Project 28 Pty Ltd v Barr

[2005] NSWCA 240

CITATION:	Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr; Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd ) v Tim Barr Pty Ltd & Ors [2005] NSWCA 240
HEARING DATE(S):	05/07/05
JUDGMENT DATE:	25 July 2005
JUDGMENT OF:	Hodgson JA at 1; Ipp JA at 2; Campbell AJA at 124
DECISION:	(1) The application for leave to appeal in the House Proceedings (CA 41018/04) is dismissed with costs (2) The application for leave to appeal in the Lease Proceedings (CA 41019/04) is granted (3) The appeal in regard to the Lease Proceedings is upheld and the orders made by Palmer J in regard thereto are set aside (4) The Lease Proceedings are stayed until Austcorp provides TBPL and Mr Barr with an indemnity against any costs that they might be ordered to pay Narui (5) TBPL and Mr Barr to pay the costs of the application for leave to appeal and the appeal in the Lease Proceedings as well as the costs of the application for a stay of the Lease Proceedings before Palmer J.

CATCHWORDS:	Maintenance and champerty - Dismiss or stay proceedings - Focus should be on the tendency of the funding arrangements to produce an abuse of process rather than whether champerty and maintenance exist - Whether it is reasonably arguable that the funder of the proceedings has a genuine commercial interest in their subject matter - The interest must be rights-based and not a mere hope. - Abuse of process - Dismiss or stay of proceedings - Focus should be on the tendency of the funding arrangements to produce an abuse of process rather than whether champerty and maintenance exist - Relevant factors include the existence of a reasonably arguable genuine commercial interest and the control of proceedings by a person not formally a party to them - Lack of proportionality between the value of the rights, the subject of the proceedings, and any subsisting right independent of the proceedings does not necessarily lead to a tendency to amount to an abuse of process - Person controlling the proceedings in the name of the nominal plaintiff has no potential liability for the successful defendant's costs leading to a tendency to amount to an abuse of process. D
LEGISLATION CITED:	Corporations Act 2001 (Cth), s 1335(1) Supreme Court Act 1970 (NSW), s 76(1) Supreme Court Rules, 1970 (NSW), Pt 4 r 4A, Pt 11 r 1A, Pt 52 r 4(5)(d), Pt 53 r 2
CASES CITED:	Andrews v Caltex Oil (Australia) Pty Ltd (1982) 40 ALR 305 Annesley v Simeon 4 Mad. 390 Attorney General v Newspaper Publishing Plc [1987] 3 All ER 276 Attorney General v Punch Ltd [2001] 2 All ER 655 Attorney General (UK) v Newspaper Publishing Plc [1988] Ch 333 Brown v Guardian Royal Exchange Assurance Plc [1994] 2 Lloyd's Rep 325 Clairs Keeley (a firm) v Treacy (2005) 29 WAR 479 Cowell v Taylor (1886) 31 Ch D 34 Crittenden v Bayliss [2002] EWCA Civ 50 Crouch v Credit Foncier of England Ltd (1873) LR 8 QB 374 Esso Australia Resources Ltd v Plowman (Minister for Energy and Minerals) (1995) 183 CLR 10 FAI General Insurance Co Ltd v ACN 010 087 573 Pty Ltd [1999] QCA 524 Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd [2005] NSWCA 83 Giles v Thompson [1994] 1 AC 142 Groom v Crocker [1939] 1 KB 194 Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316 Harman v Secretary of State for the Home Department [1983] 1 AC 280 Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523 Hunter v Chief Constable of the West Midlands Police [1982] AC 529 Knight v FP Special Assets ltd (1992) 174 CLR 178 K/S Merc-Scandia XXXXII v Lloyd's Underwriters (2001) 2 Lloyd's Rep 563 Led Builders Pty Ltd v Eagle Homes Pty Ltd [1999] FCA 1213 Leicester v Walton (unreported, NSWCA, 7 November 1995) Mercantile Mutual Insurance (NSW Workers Compensation) Ltd v Murray [2004] NSWCA 151, 13 ANZ Ins Cas 61-612 Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 Oshlack v Richmond River Council (1998) 193 CLR 72 Pearson v Naydler [1977] 1 WLR 899 R (Factortame) Ltd v Secretary of State for the Environment, Transport and the Regions (No 2) [2002] 4 All ER 97 Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 1041 Rugby Union Players Association Inc v Australian Rugby Union Ltd (unreported, NSWSC, 30 July 1997) Spicer v Todd 1 DPC 306 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 Walton v Gardiner (1993) 177 CLR 378 Wentworth v Wentworth (2000) 52 NSWLR 602 Williams v Spautz (1992) 174 CLR 509 Wood v Griffith (1818) 1 Swan.43
PARTIES:	CA 41018/04 Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) (Claimant) Timothy James Barr (Opponent) CA 41019/04 Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) (Claimant) Tim Barr Pty Ltd (First Opponent) Timothy James Barr (Second Opponent) Shigeo Narui (Third Opponent)
FILE NUMBER(S):	CA 41018/04; 41019/04
COUNSEL:	CA 41018/04 & CA 41019/94 M Einfeld QC/R E Dubler SC/A Harding (Claimants) R G McHugh/J E Lazarus (First & Second Opponents) CA 41019/04 No Appearance (Third Opponent)
SOLICITORS:	CA 41018/04 & CA 41019/04 Verekers (Claimants) Corrs Chambers Westgarth (First & Second Opponents) CA 41019/04 No Appearance (Third Opponent)

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 4564/02; ED 2762/02
LOWER COURT JUDICIAL OFFICER:	Palmer J

CA 41018/04
CA 41019/04
ED 4564/02
ED 2762/02

HODGSON JA
IPP JA
CAMPBELL AJA

Monday 25 July 2005

PROJECT 28 PTY LTD (FORMERLY NARUI GOLD COAST PTY LTD) v TIMOTHY JAMES BARR

PROJECT 28 PTY LTD (FORMERLY NARUI GOLD COAST PTY LTD) v TIM BARR PTY LTD & ORS

FACTS

On 13 September 1999 Narui Gold Coast Pty Ltd (“Narui”) and Mr Barr entered into an agreement (the “Sale Agreement”) whereby Narui agreed to sell a property in Kings Forest (known as Lot 1) to Mr Barr. On 23 June 2000 Narui and Tim Barr Pty Ltd (“TBPL”) entered into a lease (the “Lease”) whereby Narui leased to TBPL a large parcel of land at Kings Forest (known as Cudgen Paddock). Clause 15 of the Lease gave an option (the “TBPL Option”) to TBPL to purchase Cudgen Paddock.

On 3 May 2002, before the TBPL Option had been exercised, Narui gave notice to TBPL terminating the Lease and asserting a right to re-enter into possession of Cudgen Paddock. On 7 May 2002 Narui notified Mr Barr that it regarded the Sale Agreement as unenforceable and therefore would not transfer Lot 1 to him.

On 17 May 2002 TBPL and Mr Barr (the “Barr Interests”) commenced proceedings against Narui (the “Lease Proceedings”). They sought declarations to the effect that the termination of the Lease was invalid, orders restraining Narui from re-taking possession of Cudgen Paddock, and specific performance of the Lease. On 12 September 2002 the Barr Interests commenced proceedings against Narui seeking specific performance of the Sale Agreement (the “House Proceedings”).

On 19 March 2003 TBPL, Mr Barr and Austcorp Group Ltd (“Austcorp”) entered into a deed (the “Option Deed”) whereby TBPL granted Austcorp an option (the “Austcorp Option”) to purchase Cudgen Paddock and acquire the Lease.

On 16 April 2003 Austcorp nominated a subsidiary and it exercised the Austcorp Option. On 17 April 2003 TBPL exercised the TBPL Option.

