Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 3)
[2014] VSC 340
•23 July 2014
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2013 5731
BETWEEN:
| MELBOURNE CITY INVESTMENTS PTY LTD (ACN 161 046 304) | Plaintiff |
| and | |
| TREASURY WINE ESTATES LIMITED (ACN 004 373 862) | Defendant |
- and -
IN THE SUPREME COURT OF VICTORIA AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List B
S CI 2013 5159
BETWEEN:
| MELBOURNE CITY INVESTMENTS PTY LTD (ACN 161 046 304) | Plaintiff |
| and | |
| LEIGHTON HOLDINGS LIMITED (ACN 004 482 982) | Defendant |
---
JUDGE: | Ferguson J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 May 2014 |
DATE OF RULING: | 23 July 2014 |
CASE MAY BE CITED AS: | Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 3) |
MEDIUM NEUTRAL CITATION: | [2014] VSC 340 |
---
PRACTICE AND PROCEDURE – Group proceedings commenced by company whose sole shareholder and director acted as solicitor in the proceedings – Predominant purpose of proceedings to generate legal fees for solicitor/director – Proceedings not abuse of process – Supreme Court (General Civil Procedure) Rules 2005 r 23.01.
PRACTICE AND PROCEDURE – Restraint of solicitor from acting – Solicitor sole director and shareholder of Plaintiff in group proceedings – Whether fair‑minded, reasonably informed member of the public would conclude that solicitor should be restrained – Solicitor in compromised position – Real risk solicitor could not give independent advice taking into account the interests of group members as well as Plaintiff.
PRACTICE AND PROCEDURE – Plaintiff in group proceedings represented by solicitor who is sole director and shareholder – Whether inappropriate that claims be pursued by means of a group proceeding – Whether orders should be made to ensure that justice done – Appropriate to order that whilst Plaintiff represented by solicitor who is sole director proceeding should not continue as group proceeding – Supreme Court Act 1986 (Vic) ss 33N(1), 33ZF.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs in both proceedings | Mr N O’Bryan SC with Mr M Symons | Mark Elliott |
| For Treasury Wines (defendant in S CI 2013 5731) | Mr A G Uren QC with Mr M Garner | Herbert Smith Freehills |
| For Leighton Holdings (defendant in S CI 2013 5159) | Mr C Scerri QC with Mr S Parmenter | Allens |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
What was the purpose of MCI in bringing the proceedings?................................................... 2
Orders sought by Treasury and Leighton..................................................................................... 4
Are the proceedings an abuse of process?..................................................................................... 5
Should Mr Elliott be restrained from acting for MCI?.............................................................. 14
Should orders be made under s 33N or s 33ZF of the Supreme Court Act?........................... 20
Conclusion......................................................................................................................................... 25
HER HONOUR:
Introduction
Melbourne City Investments Pty Ltd (‘MCI’) is a Victorian investment company managed and controlled by Mark Elliott, a Melbourne‑based solicitor. Towards the end of 2013, MCI commenced separate group proceedings[1] against three publicly listed companies — Treasury Wine Estates Limited, Leighton Holdings Limited and WorleyParsons Limited. Mr Elliott is the solicitor for MCI in each of the proceedings.
[1]Pursuant to pt 4A of the Supreme Court Act 1986 (Vic).
MCI holds a small parcel of shares in each of Treasury, Leighton and WorleyParsons. It acquired each parcel for a little less than $700. The proceedings might broadly be described as securities class actions, in which allegations of failure to disclose — in breach of s 674(2) of the Corporations Act 2001 (Cth), and misleading or deceptive conduct, in breach of s 1041H of the Act — are made. In the proceedings against Treasury and Leighton, the loss claimed is the difference between the prices at which MCI acquired its shares and the prices that would have prevailed had each company made what is alleged to be proper disclosure. Putting it at its highest, then, the most that MCI could gain by way of compensation if it were to be successful would be less than $700 in each of those proceedings.
Treasury and Leighton seek orders that would effectively bring the proceedings against them to a halt, at least for the time being. They contend that the proceedings against them were brought by MCI for the collateral purpose of generating legal fees for Mr Elliott, and that each is an abuse of process and should be stayed. Alternatively, they seek orders in the exercise of the inherent jurisdiction of the Court to restrain Mr Elliott from acting for MCI in the proceedings whilst MCI is the lead plaintiff. Alternatively, they seek orders under the group proceeding provisions in the Supreme Court Act that the proceeding not continue as a group proceeding whilst MCI is the lead plaintiff and Mr Elliott remains as its solicitor.
For the reasons set out below, I do not think that the proceedings are an abuse of process. I have, however, reached the conclusion that, unless Mr Elliott ceases to act for MCI in the proceedings or MCI is replaced as the representative plaintiff, Mr Elliott should be restrained from acting as the solicitor for MCI and the proceedings should not be permitted to continue as group proceedings.
For ease of reference, in the remainder of these reasons I will refer to Leighton and Treasury together as the ‘Defendants’.
What was the purpose of MCI in bringing the proceedings?
