Moore v Scenic Tours Pty Ltd

[2015] NSWSC 237

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Moore v Scenic Tours Pty Ltd [2015] NSWSC 237
Hearing dates:	27 February 2015
Date of orders:	20 March 2015
Decision date:	20 March 2015
Jurisdiction:	Common Law
Before:	Garling J
Decision:	(a)Amended Notice of Motion dated 20 February 2015 is dismissed. (b)Defendant to pay the plaintiff’s costs.
Catchwords:	PRACTICE AND PROCEDURE – civil – representative proceedings – whether court should exercise jurisdiction to restrain a firm from acting – ultimate controller and majority owner of firm representing plaintiff falls within group members in proceedings – son of ultimate controller of firm is sole director of litigation funder – whether arrangement designed to circumvent prohibition on contingency fees – litigation funder company of limited capital – whether litigation funder has sufficient capital to meet adverse costs order – plaintiff consents to firm continuing to act – plaintiff entitled to a solicitor of their choice – not in interest of justice to deprive plaintiff of their choice of solicitor – motion to restrain firm from acting dismissed
Legislation Cited:	Civil Procedure Act 2005 Corporations Regulation 2001 Family Law Act 1975 (Cth) Legal Profession Act 2004
Cases Cited:	Bolitho v Banksia Securities Ltd (No.4) [2014] VSC 582 Clyne v NSW Bar Association [1960] HCA 40; (1960) 104 CLR 186 Kallinicos v Hunt [2005] NSWSC 1181
Texts Cited:	Not applicable
Category:	Principal judgment
Parties:	David Moore (P) Scenic Tours Pty Ltd (D)
Representation:	Counsel: A Abadee / A Barnett (P) D Weinberger (D) Solicitors: Somerville Legal Pty Ltd (P) McCabes (D)
File Number(s):	2014/223271
Publication restriction:	Not applicable

___________________________________________________________________

Judgment

1. On 29 July 2014, David Moore (“the plaintiff”) commenced representative proceedings pursuant to Part 10 of the Civil Procedure Act 2005 against Scenic Tours Pty Ltd (“the defendant”).

2. The plaintiff has retained and is represented by Benjamin Hemsworth, of Somerville Legal Pty Ltd (“the firm”). The Statement of Claim was amended on 27 February 2015, leave having earlier been granted by the Court.

3. On 12 February 2015, the defendant filed a Notice of Motion seeking to have the firm restrained from acting for the plaintiff as his legal advisers.

4. On 27 February 2015, the Notice of Motion was amended. In its ultimate form, it sought the following orders:

“1.   Somerville Legal Pty Ltd be restrained from acting for the plaintiff in these proceedings.

1A.   Benjamin James Hemsworth be restrained from acting for the plaintiff in these proceedings.

2.   Costs.”

5. This judgment deals with that Motion. For the reasons which follow, the Amended Notice of Motion ought be dismissed with costs.

Representative Proceedings

6. The plaintiff, and the persons whom he represents, comprise a class, which is agreed to consist of a maximum of 1,300 people (“the group members”), who booked and paid for river cruises in Europe which were scheduled to take place between 10 May 2013 and 14 June 2013 (“the nominated period”). The group members used the services of the defendant, which was trading as either “Scenic Tours” or “Evergreen Tours” with respect to the operation of the river cruises in Europe.

7. The plaintiff and the group members allege that, contrary to identified provisions of the Australian Consumer Law, the services which were provided to them by the defendant, did not meet the requisite standards.

8. What is in substance alleged as a matter of fact, is that in the weeks prior to the nominated period, there was extensive rain and consequent flooding in Europe causing the river levels to significantly rise along the paths of the cruises arranged for the group members by the defendant.

9. As a consequence, it is claimed that the plaintiff and group members, having embarked upon their respective tour itineraries, were not able to cruise on the European rivers of their choice, or else not to all of the scheduled destinations. It seems to be the case against the defendant that in substance, little or no river cruising actually took place. Rather, the plaintiff and group members were transported by bus to, and between, various destinations.