On 21 May 2003 TBPL, Mr Barr and Austcorp entered into a deed (the “Management Deed”) whereby TBPL delegated the conduct of the Lease Proceedings to Austcorp and gave Austcorp complete control over them. On 1 October 2003 Austcorp and the Barr Interests entered into a deed (the “Amending Deed”) which varied the Management Deed and applied certain of its provisions to the House Proceedings.

Narui applied to the Equity Division of the Supreme Court of NSW for orders dismissing and, in the alternative, staying the Lease Proceedings and the House Proceedings. Palmer J dismissed Narui’s applications. His Honour held, relying on Trendtex Trading Corporation v Credit Suisse [1982] AC 679, that Austcorp (before it entered into the Option Deed) had a “genuine commercial interest” in acquiring Cudgen Paddock and so also had a “genuine commercial interest” in funding the Lease Proceedings such that its control of them did not savour of maintenance and did not amount to an abuse of process. Palmer J concluded, with regard to the House Proceedings, that the funding arrangements for them were not an abuse of process or inherently likely to produce an abuse of process and so could not be described as constituting maintenance.

Narui was granted leave to appeal from Palmer J’s decision in relation to the Lease Proceedings (and not the House Proceedings) and so the Court considered the substantive arguments in relation to them.

HELD per Ipp JA (Hodgson JA and Campbell AJA agreeing):

1. The funder of proceedings will only hold a “genuine commercial interest” in the proceedings, such that its control of them does not constitute maintenance according to the law as expressed in Trendtex Trading Corporation v Credit Suisse, if the interest be, at the least, rights-based and not a mere hope. A mere wish on the part of the funder of proceedings to acquire property is, therefore, too insubstantial and tenuous to qualify as a “genuine commercial interest”.

2. It is impractical and undesirable for a court, at the stage of determining whether proceedings should be dismissed or stayed, to embark on a close analysis of the merits of the case before it. The court’s inquiry, instead, should focus upon whether it is reasonably arguable that the funder of the proceedings has a “genuine commercial interest” in the subject matter of those proceedings.

3. Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd [2005] NSWCA 83 indicates that courts must focus on the tendency of the funding arrangements of proceedings to produce an abuse of process rather than arguments as to champerty or maintenance when deciding whether to dismiss or stay the proceedings. The courts must, to be precise, consider whether the proceedings would, because of the funding arrangements, be so unfairly and unjustifiably oppressive as to constitute an abuse of process.

4. The mere existence of a reasonably arguable “genuine commercial interest”, while relevant to whether proceedings should be dismissed or stayed for abuse of process, is not conclusive. It is a factor to be taken into account by the court when conducting its inquiry into whether the funding arrangements amount to or may have a material tendency to amount to an abuse of process.

5. The existence of complete or absolute control of proceedings by a person not formally a party to them does not, on its own, constitute an abuse of process. It is, however, a relevant factor because, when considering whether to dismiss or stay proceedings on the ground of abuse of process, regard is had to the whole picture (including whom is in control of the proceedings).

6. The mere fact that a person not a party to proceedings might gain a commercial advantage by being involved in them (via conducting the proceedings in the name of a nominal party) does not constitute an abuse of process.

7. A lack of proportionality between the value of the rights, the subject of the proceedings, and any subsisting right independent of the proceedings that is held by their funder does not, in every case, lead to a tendency to amount to an abuse of process. An important factor indicating that, in a particular case, a lack of proportionality will not lead to a tendency to amount to an abuse of process is that the solicitors and counsel retained by the nominal plaintiff are of such an ethical character that they can be relied upon to act with complete propriety.

8. A tendency to abuse of process can arise if the person controlling the proceedings in the name of the nominal plaintiff has no potential liability for the successful defendant’s costs. This tendency to amount to an abuse of process is not minimised by the fact that the defendant may be able to obtain a security for costs from the nominal plaintiff nor is it minimised by the fact that the solicitors and counsel retained by the nominal plaintiff are of an ethical character.

9. The following are the orders of the Court:

(a) The application for leave to appeal in the House Proceedings (CA 41018/04) is dismissed with costs.
(b) The application for leave to appeal in the Lease Proceedings (CA 41019/04) is granted.
(c) The appeal in regard to the Lease Proceedings is upheld and the orders made by Palmer J in regard thereto are set aside.
(d) The Lease Proceedings are stayed until Austcorp provides TBPL and Mr Barr with an indemnity against any costs that they might be ordered to pay Narui.
(e) TBPL and Mr Barr to pay the costs of the application for leave to appeal and the appeal in the Lease Proceedings as well as the costs of the application for a stay of the Lease Proceedings before Palmer J.

*********

CA 41018/04
CA 41019/04
ED 4564/02
ED 2762/02

HODGSON JA
IPP JA
CAMPBELL AJA

Monday 25 July 2005

PROJECT 28 PTY LTD (FORMERLY NARUI GOLD COAST PTY LTD) v TIMOTHY JAMES BARR

PROJECT 28 PTY LTD (FORMERLY NARUI GOLD COAST PTY LTD) v TIM BARR PTY LTD & ORS

Judgment

1 HODGSON JA: I agree with Ipp JA.

2 IPP JA:

The events giving rise to the stay applications

3 This is an application for leave to appeal and, if granted, an appeal against a judgment of Palmer J. By that judgment his Honour dismissed applications by the claimant (“Narui”) for orders dismissing, alternatively, staying two sets of proceedings in which it is the defendant. In the first set of proceedings (the “Lease Proceedings” (CA 41019/04)), the plaintiffs are Tim Barr Pty Ltd (“TBPL”) and Mr Timothy Barr. I shall refer to them collectively as the “Barr Interests”. The Barr Interests are the opponents in relation to the Lease Proceedings. In the second set of proceedings (the “House Proceedings” (CA 41018/04)), Mr Barr alone is the plaintiff (and the opponent). The notices of motion before Palmer J were heard together and the applications for leave to appeal and appeals have been heard together.

4 Narui is a land developer. It owns certain land at Kings Forest. Mr Barr was employed by Narui and managed the development of that land. TBPL is a company controlled by him.

5 On 13 September 1999 Narui and Mr Barr entered into an agreement (“the Sale Agreement”) whereby Narui agreed to sell a property in Kings Forest (known as Lot 1) to Mr Barr. There was a house on Lot 1 that Mr Barr intended to be his home.

6 On 23 June 2000 Narui and TBPL entered into a lease (“the Lease”) whereby Narui leased to TBPL a large parcel of land at Kings Forest known as Cudgen Paddock. Clause 15 of the Lease gave an option (the “TBPL Option”) to TBPL or its assigns to purchase Cudgen Paddock for “an amount equal to [its] market value”.

7 On 3 May 2002, before the TBPL Option had been exercised, Narui gave notice to TBPL terminating the Lease and asserting a right to re-enter into possession of Cudgen Paddock. Narui contended that TBPL had used the land for the purposes of a tree plantation without the requisite statutory approval and thereby had breached the Lease.

8 On 7 May 2002 Narui notified Mr Barr that it regarded the Sale Agreement as unenforceable and therefore would not transfer Lot 1 to him.

9 On 17 May 2002 the Barr Interests commenced the Lease Proceedings against Narui. They sought declarations to the effect that the termination of the Lease was invalid and orders restraining Narui from re-taking possession of Cudgen Paddock. On 12 September 2002 Mr Barr commenced the House Proceedings seeking, in effect, specific performance of the Sale Agreement.

10 On 19 March 2003 TBPL, Mr Barr and Austcorp Group Ltd (“Austcorp”) entered into a deed (“the Option Deed”) whereby TBPL granted Austcorp an option (the “Austcorp Option”) to purchase Cudgen Paddock and acquire the Lease.