MCI was incorporated on 1 November 2012. Since its inception, Mr Elliott has been MCI’s sole director and shareholder. On the day of its incorporation, MCI purchased 140 shares in Treasury for $693.00, 39 shares in Leighton for $684.06 and 28 fully paid shares in WorleyParsons for $694.96, with settlement for each purchase taking place on 7 November 2012. In addition, on 1 November 2012, MCI purchased parcels of shares in another 17 publicly listed companies, each parcel costing a little under $700. In February 2014, MCI purchased parcels of shares in another 145 publicly listed companies, together with further small parcels of shares in Leighton, Treasury and WorleyParsons. The cost of each of these parcels of shares was between about $600 and $900.
The Defendants each made similar submissions about the inferences that the Court should draw from the established facts. In this regard, Leighton submitted that, based on the established facts, the Court should infer that:
(a)MCI was created by Mr Elliott as a vehicle for bringing representative proceedings against listed companies alleging breaches of continuous disclosure obligations;
(b)MCI would be the representative plaintiff in such proceedings; and
(c)Mr Elliott would act as its solicitor, with Mr Elliott earning fees from doing so.
I agree and do draw those inferences. I do so more readily because, although Mr Elliott was in court instructing during the hearing, he did not (in his capacity as a director of MCI) give any evidence, in circumstances where the facts called out for explanation by him.[2] No evidence was given as to why he did not do so, nor was any submission made (let alone evidence given) that what he might say was protected by client legal privilege.
[2]Jones v Dunkel (1959) 101 CLR 298, 308 (Kitto J), 312 (Menzies J), 321 (Windeyer J).
In my opinion, it is probable that the reason for MCI’s existence is to launch proceedings, such as the present proceedings, to enable its sole director and shareholder to earn legal fees from acting as the solicitor for MCI. This conclusion is based on:
(a)the initial purchase of small parcels of shares in 20 companies on the day that the company was incorporated;
(b)the subsequent commencement of three group proceedings by MCI, with Mr Elliott acting as its solicitor; and
(c)the later purchase of similarly small parcels of shares in Treasury, Leighton and WorleyParsons and in another 145 publicly listed companies.
Whilst Mr Elliott is acting on a ‘no win, no fee’ basis, it is common knowledge that most litigation settles before judgment and that this is treated as a ‘win’, such that the lawyers’ fees are paid. So much is recognised by Mr Elliott on websites that have been established for each of the group proceedings. In the question and answer section, the following appears under a heading ‘IMPORTANT NOTE FROM MARK ELLIOTT, SOLICITOR FOR THE CLASS ACTION PLAINTIFF, MELBOURNE CITY INVESMENTS LIMITED [sic]’:
Is the case likely to go all the way to Court or to settle earlier?
The overwhelming majority of cases that are issued in the Supreme Court of Victoria (and in every other court) do not go to trial or judgment, but settle earlier. I think this case is likely to settle before judgment as well. However there is the possibility that the case will go to a contested trial and to a judgment and I am preparing the case with the legal team on that assumption.
What will your legal fees be and who will pay them?
If we do not win the case I will not charge any fees and will pay out of my own resources the barristers, expert witnesses and others involved in the case, so there will be no responsibility for any member of the class to pay anything. If the case is successful, then the professional costs of the proceeding (solicitors’ costs, barristers’ fees and the costs of expert witnesses, etc.) will be recovered from the total amount which is recovered from the defendants by judgment or settlement.[3]
[3]The pages from the website were exhibited to affidavits filed in respect of the application.
Leighton submitted that it can be inferred that MCI commenced the proceeding against it for the purpose of having Mr Elliott act as its solicitor so that he could earn fees. Again, it seems to me that this is the probable inference to be drawn in respect of both the Leighton and Treasury proceedings. The quantum of any damages claim being, as I have said, at best less than $700 in each, makes it unlikely that the proceedings were commenced for the purpose of recovering compensation. Another possible, but far less probable, inference would be that MCI is motivated by some general desire to assist shareholders to recover compensation from publicly listed companies which breach the law, or that MCI has some general desire to ensure that publicly listed companies comply with the law. Such inferences may have been likely if MCI had engaged independent solicitors. In circumstances, however, where Mr Elliott acts as the solicitor and has a significant financial interest in doing so, such inferences are less probable than the inference that I draw. They are certainly not inferences of equal probability to the inference that I draw. Again, the absence of evidence from Mr Elliott is something to be taken into account. It gives more comfort in drawing the inference that I do and leads to a conclusion that his evidence would not have helped MCI’s case.[4]
[4]Jones v Dunkel (1958) 101 CLR 298, 308 (Kitto J), 312 (Menzies J), 321 (Windeyer J).
Orders sought by Treasury and Leighton
Leighton seeks orders that:
(a)unless, within 28 days, Mr Elliott ceases to act for MCI in the proceeding or MCI is replaced as the representative plaintiff, Mr Elliott be restrained from acting as solicitor for MCI in this proceeding;
(b)alternatively, MCI be restrained from continuing as the representative plaintiff in the proceeding;
(c)alternatively, the proceeding no longer continue as a group proceeding;
(d)alternatively, the proceeding be permanently stayed, dismissed without adjudication on the merits or struck out.
Treasury seeks similar orders.
Are the proceedings an abuse of process?