10. It is contended that the plaintiff and group members did not receive, as they were entitled to, the relevant services from the defendant in accordance with their agreement, and the Australian Consumer Law.

11. The defendant in its defence, accepts that the water levels in the relevant rivers were high in the nominated period, and that the water levels rose along the paths of the cruises being arranged by the defendant. It denies that it is liable to the plaintiff and group members, and relies upon the terms and conditions of the relevant contract entered into by the plaintiff and group members when the arrangements were made for the cruises.

12. As well, the defendant points to the fact that the tours upon which the plaintiff and group members embarked were provided by service providers who were independent contractors of the defendant, and that it is not liable for their conduct.

Relevant Principles of Law

13. In pursuing its Motion, the defendant relies upon the Court’s inherent jurisdiction to restrain a solicitor from acting in any particular case. The defendant submits that the facts proved bring this case within that jurisdiction.

14. The underlying principle of law is the subject of clear authority.

15. The Court has an inherent jurisdiction to restrain solicitors from acting in proceedings. The jurisdiction is an incident of the Court’s inherent jurisdiction over its officers and its inherent powers to control its processes in aid of the administration of justice. The jurisdiction relied upon by the defendant is an exceptional one and is to be exercised with caution.

16. Brereton J in Kallinicos v Hunt [2005] NSWSC 1181 at [76], having undertaken an extensive review of the relevant authorities, summarised the relevant principles in the following way:

“The foregoing authorities establish the following:

…

●   … , the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice ...

●   The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner 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 ...

●   The jurisdiction is to be regarded as exceptional and is to be exercised with caution ...

●   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 ...

●   The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief ...” (citations omitted)

17. Recently, in a group proceeding in the Supreme Court of Victoria, Ferguson JA restrained lawyers from representing a plaintiff where the lawyers had an interest, or were perceived to have an interest, in a litigation funder: Bolitho v Banksia Securities Ltd (No.4) [2014] VSC 582.

18. Her Honour adopted the principles articulated by Brereton J in Kallinicos at [16]. Given the basis for the application before her, which was centred upon the issue of whether a practitioner had a financial interest in litigation over and above ordinary legal fees, her Honour noted the decision of the High Court of Australia in Clyne v NSW Bar Association [1960] HCA 40; (1960) 104 CLR 186.

19. Her Honour said (at [18]):

“So, in the decision of Clyne v NSW Bar Association … the High Court observed that it is perfectly proper for solicitors to act although there is no prospect of being paid fees or being reimbursed for disbursements unless there is a judgment against the other party to the proceeding. The High Court observed that this general proposition was subject to two qualifications: one is that he has considered the case and believes that his client has a reasonable cause of action or defence as the case may be. And the other is that he must not in any case bargain with his client for an interest in the subject matter of litigation, or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding.”

20. In considering these principles, it is also relevant to note that s 325 of the Legal Profession Act 2004, prohibits contingency fees. It is in the following terms:

“325 Contingency fees are prohibited

(1)   A law practice must not enter into a costs agreement under which the amount payable to the law practice, or any part of that amount, is calculated by reference to:

(a) …;

(b) the amount of any award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates.

Maximum penalty: 100 penalty units.

(2)   Subsection (1) does not apply to the extent that the costs agreement adopts an applicable fixed costs provision.”

21. It will be necessary to return to Bolitho in due course.

The Firm: Somerville Legal Pty Ltd

22. The evidence about the firm of Somerville Legal Pty Ltd, enables the following findings of fact.

23. The firm was founded by Mr Tim Somerville in 1983. Initially, Mr Somerville was the sole principal of the firm but later became a partner with another legal practitioner. In 2006, the practice became an incorporated legal practice. Mr Somerville was a director of the firm between 2006 and 2009.

24. In 2010, a new board of directors took over. The directors of the company are presently, and have been at all times since 2010, Mr Benjamin Hemsworth, who is presently the solicitor on the record of the plaintiff, Mr Stephen Lynch, Ms Fiona Hoad and Mr Andrew Somerville. In 2010, Mr Hemsworth became the managing director of the incorporated legal practice. Mr Andrew Somerville is one of Mr Tim Somerville’s sons.