11 Austcorp is a property developer and competitor of Narui. Recital H of the Option Deed recorded that Austcorp wished to acquire the “Narui land” (being land owned by Narui described in a schedule to the Option Deed) “and/or” all of the shares in Narui, “and/or” Cudgen Paddock. Recital H stated further that it was Austcorp’s intention to develop the Narui land into residential lots for sale at a profit and, if it failed in obtaining ownership of the Narui land, to own Cudgen Paddock and develop it into residential lots for sale at a profit. Recital G to the Option Deed recorded that Mr Barr considered that the Lease and the TBPL Option subsisted and were valid and enforceable (although disputed by Narui in the Lease Proceedings).

12 On 16 April 2003 Austcorp nominated a subsidiary which exercised the Austcorp Option. On 17 April 2003 TBPL exercised the TBPL Option.

13 On 21 May 2003 TBPL, Mr Barr and Austcorp entered into a deed (the “Management Deed”) whereby TBPL delegated the conduct of the Lease Proceedings to Austcorp and gave Austcorp complete control over them.

14 On 26 September 2003 the Barr Interests’ claim in the Lease Proceedings was amended to include a claim for specific performance.

15 Narui amended its defence in the Lease Proceedings by relying on the conduct of the Barr Interests in entering into the Option Deed and the Management Deed as further grounds for cancelling the Lease and refusing to transfer Lot 1 to Mr Barr. According to Narui that conduct was a breach of cl 7.1 of the Lease which provided:

“Subject to the following, the tenant will not during the continuance of the Lease assign or transfer this Lease or demise, sub-let, part with, share the possession of, or grant any licence affecting, or mortgage, charge or otherwise deal with or dispose of the Premises or any part thereof, or by any act or deed procure the Premises or any part thereof to be assigned, transferred, demised, sub-let unto shared or put into possession of any person or persons.”

16 On 1 October 2003 Austcorp and the Barr Interests entered into a deed (the “Amending Deed”) which varied the Management Deed and applied certain of its provisions to the House Proceedings.

The Option Deed, the Management Deed and the Amending Deed

17 The Option Deed provided that settlement of the contract to be entered into between TBPL (as seller) and Austcorp (as buyer) for the sale and purchase of Cudgen Paddock was to be conditional upon the settlement of a contract for the sale and purchase of Cudgen Paddock by Narui to TBPL.

18 The Option Deed provided further that, should Austcorp acquire Cudgen Paddock, it was to pay a fee to TBPL and transfer Lot 1 to it for no further consideration. The fee was to be calculated by deducting the “Cudgen Paddock Cost” from the sum of $3,800,000. The Cudgen Paddock Cost involved a complicated formula including the cost to Austcorp of acquiring Cudgen Paddock and the Lease.

19 The following provisions of the Option Deed concerned the TBPL Option:

(a) TBPL was to do all “acts” in regard to the TBPL Option, including conduct court proceedings, as Austcorp might reasonably require.
(b) TBPL was to keep Austcorp fully informed as to the progress of the TBPL Option and provide it with copies of all documents relating thereto.
(c) Austcorp became entitled to nominate TBPL’s legal representation for the Lease Proceedings.
(d) Austcorp was to pay TBPL’s costs of the Lease Proceedings on an indemnity basis.

20 The Management Deed expanded the control given to Austcorp of the Lease Proceedings. It did so by amending the Option Deed in certain respects but confirmed that otherwise the Option Deed remained binding on the parties (cl 6.4).

21 Before dealing with the relevant provisions of the Management Deed, it is to be noted that it contained the following definitions:

· “the appointed solicitors” means the solicitors nominated by Austcorp from time to time;

· “the Supreme Court proceedings” means the Lease proceedings.

· “project” means the acquisition by TBPL, the onsale of the land from TBPL to a nominee of Austcorp, and the conduct of the Lease proceedings;

· “documents” includes any document relating to the Lease proceedings.

22 Clause 3 of the Management Deed provided:

“3.1 Austcorp to assume control of the Project
(a) On and from the date of this document, Austcorp will assume control of the Project. Austcorp will conduct the Project in any manner which, in its absolute discretion, is desirable for the achievement of the Objectives.
(b) TBPL consents to the conduct of the Project by Austcorp and will not raise any objection or claim in relation to such conduct.
3.2 Delivery of documents
TBPL must:
(a) deliver copies of all Documents to Austcorp within 5 Business Days of the date of this document;
(b) procure the delivery of all Documents held by Paul Bard Lawyers to Austcorp; and
(c) …
3.3 Good faith
Each party agrees to co-operate and act in good faith in relation to the Project.”

23 Clause 4 provided:

“Conduct of the litigation
4.1 Communications protocols
(a) TBPL authorises Austcorp to conduct the Supreme Court Proceedings, including but not limited to:
(i) the determination, in the absolute discretion of Austcorp, of the strategy to be employed in relation to the conduct of the Supreme Court Proceedings; and
(ii) the negotiation, in consultation with TBPL, of any settlement of the Supreme Court Proceedings.
(b) TBPL acknowledges that, despite the fact that TBPL and Tim Barr are parties to the Supreme Court Proceedings, the Appointed Solicitors on the Supreme Court Proceedings will be instructed by Austcorp. TBPL must not issue instructions to the Appointed Solicitors (in writing or otherwise) without the prior written consent of Austcorp.
(c) TBPL and Tim Barr must each promptly provide to Austcorp copies of all documents relating to the Supreme Court Proceedings which are received by TBPL and/or Tim Barr.
(d) Austcorp must promptly provide to TBPL copies of all documents relating to the Supreme Court Proceedings which:
(i) are created as part of the Supreme Court Proceedings; or
(ii) are received as part of the Supreme Court Proceedings.
(e) TBPL and Tim Barr must promptly provide all assistance requested by Austcorp in relation to the Supreme Court Proceedings, including but not limited to the execution and swearing of affidavits relating to the Supreme Court Proceedings.
(f) TBPL and Tim Barr must not, at any time, do anything in relation to the Property or the Supreme Court Proceedings without the prior written consent of Austcorp (which may be provided or withheld in the absolute discretion of Austcorp).
(g) TBPL must immediately pay to Austcorp any amount received as part of any award of costs under the Supreme Court Proceedings.”

24 Clause 8.1(c) provided:

“Austcorp must pay all costs and disbursements of the Appointed Solicitors in relation to the Supreme Court Proceedings and the Conveyance, provided that Austcorp’s liability in relation to such costs associated with the Supreme Court Proceedings and the Conveyance must not exceed $300,000. Austcorp is not required to have recourse to TBPL or Tim Barr prior to payment of such costs and disbursements.”

25 Under the Amending Deed, Austcorp’s liability for costs and disbursements of the solicitors in relation to the Lease Proceedings was limited to $400,000 (as opposed to $300,000 under cl 8.1(c) of the Management Deed). As mentioned, the Amending Deed also made certain provisions of the Management Deed applicable to the House Proceedings.

The judgment of Palmer J

26 Palmer J held that, before Austcorp entered into the Option Deed, it had a genuine commercial interest in acquiring Cudgen Paddock. His Honour found that that interest came simply from Austcorp’s pre-existing desire to acquire the land for re-development. He said in this regard:

“Austcorp was motivated to fund the Proceedings, not because it was in the business of litigation funding and wanted to take a share of the fruits of successful litigation, but rather because, as a developer, it wanted to acquire the Land for redevelopment.”

27 Relying on Trendtex Trading Corporation v Credit Suisse [1982] AC 679 Palmer J held that, because Austcorp had a genuine commercial interest in acquiring the land from TBPL, it had a genuine commercial interest in funding the Lease Proceedings and, therefore, the Option Deed did not “savour of maintenance”.

