved by identifying some general rule of public policy that a defendant may invoke to prevent determination of the claims that are made against that defendant.[32]
[32]Ibid 435–6 [95].
Kirby J also held that the representative proceeding was not an abuse of process. He considered the issue from the perspective of an individual plaintiff and the vindication of each individual’s rights:
it is necessary to keep in mind the particular demands inherent in representative proceedings: the need to marshal effectively substantial resources; to gather voluminous evidence; to retain and pay competent counsel over a significant period; often to provide in advance substantial security for costs; to attend both to the general issues and to those particular to identified subcategories and individual cases; and to prove consequential losses usually with the evidence of several experts. In proceedings such as the present, faced with such daunting requirements, the ordinary tobacco retailer [that is, group member] would commonly give up. If the only way to vindicate legal rights was to bring individual proceedings or to find others with exactly the same interest, most ordinary retailers would abandon hope. They would not enforce legal rights of action belonging to them.… They would withdraw rather than venture upon such expensive, stressful, perilous litigation. They would do this despite the earlier recovery by retailers of the unremitted taxes disgorged in circumstances apparently indistinguishable from their own. Individually, for most or all of them, enforcement of legal rights would not be worth the cost, risk and effort.[33]
[33]Ibid 448–9 [137] (citations omitted).
Since Fostif the role of litigation funders in class actions has continued to develop. For example, in Money Max International Pty Ltd v QBE Insurance Group Ltd[34] the Federal Court was faced with an interlocutory application for orders under s 33ZF of the Federal Court of Australia Act1976 (Cth) which had the effect of applying the terms of a litigation funding agreement to all class members, not just those who had entered into the funding agreement. The Full Federal Court held that there was power to make the orders sought and that, in the circumstances of that case, it was appropriate to do so.
[34][2016] FCAFC 148 (‘Money Max’).
The class action landscape has also developed in other ways. For some time now, payments to lead plaintiffs to compensate them for their time and effort in that role have been approved by the courts. Recently, in Farey v National Australia Bank Ltd,[35] Beach J approved the settlement of the class action proceeding and, among other orders, made orders under s 33ZF of the Federal Court of Australia Act approving payments of $1000 each to two of the applicants for the time that they had spent in their roles as lead plaintiffs (not for the time spent on their individual claims). Beach J stated that the payments were not a proxy for any incentivisation award; rather they were reasonable recompense for the time and effort that the lead plaintiffs had expended.[36] His Honour was careful to note that he should not be taken as indicating that such reward style payments could not ever be authorised or justified.[37] Beach J observed that there was statutory power to authorise such payments and their deduction from settlement proceeds under ss 33V(2) and 33ZF although it may be difficult to justify an incentivisation award (in addition to recompense for time and effort) where an external third party litigation funder was involved.[38] Beach J noted that he did not need to discuss the position where the plaintiff is a funder.[39]
[35][2016] FCA 340 (‘Farey’).
[36]Ibid [43].
[37]Ibid.
[38]Ibid.
[39]Ibid. See also Vince Morabito, ’An Empirical and Comparative Study of Reimbursement Payments to Australia’s Class Representatives and Active Class Members’ (2014) 33(2) Civil Justice Quarterly 175.
Other MCI group proceedings that have been stayed
There have been three other group proceedings brought by MCI that have been stayed as an abuse of process.[40] In Treasury Wine Estates Limited v Melbourne City Investments Pty Ltd,[41] this Court held that MCI’s purpose of generating legal fees for its solicitor, Mr Elliott, by bringing the proceeding against Treasury Wine, was not a legitimate purpose. Maxwell P and Nettle JA (as his Honour then was) held:
The authorities distinguish between two types of case. On the one hand, a proceeding will not be regarded as an abuse of process by reason only that it is brought for the purpose of taking collateral advantage of any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding. On the other hand, if a proceeding is brought for the predominant purpose of obtaining collateral advantage from the existence of the proceeding as such, as opposed to collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding, it will be an abuse of process and liable to be stayed.
In our view, the proceeding by MCI against Treasury falls into the second of these categories. What distinguishes the two categories is the use to which the proceeding is put. In the present case, MCI is using the cause of action to create an income-generating vehicle for its solicitor. It has no interest in vindicating its rights, or obtaining a remedy, as such.
The nature of the cause of action – as a claim based on an alleged breach of disclosure requirements – is immaterial to MCI’s purpose. Its sole purpose has only ever been to create for itself – in this case, by acquiring a small parcel of shares – a cause of action of sufficient merit to induce the defendant company to pay Mr Elliott’s fees.