25. There are 2,000 issued ordinary shares of which 1,700 (84%) are owned by Timothy Somerville Pty Ltd. The other 300 (16%) are owned by Trade House Pty Ltd. There are also issued another class of shares which are held by the same parties in the same proportions.

26. Mr Tim Somerville and his wife, Mrs Julie Somerville, own one each of the two shares in Timothy Somerville Pty Ltd. Mrs Somerville is the sole director and secretary of that company. There is a hint in the evidence that this company may act only as a trustee of a discretionary trust. The evidence is inadequate to enable such a finding to be made.

27. Trade House Pty Ltd is a company owned by Mr Benjamin Hemsworth and a Ms Melanie Hemsworth. The evidence does not reveal the relationship between Mr and Ms Hemsworth.

28. Mr Tim Somerville and Mrs Julie Somerville fall within the definition of group members in the pleadings. Although the time has not yet arrived for a group member to opt out of the proceedings, correspondence with the defendant indicates that Mr Tim Somerville and Mrs Julie Somerville will not be part of the group.

29. Mr Somerville attends at the firm’s offices, apparently on most days of the week, except when taking extended holidays with his wife. He often arrives late, and leaves early. The nature of the work which he undertakes is unexplained by the evidence. His name appears as a person to be contacted, although he was not the author, in correspondence seeking the provision of litigation funding. It also appears, on the same basis, in correspondence sent to the plaintiff with respect to his becoming the “lead” plaintiff. There is no evidence that he was ever contacted in relation to these letters.

30. Mr Hemsworth, who is, as I have noted above, the managing director of the firm, is responsible for the commercial litigation department of the firm, and has the oversight of all commercial litigation matters undertaken by the firm. That oversight includes the present matter. He is the solicitor on the record for the present proceedings.

31. Mr Adam Cutri is an employed solicitor, who has the day-to-day carriage of the matter. He is a solicitor of some years’ experience in civil litigation. He occupies the office immediately adjoining that of Mr Hemsworth, and works directly for him. When he has the need to consult about the conduct of the matter, he consults with, and takes directions from, Mr Hemsworth.

The Plaintiff

32. The plaintiff, Mr David Moore, is a full-time high school teacher who lives on the Central Coast of NSW.

33. Mr Moore has entered into a written Retainer Agreement with the firm. That agreement has a number of relevant clauses. One is that the costs payable to the solicitors will be calculated in accordance with an identified disclosure document. The second feature, is a clause which reads as follows:

“The costs of the solicitors in relation to the class action including the costs of acting for the claimant and all other claimants, will be paid by the litigation lender, subject to the litigation funding agreement and the other provisions of this agreement.”

34. The Retainer Agreement authorises the firm to collect the proceeds of the plaintiff’s claim and pay such part of the monetary proceeds to the litigation lender as it is entitled to, and to pay the balance to the plaintiff.

35. Clause 8 of the Retainer Agreement deals with the costs of the defendant. It is in the following form:

“8.1   The Claimant acknowledges that the Claimant may have to a contingent liability for costs incurred in the Claim by the Defendant contingent upon the Claim of being successful.

8.2   The Litigation Lender has agreed to pay the Defendant costs and to indemnify the Claimant against Defendant costs in respect of the Claim subject to the terms of the Litigation Funding Agreement.” (sic)

36. The disclosure document referred to in the Retainer Agreement, sets out an hourly rate for legal costs of particular staff of the firm and for a partner (or director) of the firm. It was not suggested that this disclosure did not comply with the provisions of Pt 3.2 of the Legal Profession Act 2004.

Litigation Funding Agreement

37. The plaintiff has also entered into a Litigation Funding Agreement with Legal Justice Pty Ltd. That agreement was drafted by Mr Cutri. Counter intuitively, Legal Justice Pty Ltd is referred to throughout the agreement as the “Litigation Lender”. The agreement does not contemplate any arrangement by way of a loan. In common contemporary parlance, Legal Justice Pty Ltd is known as a litigation funder.