28 His Honour rejected Narui’s argument that the Management Deed gave rise to an abuse of process because it vested exclusive control of the Lease Proceedings in the hands of Austcorp. His Honour held that, as Austcorp had a genuine interest in the Cudgen Paddock, it was entitled to control the litigation by which “those rights are to be secured”. His Honour considered that Austcorp was not involved in litigation trafficking and did not accept that the funding arrangements “constitute, or are inherently likely to produce, an abuse of the Court’s process such as to warrant a stay of the proceedings”.

29 As regards the House Proceedings, Palmer J pointed out that, under the parties’ contractual arrangements, Austcorp would not be entitled to the fruits of victory were Mr Barr to be successful. His Honour said that the funding arrangements relating to those proceedings “amounted to little more than assisting Mr Barr in the payment of legal costs up to a certain amount which will then be deducted from the purchase price of the Land if the Lease proceedings are successful”. The judge considered that, in one sense, the funding assistance provided by Austcorp could be regarded as part payment of the purchase price of the land from TBPL in advance. His Honour observed:

“In a real sense it may be said that Austcorp had a genuine interest in the subject matter of the House Proceedings before it entered into the amended Management Deed whereunder it agreed to fund part of the costs of the House Proceedings. This is because under the Option Deed Austcorp secures Mr Barr’s co-operation in assisting it to acquire all of Narui’s land, including Lot 1 on which the house is built, and promises that if it is successful in achieving its object it will transfer the house to Mr Barr. Funding the House Proceedings may therefore be seen as part of the common objective of the parties, stated in the Option Deed, of securing the house for Mr Barr.”

30 Palmer J pointed out that, in addition, Austcorp was funding the House Proceedings to achieve Mr Barr’s goodwill and co-operation in regard to the Lease Proceedings.

31 His Honour concluded that the funding arrangements for the House Proceedings were not an abuse of process or inherently likely to produce an abuse of process and could not be described “as officious inter-meddling such as to constitute maintenance”. He said:

“As the amended Management Deed gives Austcorp no control of the House Proceedings and no access to documents produced compulsorily in those proceedings, and as the solicitors acting for Mr Barr in the proceedings, although nominated by Austcorp, are acting on his instructions, I can see no reason to conclude that the funding arrangement is inherently likely to give rise to an abuse of process.”

32 Thus, his Honour dismissed the application.

The House Proceedings

33 Mr Einfeld QC who, together with Mr Dubler SC and Mr Harding, appeared for Narui argued the appeal in relation to the House Proceedings only perfunctorily. This approach was appropriate as the proposed appeal in relation to the House Proceedings is without substance.

34 In my opinion, the reasons given by Palmer J for dismissing the application for a stay in relation to the House Proceedings are correct. The proposed appeal against his dismissal of the application has no substance. I would not grant leave to appeal in relation to it.

The Lease Proceedings – the grounds of appeal and argument

35 Mr Einfeld submitted that Palmer J erred in two respects in relation to the Lease Proceedings.

36 Firstly, he submitted that his Honour wrongly characterised Austcorp’s mere desire to acquire Cudgen Paddock as being the kind of interest that validates a transaction that would otherwise be champertous.

37 Secondly, he submitted that his Honour was mistaken in not finding that the absolute control of the Lease Proceedings given to Austcorp by the Management Deed required the upholding of Narui’s claim for a stay.

38 Palmer J’s judgment was delivered prior to the judgment of this Court in Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd [2005] NSWCA 83. In that case Mason P (with whom Sheller JA and Hodgson JA on this issue agreed) said (at [93]):

“[I]t is not correct in this State to conflate the principles of maintenance/champerty with those touching abuse of process, or view them as arming a defendant with a right to stay proceedings because they are maintained (even champertously).”


His Honour said further (at [104]):

“A champertous arrangement may have a particular tendency to lead to abuse of process, whether or not champerty remains tortious. But it is that tendency, and not its champertous nature as such, that must be considered in an application for a stay.”

39 In the light of what had been said in Fostif, the Court requested Mr Einfeld to focus on the tendency of the arrangements to produce an abuse of process, as alleged by Narui, rather than arguments as to champerty or maintenance. In response, Mr Einfeld submitted that the abuse of process was constituted by the following:

(1) The claims of Narui against the Barr Interests involve breaches of fiduciary duty and misrepresentation; as these issues are in part personal to the Barr Interests, the action cannot be the subject of an assignment of a bare right to litigate.

(2) The control over the Lease Proceedings is absolute in the hands of Austcorp, as is manifest from the following:

(a) The solicitors for the Barr Interests are of Austcorp’s choosing.
(c) The solicitors may not obtain instructions from the Barr Interests if, in its absolute discretion, Austcorp wishes that they do not.
(d) The Barr Interests are obliged to provide the documents discovered by Narui to Austcorp.
(e) The “whole conduct and strategy” for the litigation is at the whim of Austcorp.
(f) Austcorp is entitled to prohibit the Barr Interests from dealing with Narui.


(3) Austcorp has been given a commercial advantage, as a competitor of Narui, and intends to obtain Narui’s land by manipulating the Barr Interests’ claims in the Lease Proceedings.

(4) The total disproportion in the value of any subsisting right held by Austcorp, independent of the litigation, as compared to the value of the rights that could be acquired by Austcorp, as the fruits of the litigation, is an incentive to impropriety.

(5) Austcorp does not indemnify the Barr Interests against the costs that they might be ordered to pay Narui should they be unsuccessful in the litigation; that omission – coupled with the absolute control given to Austcorp - tends to subvert the processes of the Court.

Is the wish to acquire Cudgen Paddock an interest sufficient to validate the transaction?

40 In Trendtex Lord Roskill said at 703:

“[A]n assignee who can show that he has genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which as has often been said, is a branch of our law of maintenance.”

41 Such an interest must be a “legitimate interest”. It must be distinct from the benefit that the person supporting the action seeks to derive from the litigation: Giles v Thompson [1994] 1 AC 142. It must be something beyond a mere personal interest in profiting from the outcome of the proceedings: Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148; Rickard Constructions Pty Ltd v Rickard HailsMoretti Pty Ltd [2004] NSWSC 1041 at [59].

42 In my opinion, the mere wish on the part of Austcorp to acquire Cudgen Paddock was far too insubstantial and tenuous to qualify as the kind of commercial interest that would have the effect contemplated in Trendex and the cases that have followed it. Such an interest must, at least, be rights-based and not a mere hope. In my opinion, his Honour erred in deciding otherwise.

43 Such a conclusion, however, is by no means the end of the issues raised by this appeal. In the light of Fostif, the question whether the funding arrangements constitute maintenance or champerty is not the essential inquiry required when determining whether the action should be stayed. The essential inquiry, as Mason P held in Fostif, is whether the funding arrangement would or would have a tendency to lead to an abuse of process. As the President said (at [132]):

“In my opinion, the court’s basal inquiry should be whether the role of the particular funder has corrupted or is likely to corrupt the processes of the court to a degree that attracts the extraordinary jurisdiction to dismiss or stay permanently for abuse of process.”

44 I shall, therefore, examine the issue whether the arrangements entered into between Austcorp and the Barr Interests would or would have a tendency to lead to an abuse of process. Before doing so, however, it is necessary to deal with an argument raised by Mr McHugh who, with Mr Lazarus, appeared for Mr Barr and TBPL.

Does Austcorp have a different interest that “validates” the transaction?

45 Mr McHugh submitted that Austcorp had an interest, different to that relied on by Palmer J, that does validate the transactions between it and the Barr Interests.

46 The first link in this argument is that, under the Option Deed, control over the litigation is not given to Austcorp.

47 The argument commences with cl 7.3 of the Option Deed, which is in the following terms:

“Tim Barr must do all acts (including conduct of such mediation and court proceedings as Austcorp shall reasonably require) and execute all documents to exercise and enforce the Tim Barr Call Option promptly and in accordance with all legal requirements.”