This Court has inherent jurisdiction to order a stay of any proceeding that is an abuse of process.[5] In addition, r 23.01(1) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) provides that, where a proceeding generally or any claim in a proceeding is an abuse of the process of the Court, the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim. One of the categories of abuse is where the proceeding has been brought for a predominant purpose that is improper.[6] Bringing proceedings not for the purpose for which they are designed but rather to gain a collateral advantage is an improper purpose.[7] The heavy onus of establishing an abuse of process is borne by the party alleging the abuse.[8] The power to stay a proceeding on such grounds will only be exercised ‘in the most exceptional circumstances’.[9]
[5]Williams v Spautz (1992) 174 CLR 509, 518 (Mason CJ, Dawson, Toohey, McHugh JJ).
[6]Ibid 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.
MCI submitted that the applications made by the Defendants engage fundamental issues about access to justice in cases that raise issues of considerable public importance. The proceedings each have an ‘open’ class of group members (that is, shareholders in the defined group would have to opt out if they did not wish to be bound by judgment in the proceeding). MCI noted that both proceedings were being conducted by a plaintiff with a direct (albeit small) financial interest in the outcome, which is represented by a solicitor acting on a ‘no win, no fee’ basis. Moreover, MCI submitted, both cases relate to compliance with the continuous disclosure laws, which Australian courts have repeatedly identified as being fundamental to share market integrity. MCI submitted that the recent authorities have recognised the substantial public policy benefits of class action litigation like the present cases, especially where the class is large and disparate and it is most unlikely that any individual plaintiff would be willing to take on the ‘big end of town’ in litigation of this nature.
In part, Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd,[10] (‘Fostif’) concerned whether a proceeding brought with the support, and at the direction, of a litigation funder should be stayed as being contrary to public policy or as 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. In concluding that there was no abuse of process and that the proceeding was not contrary to public policy, the plurality[11] observed 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?[12]
[10](2006) 229 CLR 386.
[11]Gummow, Hayne and Crennan JJ (with whom Gleeson CJ agreed on this issue).
[12](2006) 229 CLR 386, 434 [89].
In discussing representative proceedings, their Honours said:
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.[13]
[13]Ibid 435–6 [95].
In the course of finding that the proceeding was not an abuse of process, Kirby J said:
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.[14]
[14]Ibid 448–9 [137] (citations omitted).
The Defendants submitted that the present proceedings are distinguishable from Fostif.[15]They say that:
(a)there is no litigation funder in this case;
(b)in proceedings involving litigation funders, the plaintiff’s only interest in the action is the outcome of its claims, whereas in this proceeding the purpose of MCI is the pursuit of its business of bringing these types of claims for the benefit of Mr Elliott’s practice to earn fees; and
(c)in proceedings involving litigation funders, in contrast to this proceeding, the champertous purpose of the litigation funder is counterbalanced by the proceedings being conducted by independent lawyers whom the Court can rely upon to control any tendency to abuse of process.
[15](2006) 229 CLR 386.
To some degree, I accept some of those distinguishing features. Nevertheless, it seems to me that the principles from Fostif[16] are to be taken into account in respect of the Defendants’ applications in the present cases.
[16]Ibid.
MCI also relied on Bright v Femcare Ltd,[17] in which Finkelstein J observed that the principal objects of the representative action procedure are:
(1) to promote the efficient use of court time and the parties’ resources by eliminating the need to separately try the same issue; (2) to provide a remedy in favour of persons who may not have the funds to bring a separate action, or who may not bring an action because the cost of litigation is disproportionate to the value of the claim; and (3) to protect defendants from multiple suits and the risk of inconsistent findings.[18]
[17](2002) 195 ALR 574.
[18]Ibid 606 [152].
In addition, MCI submitted that the Court should have regard to the importance of the legislative policy of s 674(2) of the Corporations Act in mandating continuous disclosure by listed public companies like the Defendants. There is no doubt that the continuous disclosure requirements are a critically important element of maintaining market confidence.[19]
[19]See National Australia Bank Ltd v Pathway Investments Pty Ltd (2012) 265 FLR 247, 260 [61] (Bell AJA); Re Chemeq Ltd (2006) 234 ALR 511, 522–3 [42]–[46] (French J, as his Honour then was).
The Defendants observed that, nevertheless, the Court’s processes must not be abused. They submit that courts stay proceedings if they are taken for an improper motive, and the fact that the proceeding is a group proceeding does not alter this. I agree.
Let me then consider whether the present proceedings are an abuse of process. In doing so, I think that it is worthwhile considering in a little more detail the principles that apply in respect of abuse of process and, in particular, the leading authority of Williams v Spautz.[20] In that case, Dr Spautz was dismissed from his position as a senior lecturer at the University of Newcastle. Dr Spautz then commenced over 30 different proceedings. Included amongst them were charges laid by Dr Spautz alleging criminal defamation and conspiracy against persons who occupied positions of authority at the University. Some of those persons sought declarations that the proceedings were 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.[21] 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.[22] Gibbs CJ, Dawson, Toohey and McHugh JJ endorsed[23] 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.[24]
[20](1992) 174 CLR 509.
[21]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.
[22]Ibid 530 (Mason CJ, Dawson, Toohey, McHugh JJ).
[23]Ibid.
[24][1955] Ch 600, 623–4.
The plurality went on to state that the criterion for abuse of process is whether the predominant purpose of bringing the proceedings is improper.[25] Their Honours observed that the concept of abuse of process must be kept within reasonable bounds and said:
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.[26]
[25]Williams v Spautz (1992) 174 CLR 509, 529 (Mason CJ, Dawson, Toohey, McHugh JJ), 539 (Brennan J).
[26]Ibid 526–7 (citations omitted).