It seems to us that this is a clear example of an abuse of process. The processes of the Court do not exist – and are not to be used – merely to enable income to be generated for solicitors. On the contrary, they exist to enable legal rights and immunities to be asserted and defended. In the common form of class action, that is the sole purpose of the proceedings. The members of the class wish to vindicate their rights. The fact that success will result in the solicitors’ fees being paid does not affect the propriety of the proceeding.[42]
[40]In addition, an application for a stay has also been sought (but not yet determined) in another group proceeding brought by MCI against UGL Limited. A stay has also been granted in a group proceeding brought against WorleyParsons in which Mr Elliott originally acted as the solicitor for the plaintiff: Walsh v WorleyParsons Limited (No 4) [2017] VSC 292.
[41](2014) 45 VR 585 (‘Treasury Wine’).
[42]Treasury Wine (2014) 45 VR 585, 588 [11]-[14] (footnotes omitted).
This Court followed Treasury Wine in Melbourne City Investments Pty Ltd v Leighton Holdings Limited.[43]In that case, MCI was the plaintiff and Mr Elliott acted as its solicitor. This Court observed:
It is one thing to commence a proceeding for the purpose of obtaining substantive relief, and in the knowledge that if one is successful then costs will likely follow the event. It is another to have commenced a proceeding for the predominant purpose of simply generating income for a legal practitioner in circumstances where the value of any loss meant that it was unlikely that the proceeding had been commenced for the purpose of recovering compensation. We agree with the majority in Treasury Wine that commencing a proceeding, in the circumstances we have described, for the predominant purpose of generating income for a legal practitioner, was and is an abuse of process.[44]
[43][2015] VSCA 235 (‘Leighton’).
[44]Ibid [45].
On the same day that the decision in Treasury Wine was delivered by this Court, MCI commenced a second proceeding against Treasury Wine (‘the Second Treasury Wine proceeding’). MCI’s claim was in the same terms as the first proceeding; the only difference was that MCI was not represented by Mr Elliott. Rather, it was represented by other solicitors. The Second Treasury Wine proceeding was transferred to the Federal Court on the application of Treasury Wine. There was a separate representative proceeding on foot in that court concerning the same subject matter (‘the Jones Proceeding’). Treasury Wine applied for a permanent stay of the Second Treasury Wine proceeding. Foster J granted that application.[45] His Honour found that MCI was created by Mr Elliott as a vehicle for bringing class actions quickly against listed corporations and, to the extent possible, to enable Mr Elliott to earn legal fees. His Honour found that MCI had no interest in recovering compensation (at best, $700) when it brought the proceeding. That amount of potential compensation did not justify the commencement of the proceeding nor its maintenance. Rather, his Honour found that MCI’s purpose was to gain a different and more significant financial benefit for itself. Foster J also found that MCI’s purpose was not altruistic. It was not a champion for other shareholders who may have suffered loss. Foster J observed that in the circumstances in which MCI purchased its shares, it would be difficult to persuade a final court that it was entitled to relief on a market-based causation theory. Foster J determined that (in the absence of evidence to the contrary) it was more probable than not that Mr Elliott was concerned in the affairs of MCI’s new solicitors in a way which would bring him or MCI financial reward. There was no evidence of MCI having the financial capability to fund the litigation itself, nor was there evidence of the involvement of an established litigation funder.[46] Foster J concluded:
The Court should not permit MCI to institute and maintain this class action when, as I have found, it is not doing so in order to obtain a remedy which the law provides either for itself as an individual claimant or for the members of the class which it purports to represent. In addition, it plainly does not have the capacity to fund this proceeding itself and has not attempted to satisfy the Court that it has put in place secure litigation funding which will cover its own costs and the amount of any adverse costs order. MCI’s claims are, at best, very weak if not hopeless. Its causation theory is problematic. MCI commenced this proceeding knowing that the Jones proceeding was on foot. It also commenced this proceeding with the intention of using it as a ’fallback’ or ’failsafe’ against the possibility that the first MCI proceeding would remain permanently stayed as an abuse of process.
The purposes of MCI identified and discussed… above demonstrate that this proceeding has been brought for an illegitimate or collateral purpose. For that reason, it constitutes an abuse of process and should be permanently stayed. It is also oppressive and vexatious vis-à-vis TWE and, if allowed to be maintained, will bring the administration of justice into disrepute. Nonetheless, I note that the claims made by MCI in this proceeding on its own account will be able to be litigated in due course in the Jones proceeding if MCI does not opt out of that proceeding. For this reason, the orders which I propose to make will not deny to MCI any legitimate remedy to which it may be entitled.[47]
[45]Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited [2016] FCA 787 (‘Treasury Wine (FCA)’).
[46]Ibid [156].
[47]Ibid [157]–[158] (emphasis in original).