48 By cl 7.3 “Tim Barr” (defined by the Option Deed as TBPL) promised to “do all acts (including conduct of such mediation and court proceedings as Austcorp shall reasonably require) … promptly and in accordance with all legal requirements”. That was a promise to conduct such court proceedings, as Austcorp shall reasonably require, promptly and in accordance with all legal requirements. I do not construe cl 7.3 as a promise by TBPL to do all acts in relation to court proceedings as Austcorp shall reasonably require. In my view, the structure of the sentence (in particular, the words in parenthesis) does not give rise to the latter meaning. Clause 7.3 does not entitle Austcorp to instruct TBPL as to the conduct of the Lease Proceedings.

49 Clause 7.6 required TBPL to keep Austcorp advised and provide it with copies of all documents relevant to the option under the Lease. Clause 7.8 empowered Austcorp to nominate TBPL’s legal representation and to pay the costs of TBPL on an indemnity basis but - were TBPL to choose its own solicitors - it would forfeit its rights to be indemnified by Austcorp as to the costs of the Lease Proceedings.

50 Thus, the Option Deed did not entitle Austcorp to give instructions to the solicitors or otherwise to direct or control the litigation. Control of the proceedings remained, thereby, in the hands of the Barr Interests.

51 The second link in the argument is that (subject to Narui’s contention that the Barr Interests had breached the Lease, and the TBPL Option - in consequence - had come to an end) once the Option Deed had been entered into, and the Austcorp Option exercised (which occurred in April 2003), Austcorp had a genuine commercial interest in the Cudgen Paddock. That interest stemmed from Austcorp’s exercise of the Austcorp Option whereby it acquired from TBPL the interest that TBPL had acquired by exercising the TBPL Option. In my view, this argument, too, is correct.

52 I appreciate that, should Narui succeed in the Lease Proceedings, neither the Barr Interests nor Austcorp would have any right to Cudgen Paddock. But, at this stage, regard has to be had to the “totality of the transaction” (per Lord Roskill in Trendtex at 703), bearing in mind that the basic inquiry is whether the continuation of the proceedings would be so unfairly and unjustifiably oppressive as to constitute an abuse of process. It is impractical and undesirable for the court, at this stage, to embark on a close analysis of the merits of the case. At the stage of determining whether proceedings should be stayed, the inquiry should be merely whether a party has a reasonably arguable case that it has a commercial interest in the subject matter of the litigation (to the extent that such an interest is relevant to the abuse of process issue).

53 Narui contends that TBPL breached the Lease by conducting a tree plantation on Cudgen Paddock without the appropriate statutory authority and also that it breached cl 7.1 of the Lease by granting an option to Austcorp. The Barr Interests contend, on the other hand, that there was no breach of the Lease in the respects alleged.

54 Mr Einfeld did not contend that the Barr Interests’ defence relating to the breach involving the tree plantation was not bona fide and, indeed, did not address this issue.

55 As regards Narui’s contention that the Barr Interests breached cl 7.1 of the Lease by entering into the Option Deed, the Barr Interests’ contend that cl 7.1 is concerned only with leasehold and does not apply to dealings in the freehold. On that basis, their disposal of the freehold interest would not contravene cl 7.1. In my view, they have an arguable case on this question.

56 It follows from this approach that (for the purposes of the stay application) by 21 May 2003, when the Management Deed was entered into, Austcorp, arguably, had a genuine commercial interest in the transactions the subject of the litigation.

57 In my view, the mere existence of such an arguable interest, while relevant to whether proceedings should be stayed on the grounds of abuse, is not conclusive. It is merely a factor to be taken into account. The Court is not directly concerned with whether the arrangements amount to champerty or maintenance; its inquiry is into whether the arrangements between the parties amount to or may have a material tendency to amount to an abuse of process.

The nature of abuse of process involved and the standard of proof required

58 Abuse of process is not restricted to defined and closed categories. In the context of arrangements that fund litigation, an abuse of process may occur on a number of bases. For example, the funder may be attempting to use the litigation as a business and not for the purpose of achieving justice in a genuine dispute between the parties. In these circumstances, it is possible that the funder would be seeking to use the proceedings otherwise than for the purpose for which they were intended. Other ways in which a particular instance of litigation funding might lead to abuse of process are where the funding results in the defendant being oppressed or prejudiced, or the procedures of the court subverted or improperly manipulated.

59 In the present case, Austcorp is not trafficking in litigation. Its business is not acquiring claims and then prosecuting them. Rather, the contention is that the arrangements by which it funds and controls the Lease Proceedings corrupt or tend to corrupt the process.

60 The general principle was expressed by Mason CJ, Deane and Dawson JJ in Walton v Gardiner (1993) 177 CLR 378 at 392-393 as follows:

“The inherent jurisdiction of a superior court to stay its proceedings on grounds of abuse of process extends to all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness.”

61 Their Honours (at 393) described the jurisdiction of a superior court to stay proceedings on the grounds of abuse of process as being correctly described by Lord Diplock in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 (at 536) as “the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people”.

62 Whether a proceeding should be permanently stayed on grounds of abuse of process is to be determined by a “weighing process involving a subjective balancing of variety of factors and considerations” (Mason CJ, Deane and Dawson JJ in Walton v Gardiner at 396). Among those factors and considerations are the requirements of fairness to the parties, the public interest and the need to maintain public confidence in the administration of justice.

63 The standard of proof for establishing an abuse of process and obtaining the summary dismissal or permanent staying of proceeding is a high one: Williams v Spautz (1992) 174 CLR 509 (per Mason CJ, Dawson, Toohey and McHugh JJ at 518-520). Their Honours said (at 519):

“It is of fundamental importance that, unless the interests of justice demand it, courts should exercise, rather than refrain from exercising, their jurisdiction [to conduct litigation], … It is equally important that freedom of access to the courts should be preserved and that litigation of the principal proceeding, whether it be criminal or civil, should not become a vehicle for abuse of process issues on an application for a stay, unless once again the interests of justice demand it.”

Complete control over the Lease Proceedings

64 There is a body of authority to the effect that substantial control over litigation does amount to abuse. For example in Clairs Keeley (a firm) v Treacy (2005) 29 WAR 479 the Full Court of the Supreme Court of Western Australia said at 502 [125]:

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

65 In Fostif, this Court did not follow that reasoning. Mason P at [114] disagreed with the “categorical thrust of the last two sentences”, saying:

“In my opinion, a conclusion about abuse of process must stem from a finding directed at the actual or likely conduct of the party in whose name the litigation is brought (or its agents). The court is not concerned with balancing the interests of the funder and its clients. Indeed, it is not concerned with the arrangements, fiduciary or otherwise, between the plaintiff and the funder except so far as they have corrupted or have a tendency to corrupt the processes of the court in the particular litigation. It is only when they have that quality that the defendant has standing to complain about them. Even at common law, the aspects of public policy hostile to champerty were concerned with the interests of the imposing party, not the party who had entered into the champertous arrangement ( Giles v Thompson (1993) 3 All ER 321 at 336 per Steyn LJ [[1994] 1 AC 142]).”

66 The President observed (at [132]):

“In my opinion, the court’s basal inquiry should be whether the role of the particular funder has corrupted or is likely to corrupt the processes of the court to a degree that attracts the extraordinary jurisdiction to dismiss or stay permanently for abuse of process.”

67 I agree with and adopt his Honour’s remarks. The submissions advanced on behalf of Narui must be judged against the background of this Court’s approach in Fostif.