38. The operative terms include the following:

“

“2.1   The Litigation Lender shall pay:

2.1.1   all of the Claim Costs on behalf of the Claimant; and

2.1.2   any liability of the Claimant in respect of any Defendant Costs.

2.2   The obligations of the Litigation Lender to make payments in accordance with clause 2.1 of this agreement apply only for so long as the Claimant is not in breach of any of the Claimant’s obligations under this agreement.”

39. Clause 3 is in the following terms:

“3.1   Upon the Claimant receiving any of the proceeds of the Claim, the Claimant shall pay to the Litigation Lender:

3.1.1   The claimant’s share of the claim’s costs and of any defendant costs; and

3.1.2   15% of the proceeds of the claim paid or provided by the defendant; and

3.1.3   18% of the proceeds of the claim paid or provided by the defendant, on or after 30 November 2014, in addition to the 15% thereof referred to in clause 3.1.2.”

40. The agreement requires the plaintiff to refrain from making or accepting an offer of settlement or having any negotiations or other communications with any representative of the defendant without the prior written agreement of the litigation lender.

41. Clause 9 is in these terms:

“9.   Disclosures to the Claimant

9.1   The Litigation Lender may have already entered, and may in the future enter into agreements with other claimants, and the Claimant shall have no rights in respect of any such agreements.

9.2   The Litigation Lender has disclosed that its director and shareholders are relatives of the founding partner of the solicitors, who is also a Claimant, and that the solicitors act on behalf of the Litigation Lender.”

42. The plaintiff obtained independent legal advice before signing both the Retainer Agreement and the Litigation Funding Agreement.

43. At the time he entered into the Litigation Funding Agreement, the plaintiff was in possession of a document described as a “Conflict of Interest Policy”. Regulation 7.6.01AB of the Corporations Regulation 2001, requires such a policy to exist.

44. That policy acknowledges that a conflict of interest may arise in circumstances where the interests of the litigation funder, and the interests of the plaintiff and group members, are different. It acknowledges also that such a conflict of interest may arise where the interests of one group member are different from those of the plaintiff, or another group member.

45. One of the conflicts identified in the policy is with respect to the firm. It is in the following terms:

“6.   Somerville Legal Pty Ltd:

(a) The director and shareholder of the company [i.e. the litigation funder] is related to the Timothy Somerville (‘Somerville’), the founding partner of Somerville Legal Pty Ltd.

(b) Somerville is not a director, employee or shareholder of Somerville Legal Pty Ltd. However, he provides consultancy services to that firm, and he is a beneficiary of a trust which owns shares in Somerville Legal Pty Ltd.

(c) Somerville has no direct or indirect interest in the company.

(d) The company has no direct or indirect financial interest in Somerville Legal Pty Ltd.

(e) The matters set out above do not indicate any conflict of interest in the company funding litigation conducted by Somerville Legal Pty Ltd with or without the personal involvement of Somerville. However, third parties may perceive a conflict of interest.”

46. The document then goes on to deal with procedures for managing conflicts of interest. When outlining how conflicts of interest will be dealt with, the policy contains the following:

“3.   Conflicts of interest with lawyers, experts, other clients and defendants:

(a) The company shall at no time allow any lawyers, experts or defendants involved in any litigation to have any direct or indirect interest in the company, nor to have any other financial arrangement with the company, other than arrangements with the company to pay the proper fees of such lawyers and experts.

(b) At no time shall the company have a direct or indirect interest in any lawyers, experts or defendants which are corporations.”

Legal Justice Pty Ltd

47. Legal Justice Pty Ltd is the litigation funder of the plaintiff’s claim and the party with whom the plaintiff has entered into the Litigation Funding Agreement.

48. According to the corporate records, the company was first incorporated on 12 February 2013. It applied for registration as a proprietary company on that day. This is before the nominated period in the Amended Statement of Claim.