The plurality also drew on the observations of Bridge LJ in Goldsmith v Sperrings Ltd:[27]
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.[28]
[27][1977] 1 WLR 478.
[28]Williams v Spautz (1992) 174 CLR 509, 522 (citations omitted).
MCI drew on this passage from the judgment and submitted that, assuming for the sake of the argument that Mr Elliott has the purpose of earning legal fees as a desired by-product of the litigation, this provides no basis for a finding of abuse of process because Mr Elliott is plainly a ‘litigant with a genuine cause of action, which he would wish to pursue in any event’. It submitted that the proceedings are properly brought by a shareholder and that the Court would have to conclude that the intention of the shareholder is to prosecute them to their conclusion in the ordinary course. MCI submitted that the possibility that some legal costs will be payable to Mr Elliott as MCI’s solicitor, if it is successful, is not a collateral advantage beyond which the law offers. Indeed, MCI contended that the most common by‑product of successful litigation is that the party who is successful will recover his costs.
The Defendants submitted that MCI is not assisted by reference to litigants with a genuine cause of action that they would wish to pursue in any event, because the position is quite different here. They submitted that the only inference open, given the quantum of MCI’s claim, is that MCI would not wish to pursue the proceeding but for the improper purpose. They contended that MCI’s submission to the contrary is untenable and that it is noteworthy that MCI has adduced no evidence to support it when it would have been a simple thing to do so. They also observed that, if the predominant purpose of the litigation were to enable Mr Elliott to earn legal fees, then that purpose is not a by-product of the litigation — it is the predominant purpose which is improper. They contended that the proper purpose of the litigant commencing litigation is an honest desire to recover the relief which is sought in the proceeding. So, they say, the fees charged by solicitors (whether they are acting for themselves or others) are a consequence of litigation; they are not the purpose of the litigation.
As I have said above,[29] I have formed the view that MCI commenced the proceeding for the purpose of generating legal fees for Mr Elliott. I agree with the Defendants that that purpose is not a purpose of earning legal fees as a desired by-product of the litigation. It is the predominant purpose.
[29]See above [9].
The Defendants submitted that the only relief sought by MCI is damages, and the only entitlement or benefit that the law gives MCI in respect of its claim is damages. Accordingly, they contended, unless MCI has a predominant purpose of obtaining damages, it does not have a predominant purpose of ‘obtaining relief within the scope of the remedy’ or ‘bringing the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant’. So they say that the purpose, being to generate legal fees, is not an entitlement or benefit that the law gives to MCI, and legal fees do not constitute relief within the scope of MCI’s remedy.
MCI submitted that, even assuming that its predominant purpose was as I have found, that fact would not justify the orders sought by the Defendants. If it were otherwise, MCI contends, lawyers could never act for themselves as plaintiff. Among other things, that submission overlooks the important fact that, ordinarily, lawyers acting for themselves prosecute their claims not for the predominant purpose of earning legal fees recoverable from the defendant in the case, but for the substantive remedy; for example, damages.
In any event, MCI submitted that my finding that each of the proceedings was commenced for the predominant purpose of generating legal fees for Mr Elliott does not render them an abuse of process. It is not a collateral advantage. Costs are part of the relief sought by MCI in each proceeding.
Bearing in mind that the power to grant a stay should only be exercised in the most exceptional circumstances, to my mind based on the submissions made, categorisation of each of these proceedings as an abuse of process would broaden the concept beyond its recognised boundaries. As I have set out above,[30] the High Court in Williams v Spautz[31] cautioned against such an approach. The point is illustrated by adapting the alderman example, used by the plurality in that case, to the present facts. MCI’s ultimate purpose is for Mr Elliott to earn legal fees (the alderman’s was to bring about disqualification of his political opponent). MCI’s immediate purpose is to obtain orders for compensation in the proceedings against the Defendants, which would naturally lead to an award of costs (the alderman’s immediate purpose was to secure the conviction that would lead to the disqualification of the political opponent). The ultimate purpose does not render the proceeding an abuse of process. Even more is that so in this case. As Senior Counsel for MCI contended, the ultimate purpose of the alderman was not within the scope of the proceeding, yet the plurality did not classify it as an abuse. That is, the disqualification of the political opponent was not something that could be achieved in the criminal process itself instituted by the prosecutor. Rather, it was a consequence of it. Here, the likely costs order (were MCI to be successful) forms part of the relief sought in the proceedings. Whilst I accept that the principal relief is damages and that an award of costs on its own is unlikely, nevertheless, an order for costs would form part of the compensation payable to MCI to recompense it for having brought the proceedings. In any event, an order for costs is a likely and natural consequence if MCI succeeds in its claim and is awarded damages. It is ‘an entitlement or benefit which the law gives the litigant’[32] if the litigant succeeds in the case.
[30]See above [25].
[31](1992) 174 CLR 509, 526.
[32]Ibid.
By way of contrast to this case, the purpose that Dr Spautz had in laying the criminal charges (to gain reinstatement at the University) was not something that could be achieved legitimately either in the proceedings that he brought or as a natural consequence of them. He was endeavouring to use the proceedings as a weapon to achieve an outcome for which they were not designed, and beyond what the law offered.