68 Many insurance policies confer on the insurer exclusive control over litigation involving the insured. The courts have always countenanced this. In Fostif Mason P remarked in this connection at [82]:

“An insured owner of a motor vehicle whose claim for indemnity is accepted by the insurer may place the matter in the hands of that insurer, leaving it to the insurer and the retained solicitor to do whatever is necessary, consistent with the ultimate recognition of the owner’s position as client. The insurance analogy also illustrates the regularity of informed arrangements whereby solicitors represent both insurer and insured as principals, even though conflict of interest issues may arise and, if they do, will have to be dealt with properly (see generally Mercantile Mutual Insurance (NSW WorkersCompensation) Ltd v Murray [2004] NSWCA 151, 13 ANZ Ins Cas 61-612).”

69 The insurance context provides a useful example of how the law copes adequately with a situation where control over litigation is given to a person who is not a party to the litigation itself.

70 Generally, the law assumes that a lawyer-client relationship exists between the solicitor appointed by the insurer and the insured, but not necessarily to the exclusion of a similar relationship with the insurer. Both insurers and the solicitors they appoint owe a duty to the insured to conduct the proceedings with due regard to the latter’s interests, and an action for damages will lie for breach of that duty: Groom v Crocker [1939] 1 KB 194.

71 If an insurance policy so provides, solicitors’ reports must be furnished in full to the insurers: Brown v Guardian Royal Exchange Assurance Plc [1994] 2 Lloyd’s Rep 325. It is implicit in the remarks of Neill LJ in Brown (at 329) that, but for provisions to the contrary in the policy, the insurer would have been entitled access to all the documents provided by the insured (cf FAI General Insurance Co Ltd v ACN 010 087 573 Pty Ltd [1999] QCA 524 at [17] per Derrington J). Insurers have the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be in the interests of themselves and the insured: Groom v Crocker (at 203). When the insurer takes over the conduct of the insured’s defence, each party comes under an obligation, as a matter of contractual implication, to act in good faith with due regard to the interests of the other: K/S Merc-Scandia XXXXII v Lloyd’s Underwriters (2001) 2 Lloyd’s Rep 563 at 572-574. In cases of conflict of interest, the law prescribes the duties of the various parties including the solicitors involved. See generally Macgillivray On Insurance Law, 10th ed, at para 28-35.

72 These are examples of the manner in which the law has developed rules to cope with a situation not dissimilar to that between Austcorp, the Barr Interests and their solicitors. The rules that have been formulated are readily adaptable to the situation presently under consideration.

73 There is another situation where the law, for more than 200 years, has accepted that a person, not a party to particular litigation, may control that litigation in the name of a party. That is where the assignee conducts legal proceedings in the name of the assignor.

74 Windeyer J explained in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 27 that, despite the common law doctrine that debts were not assignable, equity allowed the assignor to give a power of attorney to the assignee to sue the debtor in the assignor’s name. His Honour stated:

“[C]ourts of equity would come to the assistance of the assignee if the assignor refused to do whatever was necessary to enable the assignee to get the benefit of the assignment. Thus a recalcitrant assignor would be required, on having an indemnity for his costs, to permit his name to be used in an action to recover the debt.”

See also Oshlack v Richmond River Council (1998) 193 CLR 72 at 88-89 per Gaudron and Gummow JJ.

75 An old example of this occurring is Wood v Griffith (1818) 1 Swan. 43 where Lord Eldon was concerned with the sale of an equitable interest under a contract of purchase. He said, with regard to the vendor of that equitable interest:

“[E]quity not only allows, but actually compels, him to permit them to use his name, in all proceedings for obtaining the benefit of their contract.”

He asked (at 56) the rhetorical question: “[W]hat is that but what happens every day?”

76 The indemnity for costs required to be provided by the assignee to the assignor includes an indemnity against costs payable to the defendant should the action in the name of the assignor be unsuccessful: see Crouch v Credit Foncier of England Ltd (1873) LR 8 QB 374 (at 380), Spicer v Todd 1 DPC 306, Annesley v Simeon 4 Mad. 390, Spence, Equitable Jurisdiction of the Court of Chancery, Vol 2, page 854, Halsbury’s Laws of England, Vol 4, 1st ed (1908), at para 829.

77 In appropriate circumstances, therefore, the law countenances complete or absolute control of litigation by a person who prosecutes litigation in the name of another party. In my view, without intending any disrespect to the opinions of others who have held to the contrary, the mere existence of such control in the hands of a person not formally a party to the litigation does not, on its own, constitute an abuse of the process of the Court. It is, however, a relevant factor when regard is had to the whole picture, which is required when considering whether or not to grant a stay on the grounds of abuse of process.

The relevance of issues of breaches of fiduciary duty and misrepresentation

78 Mr Einfeld submitted that, because of the breaches of fiduciary duty and misrepresentation issues alleged by Narui, the rights to litigate in respect of those issues were so “personal to the Barr Interests” that they could not be the subject of an assignment.

79 The right to litigate that the Barr Interests have given to Austcorp under the Management Deed and the Amending Deed is a right to pursue the claim that they have brought against Narui. The right to specific performance of the TBPL Option, the subject of that claim, is not of a personal character. The defence that Narui has raised to that claim, namely, matters relating to the behaviour of Mr Barr personally, has no bearing on the capacity of the claim, and the right to prosecute it, to be assigned.

80 In any event, in my view, the question so raised is not directly relevant to the essential inquiry, namely, does the role of Austcorp corrupt or is it likely to corrupt the processes of the Court to a degree that attracts the extraordinary jurisdiction to dismiss or stay permanently for abuse of process?

The involvement of Austcorp’s solicitors and the use of discovered documents

81 Mr Einfeld emphasised that, under the Management Deed, the solicitors for the Barr Interests are of Austcorp’s choosing and they may not obtain instructions from the Barr Interests if, in its absolute discretion, Austcorp expresses the wish that they do not.

82 I have already referred to the rules the law has developed to apply to situations where insurers appoint solicitors to act on their behalf when bringing or defending claims in the names of the insureds. Those rules would govern the conduct of the solicitors in the present case. That being so, the arguments advanced on Narui’s behalf on this issue are not persuasive.

83 Moreover, Austcorp has nominated a reputable firm of solicitors to act in the name of the Barr Interests and the solicitors, in turn, have retained counsel of eminence. There is no foundation for suggesting that the solicitors and counsel would allow the case to be conducted otherwise than with entire propriety.

84 Mr Einfeld submitted that the fact that the Barr Interests are obliged to provide the documents discovered by Narui to Austcorp supports the argument that the arrangements between the Barr Interests and Austcorp give rise to a tendency for the processes of the Court to be abused.

85 Both Mr Einfeld and Mr McHugh accepted that the implied obligation discussed in Harman v Secretary of State for the HomeDepartment [1983] 1 AC 280 is capable of applying to documents discovered by Narui to the Barr Interests insofar as the Barr Interests may wish to disclose those documents to Austcorp. That implied obligation is not to make use of documents discovered through the court process “for any purpose other than the proper conduct of the litigation in the course of which the order [for discovery] was made” (per Lord Keith at 307). In this regard Mason CJ said in Esso Australia Resources Ltd vPlowman (Minister for Energy and Minerals) (1995) 183 CLR 10 at 32-33:

“In relation to documents produced by one party to another in the course of discovery in proceedings in a court, there is an implied undertaking, springing from the nature of discovery, by each party not to use any document disclosed for any purpose otherwise than in relation to the litigation in which it is disclosed.”

86 Mr McHugh submitted that any contractual obligation on the Barr Interests to disclose discovered documents to Austcorp must be subject to and overridden by the implied obligation. Mr Einfeld submitted that the Barr Interests’ contractual obligation was paramount.

87 In my view, Mr McHugh’s submission must be accepted. The obligation under the implied undertaking is derived, essentially, from considerations of public interest and cannot be waived by the parties alone: see Hamersley Iron Pty Ltd vLovell (1998) 19 WAR 316 at 321. The obligation is owed both to the party who gives discovery and to the Court: Hamersley Iron Pty Ltd v Lovell at 321. Thus, not even the parties can agree that the implied undertaking will not apply.