49. Its current registered office is that of Somerville Legal Pty Ltd. Presently it has a single director, who is Mr Adrian Brett Somerville, who is the son of Mr Timothy Somerville. Mr Adrian Somerville is now 32 years old, and was appointed as a director on 2 May 2014, which is after the nominated period.

50. Presently, the company’s issued share capital, 100 ordinary shares, is entirely owned by Mr Adrian Somerville. According to the corporation’s records, the amount paid for each share was $1. The corporate records also record that Mr Adrian Somerville lives at a residential address which is different from that of his parents.

51. On 11 November 2014, the solicitors for the defendant wrote to the solicitor for the plaintiff indicating that their client was concerned that:

“… Legal Justice Pty Ltd may not have sufficient capital to meet any adverse costs order, noting that it has undertaken to pay costs if the plaintiff’s claim is unsuccessful.”

52. As a consequence, and after further correspondence, the litigation funder agreed to deposit $200,000 in a nominated bank account by way of security for costs. This deposit was made on 23 December 2014. The solicitors for the defendant have the details of the relevant bank account.

53. The sum of $200,000 paid by way of security for costs, was provided by a company called Humpbackpackers Pty Ltd. This is a company which applied for registration as a proprietary company on 2 July 2013. It has two directors – Mr Adrian Somerville and his brother, Mr Nathan Somerville. Mr Nathan Somerville is currently 28 years old. They are both sons of Mr Tim Somerville.

54. Mr Adrian Somerville and Mr Nathan Somerville, each own 50 of the 100 shares which have been issued. Each share is fully paid to the sum of $1.

55. The arrangement for the provision of the funds between Humpbackpackers Pty Ltd and Legal Justice Pty Ltd is not revealed in the evidence. The source of the monies paid by Humpbackpackers Pty Ltd is not revealed in the evidence. The financial state and the nature of the business, if any, conducted by Humpbackpackers Pty Ltd is not the subject of any evidence.

56. Both the plaintiff, Mr Moore, and Mr Adrian Somerville, the director of the litigation funder, know of the current Notices of Motion, and the orders being sought by the defendant. Both consent to the firm and Mr Hemsworth continuing to act.

57. The evidence reveals that prior to entering into the Litigation Funding Agreement with Legal Justice Pty Ltd, Mr Cutri sought to obtain litigation funding from a number of other organisations engaged in the same business. The first of those proposals was sent out on 16 January 2014, and two further proposals were sent out on 21 March 2014. The evidence does not reveal whether there was any, and if so what, response to those proposals.

58. The proposal made by Mr Cutri to Legal Justice Pty Ltd was made on 30 April 2014, and was largely a proposal in the same terms as that made to previous litigation funders. That proposal was after some limited negotiations as to terms, ultimately accepted, and was crystallised by the Litigation Funding Agreement.

Submissions of the Defendant

59. The defendant submits that the Court should, having regard to the facts described above, conclude that Mr Adrian Somerville, who is the son of the ultimate controller and majority owner of the firm, has a substantial financial stake in the outcome of the litigation. The defendant submitted:

“therefore there can be little doubt that the Somervilles have a ‘family interest’ in the litigation similar to that described in Bolitho.”

60. The defendant then pointed to the following features. First, it submitted that there had been no proper independent advice about the Litigation Funding Agreement given to the plaintiff, Mr Moore. It submitted that the Litigation Funder is a company of limited capital. The defendant described it as a “$1 company” but, more correctly, the paid up share capital is $100. The difference is insignificant in the context of the submission of the defendant.

61. The defendant submitted that the Court should find that there is no evidence that the litigation funder has the capacity to meet the costs of the proceedings. The defendant submits that there is no evidence that the plaintiff, Mr Moore, has been advised that the litigation funder is a company of limited capital which may not have the capacity to meet any order for costs.

62. The defendant next submits that, having regard to the contents of the conflict of interest policy of the litigation lender, and in particular, clause 3 to which reference has been made in [46] above, the litigation funder should be found to have been in breach of the policy because of the Somerville “family interest”.