In my opinion, the conclusion that I have reached is in conformity with the majority’s reasoning in Fostif.[33] If there is a problem that should be addressed in the context of these group proceedings because of the relationship between Mr Elliott and MCI, then that is a problem that should be handled through the procedures that are employed in this kind of action, or through the Court’s inherent powers to control the conduct of its officers.
[33](2006) 229 CLR 386.
I would add that the Defendants contended that the proceedings are each an abuse of process, because they are oppressive to them and bring the administration of justice, along with the legal profession, into disrepute. I do not accept these submissions as a basis for finding that the proceedings are each an abuse of process. The proceedings are no more oppressive than any other proceeding simply because they are brought by a plaintiff who has engaged its sole director and shareholder as its lawyer. I also do not view the proceedings themselves as bringing the administration of justice or the legal profession into disrepute. Rather, it is the conduct of the solicitor that requires further consideration in this regard.
Before moving to those matters, I would note that the Defendants did not contend that MCI was a sham plaintiff on the basis that it purchased the shares in publicly listed companies for the purpose of contriving a loss. Had that argument been put, it would have raised some troubling issues.
Should Mr Elliott be restrained from acting for MCI?
Leighton sought an order that Mr Elliott be restrained from acting for MCI in the proceeding against it. Treasury sought an order that MCI be restrained from continuing to engage Mr Elliott as its solicitor in the proceeding against it.
The Court has inherent jurisdiction to make such orders to ensure the due administration of justice and to protect the integrity of the judicial process.[34] It is part of ensuring that justice is not only done but is manifestly and undoubtedly seen to be done.[35] The principles applicable for restraining a legal practitioner from acting are not in dispute. Those principles were conveniently summarised by Brereton J in Kallinicos v Hunt[36] as follows:
(a)The test to be applied is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice.
(b)The jurisdiction is exceptional and is to be exercised with caution.
(c)Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause.
(d)The timing of the application may be relevant, in that the cost, inconvenience and impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.[37]
[34]Grimwade v Meagher [1995] 1 VR 446, 452 (Mandie J).
[35]Ibid.
[36](2005) 64 NSWLR 561.
[37]Ibid 582–3 [76]. See also Grimwade v Meagher [1995] 1 VR 446, 452 (Mandie J).
One matter that may be taken into account in applications of this type is whether the lawyer will be required to give evidence in the proceeding.[38] The Defendants submitted that it is inevitable that Mr Elliott will have to give evidence here. Using part of the Leighton proceeding as an example, MCI pleads that it expected that Leighton had complied with its obligations under the Listing Rules and the Corporations Act and had no knowledge of the information that it alleges Leighton failed to disclose. Leighton’s defence pleads the matters that it relies on in this application about MCI’s shareholdings, the commencement of the three group proceedings and Mr Elliott’s role as MCI’s solicitor on the record. The same type of pleading is made against Treasury (although Senior Counsel for MCI suggested that in the future, the relevant paragraph might be excised from the pleading). Treasury has not yet had to file a defence.
[38]See, eg, Kallinicos v Hunt (2005) 64 NSWLR 561, 583–6 [77]–[90].
Therefore, the Defendants say that the possibility of adjustment of evidence to suit interest is relevant in regard to the orders that they seek. Put another way, the Defendants contend that Mr Elliott has crossed the line because he will be a material witness on controversial issues in the proceedings and, critically, because he also has a personal pecuniary interest in the conduct and outcome of the proceedings through his shareholding in MCI and as a result of MCI’s and Mr Elliott’s business model.
The Defendants also say that the Professional Conduct Rules support their position. Those rules prohibit a practitioner from engaging in conduct that is calculated or likely to a material degree to be prejudicial to the administration of justice or to diminish public confidence in the administration of justice.[39] Under the rules, in the absence of exceptional circumstances, a practitioner must not continue to act or appear for a client when it becomes apparent that the practitioner will be required to give evidence material to the determination of contested issues before the court.[40] The Professional Conduct Rules are an important aspect of the self-regulation of the legal profession. They do not, however, determine whether the court should exercise its jurisdiction to restrain a solicitor from acting.[41] For example, the fact that a solicitor will be a material witness on a controversial issue, on its own, will not always lead to restraint of the solicitor from acting.[42] I therefore do not place weight on the terms or effect of the Professional Conduct Rules in the context of these proceedings.
[39]Professional Conduct & Practice Rules 2005 r 30.
[40]Ibid r 13.
[41]Dale v Clayton Utz (a firm) (No. 2) [2013] VSC 54 [168].
[42]Mitchell v Burrell [2008] NSWSC 772 [20].
MCI submitted that the probability of Mr Elliott having to give evidence is not very high. It says that, more importantly, the law and the class action regime recognises that the individual questions (which would be the only questions that could be relevant in the context of Mr Elliott giving evidence) will not be resolved in the context of the common questions within the group proceedings in any event. So, it is argued, even if there is a time or a need for evidence from Mr Elliott, it is a long time away. However, the usual course is for the group proceeding to be a vehicle for the common questions and also for the plaintiff’s whole case. In my view it is likely that, on the current pleadings, at the least, Mr Elliott will be called upon to give evidence in the first part of the group proceedings as to MCI’s shareholdings and why the shares were purchased and retained. As he is the sole director and shareholder, there is no-one else who could give evidence about these matters on behalf of MCI apart from Mr Elliott.