The Trial Judge’s reasons
The judge described MCI’s involvement as lead plaintiff in the separate group proceedings against each of Treasury Wine Estates Limited, Leighton Holdings Ltd, WorleyParsons Limited and UGL Limited discussed above.[48] The judge also described:
·a group proceeding brought by Ms Walsh against WorleyParsons Limited in which Mr Elliott originally acted as the plaintiff’s solicitor with MCI executing a deed of indemnity in favour of the plaintiff in respect of all costs and liabilities in connection with the proceeding;
·a group proceeding brought by Mr Bolitho against Banksia Securities Limited in which Mr Elliott acted as the plaintiff’s solicitor and provided the plaintiff with an indemnity; BSLLP had the role of litigation funder;
·a group proceeding brought by Camping Warehouse Australia Pty Ltd against Downer EDI Limited in which Mr Elliott acted as the solicitor for the plaintiff until a company controlled by him took over as solicitor and in which BSLLP was the litigation funder.[49]
[48]Reasons [18]–[37].
[49]Reasons [38]–[55].
The judge then made mention of MCI’s financial position noting its liability in respect of costs orders against it in some of the proceedings, the likely costs it would incur in the future and the limited amount of its paid up capital.[50] The judge stated that it was inconceivable that if the matter proceeded to trial MCI would not require some form of funding and he accepted Myer’s submission that the clear inference was that MCI always knew and intended that it would obtain litigation funding from BSLLP.[51]
[50]Reasons [62]-[71].
[51]Reasons [72], [137], [154].
Having referred to this Court’s decisions in Treasury Wine and Leighton and to the decision of Foster J in Treasury Wine (FCA), the judge observed that if the use to which a proceeding is put is other than the protection or vindication of rights or immunities then the proceeding is an abuse of process.[52] In this case, the judge held that the Court’s process has been engaged for an illegitimate or collateral purpose such that it is an abuse of process.[53] The judge stated:
The predominant purpose of this proceeding is to generate, not legal fees, but income or revenue for interests associated with Elliott. The recovery of mere hundreds of dollars — although a vindication of rights — is entirely incidental and merely the pathway to the desired result. But for the desired result or predominant purpose this proceeding would not have commenced. So much is effectively admitted. Like the generation of legal fees, the generation of income is not a legitimate predominant purpose.
In my opinion, this case is on all fours with the TWE Court of Appeal Decision. Any distinction is without any legal difference or significance. Whether the income generated represents fees for its solicitor or income or profit for those behind and inextricably connected to the litigation the result is the same. The predominant purpose — whether it be fees or otherwise — is to use the proceeding to generate a profit. Or put another way, the predominant purpose is not to vindicate rights, notwithstanding that this may be a pre-condition to the relevant income generation. To this extent the case differs from the usual funded class action cases. There the predominant purpose is to vindicate legal rights.[54]
[52]Reasons [126].
[53]Reasons [129].
[54]Reasons [130]–[131].
At the heart of the judge’s reasoning was that MCI was not seeking to provide a platform for the vindication of legal rights. The judge found, and (as noted above) MCI does not dispute, that it was created as a vehicle for bringing class actions against listed corporations for contravention of the continuous disclosure provisions in the Corporations Act. Having reviewed the evidence, the judge concluded that if it were not for the possibility of additional compensation through an order under s 33ZF of the Supreme Court Act, MCI would not have commenced the proceeding. The judge stated:
Acting as sole plaintiff, MCI would clearly not have commenced this proceeding. Acting as a representative plaintiff it has only commenced this proceeding so that it (or its associates) may be rewarded in the manner identified. Absent such reward it would not have provided ‘the platform’. It is this hope and expectation of reward that is the predominant purpose. There is a direct relationship between the platform and the reward. No reward, no platform. This is the business model. Although this is what most funders do, the critical difference is that in the case of such funders the reward follows the legitimate vindication of rights which is the predominant purpose of the litigation. In this case, the vindication of rights is incidental to or purely a pre-condition to the reward.
At best for Elliott and MCI, if they are indeed providing a service or platform for meritorious claims, they are doing so within a business model that is predominantly concerned with generating income, the vindication of rights being incidental or a by-product, albeit an important one.[55]
[55]Reasons [147]-[148].
The judge contrasted the position in this case to a group proceeding involving an unrelated litigation funder. He said:
The funding of class actions (on commercial terms that involve consideration of risks and rewards) has come a long way and is even encouraged as a vital access to justice issue. However, whatever commercial outcomes flow from the product of the litigation — and although to some extent supervised they may be considerable — they are underpinned by parties (usually named plaintiffs unrelated to the funder) who have the predominant purpose of vindicating their rights. The fact that the funder may provide the means to do this, albeit for substantial reward, does not detract from the legitimacy of the fundamental or predominant purpose. It is what flows from it. As identified, this case and this funding model is different. It is this model as exemplified by the specific features of this case, as identified, that the law will not permit.[56]
[56]Reasons [155] (footnote omitted).
Having determined that the proceeding should be stayed, the judge turned to consider the alternative basis upon which Myer sought a stay and stated:
Although it is not necessary to deal with this issue in any detail, it must also follow in my opinion that permitting the case to proceed will bring the administration of justice into disrepute.[57]
[57]Reasons [156].