63. The defendant’s submissions then went on to address the perception of the reasonable observer in the following terms:

“45.   With reference to matters considered relevant in Bolitho (at 57), the independent observer in these proceedings would know that:

(a) the group members stand to share part of the benefit of a successful class action, but Mr Moore faces the risk of an adverse costs order alone;

(b) there is nothing to suggest that if Somerville Legal and Mr Hemsworth are restrained from acting, the proceedings would be stultified. Procedurally, the proceedings are at an early stage and a change of solicitors is possible. There is no evidence that new solicitors could not take over conduct of the proceedings;

(c) if the restraining orders were made, there is nothing to prevent the litigation funder from continuing to provide funding, and there is no suggestion that litigation would be stultified for want of a litigation funder;

(d) it is important for the proper administration of justice and the judicial process that the Court can rely upon the independence of legal representatives and the objectivity they bring when advising their clients and presenting a case in court.

64. Accordingly, the defendant submitted that the orders sought in the Amended Notice of Motion should be made.

Plaintiff’s Submissions

65. The plaintiff submitted that there was nothing untoward about the litigation funding arrangements, nor the firm and Mr Hemsworth acting as the plaintiff’s lawyers.

66. He submitted that the evidence did not permit the Court to draw the conclusion that Mr Tim Somerville, Mr Hemsworth or the firm, had any indirect financial interest in the proceeds of the claim which may be obtained by the litigation funder. He submitted that there was no basis for a conclusion that the firm, and indirectly Mr Tim Somerville, were engaged in an arrangement designed to circumvent the statutory prohibition on lawyers charging contingency fees.

67. Finally, the plaintiff submitted that, in light of all of the facts, a reasonable observer would not conclude that the proper administration of justice required either the firm, or Mr Hemsworth to cease acting in the proceedings.

Discernment

68. As a matter of fact, the defendant has not demonstrated that there is any direct or indirect financial connection between the firm, Somerville Legal Pty Ltd, and the litigation funder, Legal Justice Pty Ltd.

69. As well, the evidence demonstrates that Mr Tim Somerville, himself, has no role to play as a solicitor for the plaintiff and group members in the action. The evidence clearly demonstrates that the managing director of the firm, Mr Hemsworth, and Mr Adam Cutri, his employed solicitor, have the conduct of the proceedings, and that they do not take instructions or directions with respect to the conduct of the proceedings from Mr Tim Somerville.

70. Mr Tim Somerville is not a member of the board of directors of the firm. So long as the present structure and arrangements for the conduct of the firm remain in place, Mr Tim Somerville is not in a position to control the legal conduct of the proceedings.

71. The facts also show that the plaintiff has had the benefit of independent legal advice with respect to the Retainer Agreement with the firm, and the Funding Agreement with the litigation funder. It is not for this Court to speculate about the adequacy of that advice. The Court has no evidence as to the content of the advice. However, in the particular circumstances disclosed in the evidence, unless the plaintiff was fully informed about the financial state, and therefore the practical worth, of any agreement with the litigation funder, it is hard to think that such advice would be regarded as adequate.

72. The facts which have been proved do not, of themselves. demonstrate any inappropriate arrangement, or any offence to the administration of justice. Nor would these facts would cause the hypothetical, reasonable observer who must be taken to be reasonably informed about them, to have any disquiet at all about the firm, and Mr Hemsworth, continuing to act for the plaintiff.

73. But the defendant’s submissions go somewhat further, and in two respects. First, the defendant’s submissions suggest a distinct principle is to be derived from the decision in Kallinicos, as identified by Ferguson JA in Bolitho.

74. That principle is that where there is what can be properly described as a “family interest” in the litigation funder of a solicitor with control, or conduct of the funded proceedings, the reasonable observer would reach the requisite degree of concern for the administration of justice, such as would justify the Court making the orders sought.