88 I would, however, not express any opinion as to whether the implied obligation relating to discovered documents is of application in this case. It is common practice for an insured to disclose documents, discovered to it in the course of litigation, to the insurer indemnifying it and financing and controlling the litigation. The reason for this may be that, in the particular circumstances, the documents are regarded as being provided by the insured to the insurer for purposes relating to the litigation. The same position may arguably apply as between the Barr Interests and Austcorp.

89 For two reasons it is not necessary, however, to decide this issue. Firstly, as I have observed, both parties accepted that Harman would apply to documents discovered in the litigation (although Mr Einfeld submitted that the contractual obligation to disclose the documents would trump the Harman implied obligation). Secondly, discovery has occurred in the litigation and no complaint has been made. The argument is simply theoretical. If a problem does arise, there are steps that Narui can take to protect itself, if it is entitled to protection.

Other matters relating to control, advantages afforded to Austcorp, lack of proportionality and contempt of court

90 Mr Einfeld made a number of other submissions all based on variations of the theme of Austcorp’s sole control of the litigation. Save in regard to the argument based on the absence of an indemnity from Austcorp for the costs payable by the Barr Interests should Narui succeed in the Lease Proceedings, I do not think that any are persuasive. They are answered by what I have already said in regard to the question of control.

91 The mere fact that Austcorp might gain a commercial advantage by being involved in the litigation by conducting it in the name of the Barr Interests does not constitute an abuse of process.

92 I do not accept that there is any disproportion between the value of the rights, the subject of the litigation, and any subsisting right independent of the litigation. If the Barr Interests succeed in the Lease Proceedings, and Cudgen Paddock is transferred to TBPL, Austcorp will be able to obtain transfer of the property, in turn, pursuant to the exercise of the Austcorp Option. Austcorp will have to pay the market value of Cudgen Paddock as at the date of the exercise by TBPL of the TBPL Option. The evidence does not establish that, at the time the property is likely to be so transferred to Austcorp (should the Barr Interests be successful in the litigation), the value of Cudgen Paddock is likely to be out of proportion to the market value at the date in question.

93 In any event, I am not persuaded that, in this case, a lack of proportionality would lead to a tendency to corrupt the processes of the Court. It is true that in Fostif Mason P said at [118]:

“It may be accepted that the greater the share of the spoils that the funder may receive, ‘the greater the temptation to stray from the path of rectitude’ ( R (Factortame) Ltd [[2002] 4 All ER 97] at [85]).”

But any temptation on the part of Austcorp and the Barr Interests to stray is likely to be doused by the fact that the solicitors and counsel representing them are of the character I have described and who may be relied upon to act with complete propriety. The importance of this factor was emphasised in Clairs Keeley (a firm) ; see also Crittenden v Bayliss [2002] EWCA Civ 50.

94 I would add that any attempt by Austcorp to instruct the Barr Interests to act otherwise than in accordance with Court orders or procedural requirements laid down by the Court would expose Austcorp to a finding of contempt of Court.

95 A person who, although not named in any order of Court, knowingly assists in the breach of the order is guilty of contempt: see Attorney General v Newspaper Publishing Plc [1987] 3 All ER 276 where Lloyd LJ said at 308:

“If a third party with knowledge of [an order of Court by which the Court regulates its own procedure and determines how a case is to be tried] does something which disables the court from conducting the case in the intended manner, then I see no reason why that should not be regarded as an ordinary interference with the process of justice. The third party would be liable for contempt, subject to proof of mens rea, not because he is in breach of the order, but because he has prevented the court from conducting the proceedings in accordance with its intention.”

See also Attorney General v Punch Ltd [2001] 2 All ER 655, Attorney General (UK) v Newspaper Publishing Plc [1988] Ch 333, Led Builders PtyLtd v Eagle Homes Pty Ltd [1999] FCA 1213.

96 I emphasise that these comments are made on a purely hypothetical basis; there is no suggestion that Austcorp and the Barr Interests would act in any way other than in accordance with the requirements of the Court.

The liability of the Barr Interests and Austcorp for Narui’s costs

97 Clause 7.8 of the Option Deed provided that “Austcorp must pay the costs” of the Barr Interests in regard to such court proceedings that Austcorp might require them to commence and conduct pursuant to cl 7.3 “on an indemnity basis”. By cl 6.4 of the Management Deed the provisions of the Option Deed were “otherwise confirmed”. The word “otherwise” refers to cls 6.1 to 6.3, none of which varied cl 7.3.

98 By cl 8.1(c) of the Management Deed, Austcorp undertook to pay the costs and disbursements of the solicitors appointed by it in the Lease Proceedings up to a limit of $300,000. By the Amending Deed that was increased to $400,000.

99 As at the date of the hearing of the notices of motion before Palmer J, Austcorp had paid more than $900,000 in respect of the legal costs and expenses of the Lease Proceedings and the House Proceedings. This amount exceeded the limits provided in the Management Deed and the Amending Deed. Since then costs have increased and must now exceed $1 mill.

100 The contractual documents make no specific mention of the costs the Barr Interests might be ordered to pay Narui should they be unsuccessful in the Lease Proceedings. Both Mr Einfeld and Mr McHugh submitted that, by the various contracts between the parties, there was no obligation on Austcorp to indemnify the Barr Interests against such costs. That proposition is open to doubt as cl 7.8 of the Option Deed is arguably broad enough to encompass such an indemnity and the provisions of the Management Deed and the Amending Deed make it clear that these deeds are not intended to vary cl 7.8. Nevertheless, in view of the way the case was argued, I shall assume that Austcorp has no obligation to indemnify the Barr Interests against such costs.

101 The power of the Court to order costs against a third party such as Austcorp is limited. In Leicester v Walton (unreported, NSWCA, 7 November 1995) the Court (Priestley, Sheller and Cole JJA) referred to s 76(1) of the Supreme Court Act 1970 (NSW) and said:

“The Court’s power to award costs is now statutory and it is to the statute, to the rules of the Court and to any other Act, that one must look to find the extent of the Court’s jurisdiction; Knight v FP Special Assets Ltd (1992) 174 CLR 178. The Court has no inherent jurisdiction in respect of costs beyond this. It is important to note, as Mason CJ and Deane J remarked of s 58 of the Queensland Supreme Court Act 1867 in Knight v FP Special Assets Ltd at 183, that the area of operation of s 76 necessarily depends upon the scope, as it exists from time to time, of other legislative provisions dealing with the award of costs.
…
[T]he rules of Court dealing with the award of costs in cases governed by s 76 have the effect of reducing the scope of the power conferred by that section.”

102 In Wentworth v Wentworth (2000) 52 NSWLR 602 Heydon J (with whom Davies AJA agreed) said at 635:

“Unless a power to order costs can be found in that Act, any other Act, or the rules, it does not exist : Leicester v Walton (Court of Appeal, 22 November 1995, unreported) at 12. The area of operation of s 76 (1) necessarily depends on the scope, as it exists from time to time, of the provisions of any other enactments dealing with costs: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 183; Leicester v Walton (at 12).”

His Honour said further at 636:

“The effect of Pt 52, and now Pt 52A, is to abolish several traditional categories of jurisdiction to order costs against non-parties discussed in Knight v FP Special Assets Ltd (at 182-190) by Mason CJ and Deane J, and in particular the newly formulated category relating to insolvent persons discussed (at 192-193). While opinions might differ as to the desirability of this abolition, the meaning of Pt 52 and Pt 52A is in this respect plain.”