Grounds of appeal
MCI’s proposed grounds of appeal are:
1.His Honour erred in law in not applying the legal test for collateral abuse of process laid down by the High Court in Williams v Spautz.[58]
2. His Honour erred in law in deciding that a plaintiff’s purpose of generating income from the successful conclusion of legal proceedings is an illegitimate collateral purpose which renders the proceeding an abuse of process.
3. His Honour erred in law in failing to recognize and apply the distinction recognised in Williams v Spautz between a plaintiff’s motives for bringing proceedings and the objective purposes of the proceedings themselves.
4. His Honour erred in law in failing to characterise payments which may be made to the applicant in the Court’s discretion pursuant to ss 33V and/or 33ZF of the Supreme Court Act upon the settlement or successful prosecution of this proceeding as a result for which the law provides in the event that the proceedings terminate in the applicant’s favour and therefore incapable of giving rise to a collateral abuse of process.
5. His Honour erred in law because his Honour’s reasons concerning the finding that the proceeding will bring the administration of justice into disrepute are inadequate, such that the parties are unable to see whether or how their arguments were understood, or to understand the legal basis of the judge’s reasoning process and decision, with the consequence that there has been an error in the judicial process constituting an error of law.
Is it an abuse of process for a lead plaintiff to commence and maintain a class action for the purpose of generating income in excess of compensation it may be awarded for its alleged loss? ( Grounds 1-4)
[58](1992) 174 CLR 509.
MCI’s fundamental contention is that it is not an abuse of process for a representative plaintiff to commence and maintain a genuine class action for the purpose of generating income or profit that may be properly earned from that proceeding pursuant to a valid legal process. This is particularly so, it says, when the legal process is sanctioned, controlled and regulated by the Supreme Court Act and is overseen by the Court such that no amount that the lead plaintiff might earn from the proceeding can be paid to it without close scrutiny by the Court and a formal order being made.
To understand the position put by MCI, it is helpful to use the analogy referred to by Mr Elliott in his evidence and discussed in oral argument before this Court on the application for leave to appeal. In essence, there are three silos from which MCI might obtain money as a result of the proceeding. Silo 1 is the damages silo; that is the amount which MCI might hope to gain by way of compensation and interest payable on it. Silo 2 is the representative plaintiff silo; that is the amount that MCI might receive by an order under s 33V and/or s 33ZF as compensation for its time and effort acting as lead plaintiff. Silo 3 is the funding silo; that is the amount that MCI might hope to be paid for funding the class action through orders made under s 33V and/or s 33ZF.
MCI submits that properly understood Williams v Spautz stands for the proposition that an ultimate purpose which may only be achieved by first bringing the proceeding to a successful conclusion cannot be an improper purpose. So it contends, a plaintiff having an ultimate purpose or motive of generating income or profit from success in the proceeding is not an abuse of process. Here it says that its ultimate purpose cannot be achieved other than through successful vindication of its rights (by way of settlement or judgment) in the proceeding pursuant to orders under s 33V and/or s 33ZF of the Supreme Court Act. Put another way, the only collateral advantage that can flow (silos 2 and 3), flows from judgment or settlement and this is not an abuse of process. It contends that one must look at the widest potential scope of the remedies that the proceeding might provide and ask whether what the plaintiff is seeking is outside that scope. Here, it says, that the income it might earn from the proceeding (in addition to compensation for the loss it says it has suffered) form part of its rights and are within the scope of the remedy that the proceeding offers.
MCI submits that the judge erred in finding that the proceeding would be an abuse of process if ‘the predominant purpose is the generation of legal fees or other income.’ It says that the generation of legal fees was an irrelevant consideration as there was no question of that here. Secondly, MCI contends that it is contrary to Williams v Spautz to characterise the motive of generating income from a proceeding as an abuse of process where that income cannot be generated save by success in the proceeding. MCI contends that litigants in commercial litigation are ordinarily concerned with money not with vindication of legal rights.
MCI relied on Fostif[59] as opening the door to modern litigation funding. It submitted that the current case commenced by it is simply a development. So, it says, the fact that someone seeks to develop litigation funding through a business model does not render the proceeding by which that is done an abuse of process. MCI referred to Money Max[60] and Farey[61] as recent examples of further developments in the class action context.
[59](2006) 229 CLR 386.
[60](1992) 174 CLR 509. See [19] above.
[61][2016] FCA 340. See [20] above.
MCI also submits that Treasury Wine is clearly wrong and should be not be followed because the majority there failed to follow the binding authority of Williams v Spautz. In this regard it contends that it is not the law that a litigant must pursue the ‘only legitimate purpose of litigation’ (stated by the majority in Treasury Wine to be the vindication of legal rights or immunities by judgment or settlement). In particular, MCI relies on the first paragraph of the passage from Williams v Spautz set out at [9] above. Here it says that the income identified by the judge which it may derive is ‘an entitlement or benefit which the law gives the litigant.’ It says that the judge was wrong to characterise the vindication of rights as incidental to or a precondition to the reward of the potential income. In its submission, a pre-condition cannot be incidental to an outcome. The pre-condition here is an order of the Court following a successful conclusion of the claim in the class action.