75. Secondly, the defendant submits that the reasonable observer would conclude from all of the facts to which I have drawn attention, that, in this case, the litigation funder is the creature of Mr Tim Somerville and it is a mere device to enable him, a solicitor, to be remunerated by what is, in effect, a contingency fee. The defendant submits that the reasonable observer would conclude that Mr Somerville has devised the scheme, established the litigation funder for the sole purpose of funding these proceedings, installed his son, a young man of no apparent qualifications, to be the director of that company, and then organised for the legal firm of which he is the founding partner, and of which he is the substantial owner (directly or indirectly), to act for the plaintiff and group members, and also the litigation funder. As a consequence, the defendant submits that the reasonable observer would conclude that in substance it is Mr Tim Somerville who is the commercial risk taker in the litigation, and that he is to be rewarded for that risk by a significant proportion of any monies recovered, whilst in effect he is acting as the lawyer for the plaintiff and group members.

76. In addition, the defendant points to the fact that the limited capital structure of the litigation funder, means that its promise or guarantee to the plaintiff is in reality worthless, and that the defendant will be required, once security for costs is depleted, to look to the plaintiff personally for their costs in the event that it is successful.

77. All of this, the defendant submits, would mean that a reasonable observer would conclude that these arrangements are so inextricably linked, that a conflict of interest either exists or may exist, or alternatively, perhaps more importantly, that the whole structure is an offence to the administration of justice.

78. In this case, in support of these two submissions, the defendant points to the following:

1. Although he is not acting for the plaintiff, Mr Tim Somerville is described as the founding partner of the firm, and he holds, directly or indirectly, an 85% share in the firm. Accordingly, he profits from the costs of the proceedings;

2. Mr Tim Somerville and his wife were, originally, members of the group described in the Statement of Claim, and Mr Somerville has actively participated in putting together the group and bringing the claim. The defendants submit that this is to be drawn from the inclusion of Mr Somerville’s name on correspondence with group members and with potential litigation funders;

3. The litigation funder seems to have been brought into existence for the particular purpose of these proceedings;

4. The firm acts for the litigation funder as well as the plaintiff, Mr Cutri drew up the Litigation Funding Agreement. A member of the Somerville family is a director of the firm. The litigation funder has its registered office at the firm’s premises;

5. The sole shareholder and director of Legal Justice Pty Ltd is the 32 year old son of Mr and Mrs Somerville. It is not apparent that he has any legal qualifications or any other qualification which makes him suitable as a wholly independent person to fully understand, appreciate and accept the risks accepted with litigation funding;

6. The capital of the litigation funder is not sufficient to fund this litigation. When a sum for security for costs was required, it was not paid by the litigation funder, but rather by another low capital company, the owners and directors of which are the 30 and 32 year old sons of Mr Tim Somerville. In other words, the money was provided, it should be inferred, from the Somerville family resources;

7. No evidence has been provided to the Court which explains the background to the establishment of the litigation funder, its financial viability and, in particular, the true source of funds from which the security for costs amount was paid; and

8. The defendant notes that there was no evidence from any member of the Somerville family to address these issues, and that appropriate inferences should be drawn in the absence of such evidence.

79. The defendant submits that the reasonable observer would be aware of the fact that lawyers are prohibited from charging contingency fees. The reasonable observer would also be aware that the interposition of a litigation funder allows that funder to take a significant percentage, here 33%, of the proceeds of any representative action which, having regard to the fact that the group has a potential size of 1,300, may be a very significant sum. The reasonable observer would also know that in addition to this sum, the litigation funder would be reimbursed its expenditure on legal costs.

Is there a “Family Interest” Principle?

80. The “family interest” referred to in Bolitho, is not, in my view, a distinct principle of law. Nor does the use of that phrase in Bolitho assist the defendant here. The short reason for this is that Ferguson JA was dealing with a different factual matrix.

81. In Bolitho, the litigation funder was substantially owned and controlled by the solicitor on the record, and the wife of the senior counsel appearing in the proceedings. Her Honour concluded, if I may say so with respect, entirely correctly with respect to the senior counsel, that such was his interest in business enterprises engaged in by his wife that she ought regard their interest as being the same for all practical purposes.

82. In so doing, as it seems to me, Ferguson JA was doing no more or less than considering the notion of “property” as that phrase is used in the Family Law Act 1975 (Cth), and in particular in Part VIII thereof.