I do accept, however, that it is likely that the evidence that Mr Elliott would give would go to MCI’s individual claim rather than to matters the subject of the common questions. Whether individual group members expected that Leighton and Treasury had complied with their obligations under the Listing Rules and the Corporations Act and had no knowledge of the information that Leighton and Treasury allegedly failed to disclose can only be determined after hearing evidence from the individual group member. Consequently, I find it difficult to distinguish this case from that where solicitors act for themselves and give evidence. Whilst MCI is a separate legal entity, it seems to me that there is little to be gained by differentiating between MCI and Mr Elliott when it comes to considering the relevance of Mr Elliott being a witness and whether he should be restrained. The position is different when there are other persons involved in the company — but here there is not. I do not think that the likelihood of Mr Elliott giving evidence in these proceedings is a matter that necessitates an order restraining him from acting for MCI.
The Defendants also submitted that, in considering whether the orders such as those sought should be made, an important aspect is whether the Court can be confident that the solicitor will act in accordance with his or her duties to the Court; that is, whether there may be a conflict between interest and duty. In this regard, Treasury says that Mr Elliott has a significant pecuniary interest in the success of the litigation (I would add, in its failure too), in which case, if a conflict arises between duty and interest, the Court could not be confident that, even if unintentionally, his interest will not impact on his performance of his duty.
The Defendants also contend that there is a real possibility that Mr Elliott’s interests may diverge or be different from those of group members. As the sole director of MCI, Mr Elliott must act in its best interests, but that may not correspond with the best interests of group members. Treasury gave the example of an early settlement, which would be in MCI’s best interests to avoid the need to spend further time and money on the claim, and to recover Mr Elliott’s legal fees from the settlement sum. As I have said, if MCI were to be successful in the proceedings, the quantum payable would be small compared to the likely quantum of Mr Elliott’s legal fees. Treasury therefore says that a scenario in which Mr Elliott and MCI may be prepared to accept a settlement offer that was sufficient to meet his professional fees — but which would provide little or no net return to MCI or other group members — could readily be envisaged. Treasury accepted that such a settlement would require Court approval, but submitted that the Court would be placed in an invidious position having regard to the personal interest that Mr Elliott would have in obtaining the Court’s approval of any settlement. In light of the suggested potential position of conflict that Mr Elliott may find himself in, Treasury submitted that, at the very least, Mr Elliott should be restrained from continuing to act as the legal practitioner for MCI for so long as MCI is the representative plaintiff. It contended that a fair‑minded, reasonably informed member of the public would expect this, in the interests of the protection of the integrity of the judicial process and the administration of justice.
MCI submitted that Mr Elliott is not the lawyer for the group members, so that he does not have any professional representative capacity. MCI did accept that the Court needs to be satisfied that the representative plaintiff will conduct the proceedings in a manner that is calculated to bring them to conclusion in the best interests of their class, but contends that in no other sense does Mr Elliott owe any professional duties of a solicitor/client nature to individual members of the class.
In my view, the hypothetical fair‑minded independent observer (the ‘Observer’) would be reasonably informed of the shareholdings of MCI (as set out in [6] above) and that:
(a)Mr Elliott has at all times been MCI’s sole director and shareholder;
(b)MCI has commenced the three group proceedings;
(c)Mr Elliott is the solicitor on the record for MCI in each of those proceedings;
(d)MCI does not stand to gain much in terms of compensation if the proceedings are successful but, in that event, the costs awarded in its favour and payable to Mr Elliott would be substantial;
(e)if MCI is unsuccessful in any of the proceedings, it will likely be exposed to an adverse costs order, which would be substantial; and
(f)that liability would likely reduce the value of Mr Elliott’s shareholding in MCI.
In my opinion, with knowledge of those matters, the Observer would conclude that Mr Elliott is the decision-maker in the conduct of the proceedings, both from the point of view of what is in MCI’s commercial interests as plaintiff and also as its solicitor. In this regard, the Observer would reasonably conclude that Mr Elliott, through MCI, is in the business of purchasing small shareholdings in listed companies with the objective of subsequently commencing group proceedings against some of them for alleged breaches of their continuous disclosure obligations. Moreover, the Observer would reasonably conclude that MCI’s (and Mr Elliott’s) business model is likely to depend upon the outcome of the proceedings against the Defendants and WorleyParsons.
In addition, the Observer would consider that Mr Elliott is compromised in his role as a solicitor such that there would be a real risk that he could not give detached, independent and impartial advice taking into account not only the interests of MCI (and its potential exposure to an adverse costs order), but also the interests of group members. The group members do not have control over the action, yet unless they opt out, they are bound by judgment in the group proceedings. In the context of group proceedings affecting group members, the Observer would consider it important that the solicitor who is acting for the plaintiff is independent, so that forthright and strident advice is given, untainted by the personal interest of the lawyer beyond their normal interest. In this regard, Mr Elliott’s interest goes beyond that of other solicitors acting for plaintiffs in group proceedings. Those solicitors have an interest in recovering their fees. That does not mean that they should be restrained from acting. Here, however, Mr Elliott has not only that interest, but also an interest in ensuring that MCI does not suffer the consequences of adverse costs orders. Mr Elliott may be very confident that the claim MCI brings is a good one and will succeed, such that he does not consider the risk of adverse costs orders being made against MCI as very high. Nevertheless, litigation is often uncertain and these proceedings are no different from others in that regard. If justice is to be seen to be done, the Observer would expect that MCI would be represented by a person without the vested interests that Mr Elliott has in the proceedings.