In a similar vein, MCI contends that only a purpose which is being pursued without reference to the vindication of rights (that is, altogether outside the scope of the legal process) will be an improper predominant purpose. It submits that the judge did not distinguish between its motives for bringing the proceeding and the objective purposes of the proceeding. Alternatively it says that its ultimate purpose or motive is permissible because any additional income it may receive by court order may only occur after the successful prosecution or settlement of the proceeding. It is not, in MCI’s submission, a collateral advantage. It contends that such orders are a standard part of the resolution of every class action.
Finally, MCI observed that it is not uncommon for a person to take steps to obtain standing to bring an action against a company and this does not make the proceeding an abuse of process. It referred to Dowling as just one example. It will be recalled that there Colonial Mutual purchased a debt to enable it to bring bankruptcy proceedings against Mr Dowling.[62]
[62]See [14] above.
In summary, MCI’s argument can be reduced to the following contentions:
(a)there is nothing in and of itself improper about a plaintiff putting itself in a position to have standing to commence a proceeding;
(b)before it can earn income from the proceeding (silos 2 and 3) there must have been a vindication of its rights (through judgment or settlement in its favour);
(c)income from silos 2 and 3 is dependent upon court order;
(d)that income is a benefit which the law gives it - it is something which can only be achieved by virtue of the proceeding and is not something for which the law does not provide;
(e)consequently, there is no abuse of process.
In our view, the judge correctly held that MCI has brought this proceeding to gain a collateral advantage which is improper.
As the plurality observed in Williams v Spautz, it is essential to consider the proper purpose of the proceeding and then to ascertain whether the plaintiff’s predominant purpose in bringing the proceeding is to fulfil that proper purpose or to gain some other collateral advantage.
Ordinarily, the proper purpose of a proceeding is for the plaintiff to obtain redress for a wrong done to it or to prevent a wrong; that is to obtain some form of substantive relief.[63] The relief may take different forms dependent upon the wrong that has been perpetrated or is threatened. It may involve an award of damages. It may involve orders for specific performance or injunctive relief. Other forms of substantive relief may be appropriate. Properly understood, it is this substantive relief to which the authorities refer when they speak of the ‘scope of the remedy.’ It is narrower than the meaning that MCI would attribute to the phrase.
[63]See Williams v Spautz (1992) 174 CLR 509, 532 (Brennan J).
When the proceeding is a representative action, articulating the proper purpose is less straightforward. Class actions create the possibility of laying the foundations for redressing wrongs done to a wide range of potential plaintiffs who, left to their own devices, may not have brought an action against the wrongdoer. In this context, group members are assisted by the involvement of lead plaintiffs, litigation funders and lawyers willing to work on a ‘no win, no fee’ basis. In particular, class actions are a vehicle for determining common questions affecting the group members.
The proper purpose of a class action is therefore not limited to the determination of the lead plaintiff’s claim. It also involves the determination of the common questions for the benefit of group members.
The courts have long recognised that commencement of an action is not an abuse of process if the predominant aim of the plaintiff is to settle the claim before it is determined. That applies equally as a proper purpose of a class action and reflects the reality that most representative actions settle.
Consequently, in the class action sphere, the question of whether the proceeding has been brought for an improper purpose cannot be determined simply by asking whether the lead plaintiff would have brought the proceeding as a sole plaintiff. Nevertheless, the proper purpose of such an action looks to enforcing the substantive rights of the plaintiff and laying the groundwork for enforcing the substantive rights of the group members. Picking up on the language used by Lord Evershed MR in Re Marjory[64] (as adopted by the plurality and Brennan J in Williams v Spautz), class actions are not designed, nor do they exist for the purpose of the lead plaintiff obtaining ancillary orders of the type which MCI wishes to seek under ss 33ZF and 33V. Here, MCI was created for the purpose of bringing class actions to earn income of that type and its predominant purpose in commencing the present proceeding was to obtain such orders. As the judge found, it is not interested in pursuing the claim for recovery of the damages it alleges it has sustained or for a settlement in respect of that claim. In short, it has no substantial interest in recovering money in silo 1. Rather, its focus is on silos 2 and 3. Nor is MCI’s predominant purpose in bringing the proceeding to have the common questions determined for the benefit of group members or to settle the litigation for their benefit.
[64][1955] Ch 600, 623–4 (see above [8]).
The position may be contrasted with that which applies where a consequence flows from a judgment; for example, and drawing on the authorities, the vindication of a plaintiff’s reputation from a verdict for defamation; the alderman seeking disqualification of an opponent following conviction; and the public examination of a bankrupt following sequestration. In each of those examples, the consequences were separate from the proceedings themselves. Each proceeding could only secure the principal result for which it was designed – the verdict, the conviction and the bankruptcy. In bringing the proceeding, the litigant in each case had the predominant purpose of using the proceeding for that purpose, albeit that consequences might flow outside the proceeding from having secured the result in the proceeding. The legitimate consequences that flow from a successful conclusion of the proceeding and which are separate from the proceeding are the ‘advantage of an entitlement or benefit which the law gives the litigant’ to which the plurality referred in Williams v Spautz.