83. The concept of “property” in the Family Law Act embraces the notion that each spouse to a marriage has an interest in all property which is accumulated in the course of the marriage and some other categories of property as well. The extent of that interest, and how those interests may be adjusted pursuant to the Act, are matters which do not derogate from the underlying principle – which is that both spouses have an interest in all property of either spouse.

84. As well, as her Honour pointed out, the success or failure of the representative proceedings which were before her, would directly affect the senior counsel’s wife, and thereby indirectly financially affect the senior counsel himself.

85. Confronted with such closeness of relationship, and identity of financial interest, it is unsurprising that her Honour concluded that the solicitor and counsel ought be restrained from acting for the plaintiff and group members in those proceedings.

86. However, I do not accept that her Honour’s judgment created a new principle of “family interest”. The conclusion, which the defendant asks this Court to draw, in the absence of evidence to the contrary, is that where there is a family relationship, there will be a direct or indirect financial impact upon every member of the family, from the commercial or professional activities of each of the other family members.

87. Here, there is no evidence, but the defendant submits that the reasonable observer would have a perception, of a direct or indirect relationship between the parents, Mr and Mrs Somerville, and their son, Adrian. Other than the coincidence of surname, there is no particular reason for the Court, or a reasonable observer, to draw an inference that the litigation funder is, in fact, being funded and directed, by Mr Tim Somerville.

88. I am unpersuaded by this submission. The reasonable observer does not act on suspicion. The reasonable observer does not make connections or draw inferences in the absence of evidence. This is what the defendant seeks to do here.

89. This, however, is not an end to the matter. The second submission of the defendant is that, in effect, the reasonable observer would conclude that the litigation funder is the creation of Mr Tim Somerville, and is a “stalking horse” to obtain a contingency fee in circumstances where Mr Somerville is in truth the real promoter of the class action.

90. I am not persuaded that I can draw this conclusion. Nor am I persuaded that a reasonable observer would draw this conclusion.

91. On the evidence available, Mr Hemsworth and Mr Cutri are entirely independent in the way in which they have gone about acting for the plaintiff and group members. There is no evidence that they have taken any direction from Mr Tim Somerville as to the drafting of the pleadings and the conduct of the litigation. They have retained an entirely independent barrister and, so far as it appears, have acted in accordance with that barrister’s advice.

92. Whilst it is correct that the litigation funder is a company without adequate capital to carry on its business, when required to provide security for costs, it was able to, and did so, promptly in accordance with the Court’s orders. Whilst the lack of adequate capital in the litigation funder is an ongoing matter of concern, the defendant is protected by the order for security for costs in event that it obtains an order for costs.

93. Should the sum presently deposited by way of security for costs prove to be inadequate, then it is always open to the defendant to make application for further security. That time has not yet arisen. When it does, the capital adequacy of the litigation funder may be a matter which the defendant relies upon as a reason to obtain a further order for security for costs.

94. To the extent that the plaintiff is said to be at risk by reason of a practically ineffective promise by the litigation funder to indemnify him for legal costs, that is a matter between the plaintiff, the litigation funder and the plaintiff’s solicitors. The order for security for costs provides a degree of protection for the plaintiff with respect to his contingent liability for the costs of the defendant if the claim is unsuccessful. There is no offence, nor could there be perceived to be by a reasonable observer, to the administration of justice by such circumstances.

Conclusion

95. This is a jurisdiction which should only be exercised with caution, and sparingly. The plaintiff is entitled to the solicitor of his choice. It is not generally in the interests of justice to deprive the plaintiff of their choice of solicitor and, there is no reason here to think that ordering what is, in effect, a change of solicitor, is necessary to further the administration of justice.

96. I am unpersuaded that the Court should exercise its discretion to make the orders sought in the Notice of Motion.

Orders

97. I make the following orders:

1. Amended Notice of Motion dated 20 February 2015 is dismissed.

2. Defendant to pay the plaintiff’s costs.

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Amendments

10 April 2015 - Minor typographical error