Overall, then, the Observer would conclude that the proper administration of justice requires that Mr Elliott be prevented from acting for MCI whilst the proceedings remain as group proceedings with MCI as the representative plaintiff.
Should orders be made under s 33N or s 33ZF of the Supreme Court Act?
The Defendants also sought orders under s 33N of the Supreme Court Act. That section appears in pt 4A, which deals with representative proceedings. Subsection (1) provides:
The Court may, on application by the defendant, order that a proceeding no longer continue under this Part if it is satisfied that it is in the interests of justice to do so because—
(a)the costs that would be incurred if the proceeding were to continue as a group proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or
(b)all the relief sought can be obtained by means of a proceeding other than a group proceeding; or
(c)the group proceeding will not provide an efficient and effective means of dealing with the claims of group members; or
(d)it is otherwise inappropriate that the claims be pursued by means of a group proceeding.
The Defendants also relied on s 33ZF of the Supreme Court Act, which provides:
In any proceeding (including an appeal) conducted under this Part the Court may, of its own motion or on application by a party, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.
Many of the authorities concern the equivalent provisions in the Federal Court Act 1976 (Cth). For present purposes, there are no relevant differences between the State and Federal provisions.
In considering whether orders should be made under s 33N(1), the Court may look at the purpose served by a continuation of the proceeding.[43] An example of orders that have been made under s 33N(1)(d) of the Federal Court Act is Zhang De Yong v Minister for Immigration, Local Government and Ethnic Affairs.[44]In that case, the proceeding continued as a group proceeding until a threshold question was determined. Thereafter, it had no utility as a group proceeding, at which time French J (as his Honour then was) considered that an order under s 33N(1)(d) was appropriate.[45]
[43]Bright v Femcare Ltd (2002) 195 ALR 574, 601 [130] (Kiefel J, with whom Finkelstein J agreed); Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd (2007) 164 FCR 275, 291 [107] (Jacobsen J, with whom French J (as his Honour then was) and Lindgren J agreed).
[44](1993) 45 FCR 384.
[45]Ibid 405.
Section 33ZF is couched in broad terms and facilitates judicial control of representative proceedings to protect the interest of group members.[46] It is not, however, a warrant for rewriting the legislation.[47]
[46]Courtney v Medtel Pty Ltd (2002) 122 FCR 168, 182 [48], 183 [51].
[47]Ibid 183 [52].
The Defendants submitted that, as the proceedings are group proceedings, where the interests of other group members are at stake, Mr Elliott should be held to a higher standard than that applicable to a solicitor in non‑group proceedings. They submitted that the power given by s 33N(1) could be invoked in the present circumstances where there are concerns about whether MCI and Mr Elliott can appropriately and adequately serve the interests of group members. In this regard, the Defendants drew on the experience in the United States of America, where the representative plaintiff must fairly and adequately protect the interests of the class. Here, by contrast, s 33T provides that a group member may apply to the Court to substitute a plaintiff who is not able to represent adequately the interests of the group members. The Defendants submitted that, although s 33T is limited to an application by a group member, it discloses the policy underlying pt 4A and, consequently, the ability of the plaintiff to represent group members is a matter relevant to a consideration of whether, under s 33N(1)(d), it is ‘otherwise inappropriate’ that the claims be pursued by means of a group proceeding. The Defendants also submitted that, in the circumstances, justice cannot be done in the proceeding while MCI is the plaintiff and Mr Elliott is its solicitor on the record. Consequently, they argued that, as MCI is an inappropriate plaintiff to represent the interests of the group, orders should be made under s 33ZF to restrain MCI from continuing as the representative plaintiff.
The Defendants contend that it is also relevant that Mr Elliott has to act in the interests of all class members. They submit that he cannot do so independently and without a conflict of interest if he has a financial interest in the outcome for the sole plaintiff, which is his own company, and of which he is the alter ego. In this regard, they referred to the following comments of Finkelstein J in Kirby v Centro Properties Ltd:[48]
Each [of these proceedings] is an example of a relatively new phenomenon in Australia, namely the lawyer-driven litigation. This is litigation where the lawyer investigates the potential for a claim and recruits the plaintiff and often the group on whose behalf a class action is initiated. Sometimes the person who is named as the plaintiff is simply a figurehead, with little at stake, and who is usually not very well informed about the theories of their case. The most common recruiting method is direct advertisement, often through the lawyer’s website on the internet. In Australia it is becoming increasingly common for a litigation funder to cover the costs of the action.
There are many critics of entrepreneurial actions. There has been a long-standing concern about lawyers who solicit business and stir up litigation. In reality, though, solicitation is not improper per se, and it may be a good thing that lawyers find clients who would not otherwise have sought redress (or even realised that redress was available) for the wrongs they have suffered. The acceptance of class actions has, I think, made this inevitable.
Of more serious concern is the risk that the entrepreneurial lawyer is not subjected to adequate monitoring by the named plaintiff (their client) and largely operates according to their own self-interest, subject only to the restrictions imposed by the ethical rules that govern the profession, some judicial oversight and their own sense of ethics and fiduciary responsibilities.[49]
[48](2008) 253 ALR 65.
[49]Ibid 67 [4]–[6].