Here, MCI wants to use the proceeding predominantly to gain the consequential advantages offered by silos 2 and 3 and not for the purpose for which the proceeding is designed (silo 1 and/or the benefit that a group proceeding may deliver to the group members). That is an abuse of process. MCI has no substantial legitimate purpose[65] (let alone a predominant one) in prosecuting the proceeding. Contrary to MCI’s submission, it has no right to silos 2 and 3. They are not within the scope of the remedy contemplated in the authorities. While it is true that in most commercial litigation the plaintiff is focussed on money and recovery of it, it is recovery of silo 1 money that is its primary concern. Instigating and pursuing litigation for recovery of that money is a legitimate purpose. It is what the proceeding is meant to be used for by litigants. When the cases (including Treasury Wine) refer to ‘vindication of rights’ we do not understand them to mean anything different.
[65]As the test is stated by Brennan J in Williams v Spautz (1992) 174 CLR 509, 537. See [13] above.
While, if it were left to continue, the proceeding may achieve one or more of the purposes for which it is designed, that is no answer. It is necessary to look at the predominant purpose of the lead plaintiff and that has been found by the judge to be to generate collateral income or revenue for interests associated with Mr Elliott.[66] That finding of fact is not challenged by MCI. Nor is it contrary to compelling inferences, nor is it glaringly improbable.[67]
[66]Reasons [130].
[67]Fox v Percy (2003) 241 CLR 118, 128 [28]–[29]. See also Robinson Helicopter Co Inc v McDermott (2016) 331 ALR 550.
The fact that entitlement to monetary gain from silos 2 and 3 is dependent upon court order and close supervision by the Court, does not alter the analysis. The focus must be on the predominant purpose of the plaintiff and whether that is improper. The purpose of the proceeding here is not the conduct of the substantive claim (either for the benefit of MCI or for the benefit of the group members) but rather the consequential orders that may be made if MCI is successful or the proceeding is settled. It is in that sense that the advantages MCI seeks are collateral.
It is true that the class action landscape continues to develop. It is not necessary to determine the limits of when a class action is or is not an abuse of process. Indeed, nothing that we have said should be understood as shutting out the possibility of true incentive payments being made to a lead plaintiff. But what can be said is that the present case is one where the plaintiff has been created for the purpose of earning income from class actions above and beyond compensation for its loss as a shareholder. That stands in contrast to the situation that may apply if the lead plaintiff, having acquired shares as part of its normal investment portfolio and seeking to make a profit from the expected increase in value of the shares and dividends, has to be persuaded to take on the risk of being lead plaintiff in the event that there is a breach of the continuous disclosure requirements.
Finally, while it is not uncommon for persons to obtain standing where they originally had none (for example, as was the case in Dowling) it is difficult to bring to mind circumstances where standing is obtained, as it were, speculatively. Rather, the more common circumstance is where the right has already accrued and then that right is assigned to give the new owner standing.
It follows that grounds 1 to 4 must fail.
Were the reasons given by the judge inadequate? (Ground 5)
MCI submits that the paragraph of the judge’s Reasons set out at [29] above provides insufficient reasons for his Honour’s decision that permitting the case to proceed would bring the administration of justice into disrepute. It contends that the judge failed to expose his reasoning process with the result that it is not able to identify whether the process of reasoning is infected by any error of law.
Given the conclusion which we have reached, it is unnecessary to consider this ground of appeal in any detail. Suffice to say that when the judge’s reasons on this issue are considered in the context of the whole of his Honour’s reasoning, it is clear why he came to the view that he did. Permitting a litigant that was created for
the purpose of earning income from court proceedings (over and above the compensation that it might receive for a wrong done to it), to bring and maintain proceedings would at the very least be incongruous.
Conclusion
The judge correctly stayed the proceeding brought by MCI against Myer. MCI commenced the proceeding with the predominant purpose of generating income from the proceeding itself. Its predominant purpose was not to seek compensation for any wrong done to it, nor to assist the group members by acting as lead plaintiff. It instituted the proceeding not for the purpose for which class actions are designed but instead to gain a collateral advantage. That constitutes an abuse of process.
Leave to appeal should be granted but the appeal should be dismissed.
WHELAN JA:
I have read in draft the judgment of Osborn and Ferguson JJA with which I agree. [68]
[68]I adopt the abbreviations used in the joint judgment.
In my view there is a feature of this proceeding, and of the other proceedings which MCI has instituted, which is a more fundamental reason why this proceeding, and those other proceedings, ought to be stayed for abuse of process.
In this connection the relevant facts are these:
·MCI was created as a vehicle for bringing class actions against listed corporations alleging, among other things, breaches of continuous disclosure obligations by those corporations;
·commencing in November 2012 MCI purchased small parcels of shares in a large number of publicly listed
companies;
·MCI did this because it wanted to be in a position, if there was non-disclosure or some other foundation for a claim, to take action on behalf of a shareholder class. That was its objective. It could achieve that objective if the share price of one of the small parcels of shares MCI had purchased fell in circumstances where there was a viable claim against the company on behalf of a shareholder class;
·these circumstances are the foundation of MCI’s business model;
·if price falls of this character did not occur MCI’s objective, and the reason for its existence, would not be achieved;
·as matters have transpired, and as one would expect given the large number of companies in which MCI bought small share-holdings, the circumstances which are the foundation of MCI’s business model have occurred; and
·when the circumstances which are the foundation of MCI’s business model occur, MCI and persons associated with MCI have an opportunity to make profits. MCI as the lead plaintiff has the opportunity to obtain an order under s 33V and/or s 33ZF of the Supreme Court Act 1986. Mr Elliott, or a firm associated with him or with whom he has a relevant arrangement, has the opportunity to earn legal fees.[69] BSLLP, the litigation funder associated with Mr Elliott, has the opportunity to enter into a litigation funding agreement with MCI and to earn profits pursuant to the terms of that agreement.[70]
[69]This was the focus of concern in Treasury Wine (2014) 45 VR 585 and in Leighton [2015] VSCA 235. It is not relied upon as a relevant factor here.
[70]The trial judge found that the likelihood is that MCI will enter into a litigation funding agreement with BSLLP in relation to this proceeding.
In my view what MCI has done is to manufacture a claim which it can then use as a platform for the purpose of bringing a class action as lead plaintiff. It wishes to do this because it seeks the opportunity for itself and those associated with it to profit from the legal proceedings.
When this proposition was put to senior counsel for MCI he objected to the use of the term ‘manufactured’. He characterised what MCI had done in the following way:
[MCI] put itself in a position where, if there were a breach of the continuous disclosure obligations by any of those companies, it would be in a position to act on behalf of the class.[71]
[71]Transcript of Proceedings, Melbourne City Investments Pty Ltd v Myer Holdings Ltd (Supreme Court of Victoria Court of Appeal, S ACPI 2017 0008, Osborn, Whelan and Ferguson JJA, 9 June 2017) 9.
In my view ‘manufacture of a claim’ is an apt description of what MCI has done. Perhaps ‘engineer’ is more apt.[72]
[72]The Macquarie Dictionary gives a relevant definition of ‘engineer’ as ‘to arrange, manage or carry through by skilful or artful contrivance’.
For the purpose of argument, I will call a reduction in price for one of MCI’s small parcels of shares in the circumstances I have described a ‘loss’. MCI has sought out this loss by calculated and deliberate steps. Its business model depends upon its suffering such losses. If it does not suffer these losses its objective will not be achieved. It will have no business. It seeks to become a profitable professional ‘loss sufferer’.
When it was put to senior counsel for MCI that MCI ‘wanted’ to suffer a loss, senior counsel suggested that that was an inaccurate characterisation and was a ‘bridge too far’.[73] I cannot see why that is so. Of course MCI wanted to suffer a loss. If there was no loss it would have no business. It wanted to suffer a loss because under the business model it set up the opportunity to profit in the manner I have described was assessed as being more valuable than the apparent losses sustained and the costs likely to be incurred.
[73]Transcript of Proceedings, Melbourne City Investments Pty Ltd v Myer Holdings Limited (Supreme Court of Victoria Court of Appeal, S ACPI 2017 0008, Osborn, Whelan and Ferguson JJA, 9 June 2017) 4–5, 18–21.
The situation I have described is, in my view, fundamentally different from:
·the position where a person suffers a small loss in the course of ordinary commercial or other activities which would not be worth pursuing but for the possibility of an incentive for which the law provides, as envisaged by Beach J in Farey;
·the position where a person suffers a loss in the course of ordinary commercial or other activities, or has some other claim, and determines to pursue it because achieving the relief in the litigation will yield some further advantage to the litigant as a consequence, as envisaged in Williams v Spautz by the alderman example;
·the position where a person finances, or both excites and finances, another person who has suffered a loss in the course of ordinary commercial or other activities to pursue that loss, as was addressed in Fostif;
·an assignee, as in Dowling.
The fundamental difference is this. In all of those situations the court has had to address the purpose or motivation of a litigant in commencing or pursuing a cause of action. That issue also arises here. Osborn and Ferguson JJA have addressed it. But here there is an antecedent, and, to my mind, a more fundamental issue. That is MCI’s purpose or motivation in undertaking the actions which led to the very existence of its cause of action. As I indicated earlier, MCI has actively sought out the loss it claims to have suffered because it’s objective is to make profits, as a professional litigant and as a professional ‘loss sufferer’.