The Defendants submitted that the present situation involving MCI and Mr Elliott is a paradigm example of the ‘entrepreneurial lawyer’, about which his Honour expressed concern. Moreover, they submitted, the concerns expressed by Finkelstein J about the risks associated with such entrepreneurial lawyers conducting representative proceedings are magnified in this case, where there is no prospect of Mr Elliott (as the lawyer) being subject to adequate monitoring by MCI (as the plaintiff), which is his alter ego.
MCI observed that neither Treasury nor Leighton had identified a shareholder who might take the place of MCI, and that both had refused MCI access to their respective registers of shareholders. Moreover, MCI submitted that neither Treasury nor Leighton had produced a group member who was concerned about the fact that MCI is the representative plaintiff and that Mr Elliott is acting for it. It submitted that this told against Treasury and Leighton and relied on Jones v Dunkel.[50] In my view, it is not for the Defendants to produce evidence of dissatisfaction of a group member. Nor is it for the Defendants to find a plaintiff to sue them.
[50](1959) 101 CLR 298.
Nonetheless, I am not satisfied that orders should be made under s 33N(1)(d). Whilst that section has broader application than the situation where the proceeding constitutes an abuse of process, the inquiry to be made is as to what purpose the proceeding might serve.[51] Here, on their face, there is nothing irregular about the proceedings that would require an order under s 33N(1)(d). The issues seem to be amenable to representative proceedings, with common questions able to be determined. Given the conclusion that I reached in the preceding section of these reasons, MCI could quite readily continue on as the plaintiff (with other solicitors acting for it) and the issues raised in the proceedings could be determined in the usual way. I am not persuaded that MCI could not adequately represent the interests of group members, if it had independent advice. Whilst there might be issues associated with MCI as the lead plaintiff whilst Mr Elliott is its solicitor, it seems to me that those issues are better addressed in other ways, rather than by orders under s 33N(1)(d).
[51]Bright v Femcare Ltd (2002) 195 ALR 574, 601 [130] (Kiefel J, with whom Finkelstein J agreed).
In this regard, in addition to orders restraining Mr Elliott from acting for MCI in the group proceedings, it does seem to me that an order under s 33ZF could also be made. That order would be to the effect that the proceedings ought not be allowed to continue as group proceedings under pt 4A of the Supreme Court Act for so long as Mr Elliott is acting for MCI or, if Mr Elliott continues to represent MCI, for so long as MCI remains the representative plaintiff.
Whether it is good or bad, the reality is that group proceedings are lawyer driven.[52] They will not, for that reason, be brought to a halt. Nevertheless, it does seem to me that the risks associated with entrepreneurial lawyers acting in group proceedings, as identified by Finkelstein J, are exacerbated here where the plaintiff and the solicitor are not independent of one another. I have a concern that, whilst MCI is the plaintiff and Mr Elliott its solicitor, despite their best intentions, there is a risk (which cannot be dismissed as remote) that self‑interest will dominate over the interests of group members. Ordinarily, lead plaintiffs have the benefit of independent advice about what they should or should not do taking into account the interests of group members. Ordinarily, the solicitor is not facing any possibility of adverse costs orders that will affect them if the plaintiff fails in expensive interlocutory disputes or does not succeed at trial. Mr Elliott is simply not in a position to give detached advice to MCI.
[52]Matthews v SPI Electricity Pty Ltd (Ruling No. 1) (2011) 34 VR 560, 581 [122].
MCI asked rhetorically how it could be that it would be appropriate for Mr Elliott to act for a stranger as plaintiff but not to act for himself. In my view, the answer is simple. If Mr Elliott was not acting with any possibility of adverse costs orders being made that would affect him personally, he would be in a better position to give advice free from that consideration, for the reasons that I have given in the preceding section. Given that the group members will be bound by the decision of the Court unless they opt out, it is important that both they and the Court can have confidence that MCI is representing their interests as well as its own, having had the benefit of legal advice from a solicitor who does not have a vested interest in the outcome of the proceeding in the way that Mr Elliott does.
It follows from what I have said that, in the interests of justice, the orders that I propose should be made under s 33ZF.
I would add that MCI submitted that, if the Court were not persuaded that the proceedings constituted an abuse of process, then relief on the other bases contended for by the Defendants ought not be made. It seems to me, though, that the grounds for restraining a solicitor and for making orders under s 33ZF need not be identical to the grounds for a finding of abuse of process. Whilst there are some similarities, there can be differences. For example, it is not the case that, whenever a lawyer is restrained from acting, the proceeding itself is an abuse of process.
MCI also submitted that the Court’s powers must be exercised in accordance with the Civil Procedure Act 2010 (Vic).[53] I accept that that is so.[54] The overarching purpose of the Act is to facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute. For the reasons that I have given, in my view the overarching purpose would not be served if Mr Elliott and MCI continue as solicitor and lead plaintiff together.
[53]Section 7(1).
[54]National Australia Bank Ltd v Pathway Investments Pty Ltd (2012) 265 FLR 247, 259 [55]–[56].
Conclusion
For the reasons that I have given above, I am not satisfied that either of the proceedings is an abuse of process. I am satisfied, however, that Mr Elliott ought to be restrained from acting for MCI whilst it is the lead plaintiff and that the proceedings ought not be permitted to continue as group proceedings whilst MCI and Mr Elliott act in tandem as plaintiff and solicitor.
12
16
0