Apart from objecting to the characterisation of MCI’s conduct, senior counsel for MCI had a number of responses to the proposition that it was an abuse of process to undertake the course of action which MCI had undertaken and was proposing to continue. They were:
·The question of whether MCI has in fact suffered a loss is not relevant to the abuse of process issue, but rather is an issue which may arise at trial or on a summary judgment application.
·MCI, Mr Elliott and BSLLP can only obtain the benefits they seek through court orders. The entire process is under court supervision. They seek nothing beyond what is provided for by the relevant legislation.
·The issue is one of ‘standing’ and MCI’s position is relevantly the same as assignees, corporate and social ‘vigilantes,’ and corporate ‘greenmailers’.
·In any event, there is nothing wrong with the course of action MCI has pursued. It is indistinguishable, in principle, from what was done in Dowling.
·The class action procedure is developing and what MCI has done, and is doing, is merely the next step in that development.
As to the contention that the issue of the circumstances in which the claim itself arose is a question of loss and damage to be determined at trial, or on a summary judgment application, I consider that it is more fundamental than that.
It is true that MCI, Mr Elliott and BSLLP can only obtain the benefits they seek through a process which involves court sanction and court orders. They are, however, seeking to put themselves in a position of unique advantage. They seek to put themselves in a position where they can exert considerable control over the litigation. The litigation funding arrangements, for example, are, it seems, to be negotiated (if that is the correct description) between two entities each of which are controlled by Mr Elliott. The Court may eventually be in a position to address these circumstances but the relevant issue is whether they should be permitted to arise at all.
I do not consider that the position I have described is properly to be treated as an issue involving ‘standing’. Senior counsel equated MCI’s position with corporate and social ‘vigilantes’ and with ‘greenmailers’. The reference to corporate and social ‘vigilantes’ was a reference to persons who bought shares or joined organisations for the purpose of bringing a proceeding to advance some social or political objective. The reference to ‘greenmailers’ was a reference to minority shareholders who attempt to extract a price for their securities above the fair value. The practice of ‘greenmailing’ in this context was eventually addressed by legislation which itself resulted in significant litigation.[74] Senior counsel for MCI specifically referred in this context to litigation involving Dr Elkington.[75] Senior counsel for MCI submitted, without citing any particular instance, that ‘vigilantes’ and ‘greenmailers’ had brought proceedings having obtained standing by buying small parcels of shares and that it had never been suggested that what they had done was an abuse of process.
[74]The legislation referred to is Part 6A.2 of the Corporations Act. For present purposes the applicable explanatory memorandum in relation to the introduction of that part is the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth). That explanatory memorandum identifies that a purpose of the amendments introduced with respect to the compulsory acquisition of securities was to: ‘discourage minority shareholders from demanding a price for their securities that is above a fair value (often referred to as “greenmailing”)’ (see Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998 (Cth) 40). As to the litigation, one of the earlier cases was Capricorn Diamonds Investments Pty Ltd v Catto (2002) 5 VR 61, 66–9. There have been many subsequent cases.
[75]Examples of the litigation in which he was involved are: Pauls Ltd v Elkington (2001) 189 ALR 551; Energex Ltd v Elkington (2003) 47 ACSR 442; Bromley Investments Pty Ltd v Elkington (2003) 47 ACSR 273; Winpar Holdings Ltd v Austrim Nylex Ltd (2005) 193 FLR 457; Regional Publishers Pty Ltd v Elkington (2006) 154 FCR 218; Elkington v Costaexchange Ltd [2011] VSC 501.
The position that might or might not prevail in circumstances of ‘vigilante’ action or ‘greenmailers’ is not to the point, in my view. If proceedings have indeed been instituted in the circumstances referred to by senior counsel for MCI, it is not clear to me that an issue of abuse of process would not arise. In any event, it is MCI’s conduct which is under consideration and which is relevant.
I do not consider that MCI’s position is relevantly analogous to assignees. Assignees do not deliberately engineer the circumstances under which a claim they seek to litigate arises. They take an assignment of a cause of action which has arisen (if valid) independently of their involvement. Assignees are subject to well-established legal rules and principles.
Assuming that there is ‘nothing wrong’ with what MCI has done in the sense that it is neither illegal nor immoral, in my view this is irrelevant. The relevant issue is whether what MCI is doing is an abuse of process, and, in my opinion, it is. It is an abuse not only because of the purpose for which MCI has commenced and is prosecuting the proceeding, as Osborn and Ferguson JJA explain, but because of the circumstances in which the claim which it seeks to prosecute arose. I do not consider that the courts should countenance the institution or maintenance of a claim that a party has actively sought out and deliberately manufactured or engineered so as to profit from the process of litigation.
Senior counsel may be correct when he submits that MCI’s activities are the latest ‘development’ in the class action area. In my view it is a development which should not be permitted because it is an abuse of process.
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