103 Part 52A r 4 of the Supreme Court Rules 1970 (NSW) provides:

“4(1) The powers and discretions of the Court under s 76 of the [Supreme Court Act] (which relates to costs generally) shall be exercised subject to and in accordance with this Part.

(2) Subject to sub-rule (5), the Court shall not, in the exercise of its powers and discretions under s 76 of the Act, make any order for costs against a person who is not a party.

(3) Subject to sub-rule (4), Pt 4 r 4A and Pt 11 r 1A, a person shall not be made a party for the purpose of making an application for costs against the person.

(4) Sub-rule (3) shall not apply:

(a) where the person is otherwise a proper party, or

(b) to a claim for relief against the person under s 78 of the Act.

(5) Sub-rule (2) shall not limit the power of the Court to make any order:
…
(d) for payment by a person who has committed … an abuse of process of the Court of the whole or any part of the costs of a party to proceedings occasioned by the contempt or abuse of process.
…”

104 Part 4 r 4A deals with the carrying on of proceedings by a corporation otherwise than by a solicitor and by a director. Part 11 r 1A deals with corporations defending proceedings otherwise than by a solicitor and by a director.

105 Thus, the only possible source of power to order costs against Austcorp is Pt 52A r 4(5)(d). The need to establish an abuse of process under that rule is a relatively difficult obstacle for a party wishing to obtain costs against a non-party to overcome.

106 During argument on appeal, the possibility was raised that the Court might order the Barr Interests to provide Narui with security for its costs. Part 53 r 2 of the Supreme Court Rules provides only for the providing of security by a plaintiff (not a non-party). It is in the following relevant terms:

“(2)(1) Where, in any proceedings, it appears to the Court on the application of a defendant –
(a) …
(b) that a plaintiff is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that that plaintiff will be unable to pay the costs of the defendant if ordered to do so;
…
the Court may order that plaintiff to give such security as the Court thinks fit for the costs of the defendant of and incidental to the proceedings and that the proceedings be stayed until the security is given.”

If a party is to benefit from the litigation, Pt 53 r 2(1)(b) will not apply. Rugby Union Players Association Inc vAustralian Rugby Union Ltd (unreported, NSWSC, 30 July 1997), Andrews v Caltex Oil (Australia) Pty Ltd (1982) 40 ALR 305.

107 In the present case, the Barr Interests are suing for their own benefit. TBPL’s rights to obtain Lot 1 (on which stands Mr Barr’s house) are linked to his success in the Lease Proceedings and TBPL, which is Mr Barr’s (TBPL’s) company, stands to obtain a potentially substantial fee from Austcorp should it succeed in the Lease Proceedings. Thus, Pt 53 r 2(1)(b) would not entitle Narui to a security for costs order.

108 Section 1335(1) of the Corporations Act 2001 (Cth) provides:

“Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, requires sufficient security to be given for those costs and stay all proceedings until the security is given.”

109 Subject to proof that that there is reason to believe that TBPL will be unable to pay Narui’s costs should Narui be successful in its defence, Narui could apply for and obtain an order under s 1335(1) for security for costs against TBPL (but not Mr Barr).

110 There is no evidence before this Court that deals with the question whether TBPL will be unable to pay the costs of Narui, were Narui to be successful in its defence. We were informed from the bar table that an application for security for costs had been filed but not proceeded with. We were not told whether that application was under s 1335 of the Corporations Act or otherwise. The fact that, so far, Austcorp has paid the legal costs of TBPL and Mr Barr (which, as I have mentioned, are in excess of Austcorp’s contractual obligations in this respect) is not necessarily an indication of a lack of ability on the part of the Barr Interests to pay costs themselves. In the circumstances, I shall proceed on the assumption that the prospects of Narui of obtaining an order for security for costs against TBPL are uncertain.

111 In summary, the position as regards the costs of the Lease Proceedings is that the Barr Interests’ costs and disbursements incurred by their solicitors are so far being paid by Austcorp, Austcorp is not obliged to indemnify the Barr Interests against the costs they are likely to be ordered to pay Narui should Narui be successful, Narui’s prospects of obtaining a costs order against Austcorp while the latter is not a party are dependent on Narui establishing an abuse of process at the stage it seeks such a costs order, Narui cannot obtain an order for security for costs against Austcorp, nor can it obtain such an order against Mr Barr, and its prospects of obtaining such an order against TBPL are uncertain.

Absolute control over the proceedings together with no liability for the costs of the successful party

112 The adversarial system owes its form to its gradual and piecemeal development over centuries. The rules of the system have been produced by pragmatic reactions to a multiplicity of pressures over the centuries. They are interdependent and subtly influence each other. The system is effective by reason of its operation as a whole. One of its important features is the discipline imposed by the knowledge that an unsuccessful party is likely to be ordered to pay the costs of the successful party. This rule provides a bridle against lack of restraint in taking points that are hardly arguable, or not arguable at all, and against other possible excesses in the conduct of litigation. It provides a measure of protection to those involved in litigation, and to the Court itself, against unscrupulous attempts to manipulate the system. It provides an incentive to act carefully in a measured way.

113 The rule that a successful party is ordinarily entitled to recover costs from the unsuccessful party was explained by McHugh J in Oshlack vRichmond River Council (at 97) as follows:

“The expression the ‘usual order as to costs’ embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.”

114 It has long been recognised that a tendency to abuse can arise if a nominal plaintiff sues for the benefit of some other party and is not able to pay the successful party’s costs. This, for example, explains the rule that an assignee may only sue in the name of the assignor if the assignee gives the assignor a complete indemnity as to costs.

115 Courts have expressly recognised that an abuse may arise where “artificial persons [are] manipulated by natural persons” (per Megarry VC in Pearson v Naydler [1977] 1 WLR 899 at 905). Thus, the controller of a corporation will not be allowed to hide behind the corporation and thereby avoid liability for costs: Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523 at 527, Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at 577 [53].

116 As Bowen LJ explained in Cowell v Taylor (1886) 31 Ch D 34 (at 38), the tendency to abuse underlies the exception to the rule that poverty is no bar to a litigant. He said:

“There is also an exception introduced in order to prevent abuse, that if an insolvent sues as nominal plaintiff for the benefit of somebody else, he must give security. In that case the nominal plaintiff is a mere shadow. … In those cases Courts of Common Law required security for costs to be given.”

Hence, Pt 53 r 2 empowers the Court to order a plaintiff to give security for costs in appropriate circumstances where the plaintiff is suing, not for his own benefit, but for the benefit of some other person.

117 The contractual arrangements between Austcorp and Narui give Austcorp absolute control over the Lease Proceedings without providing that Austcorp in any way be responsible for Narui’s costs were Narui to be successful (being costs for which the Barr Interests would ordinarily be liable under the usual costs rule).

118 Due weight must be given to the prospect that Narui may obtain an order for security for costs from TBPL. But there is no evidence that Austcorp would provide that security itself. Were such an order to be granted, and were the security to be provided by TBPL, the normal checks and balances that the system would impose on Austcorp, were it to be potentially liable for Narui’s costs, would still not be present. The prospect of having to pay Narui’s costs would not be a matter that Austcorp would have to take into account in deciding what instructions to give in the name of TBPL and Mr Barr to their solicitors in the course of conducting the Lease Proceedings.

119 I do not think that the repute of Austcorp’s solicitors and the eminence of counsel is an answer to this difficulty. Were they to be instructed in clear terms - notwithstanding advice given by them to the contrary - to take points that would be likely to fail, to take steps in the proceedings which (although authorised by the rules) would cause Narui to incur irrecoverable solicitor and client costs, inconvenience and unnecessary delay, their duty would probably be to proceed in accordance with those instructions. Should this occur, the proceedings would become an instrument of unfairness against Narui. Regard must also be had to the problems that would then be caused to the Court and the administration of justice as a whole.

120 The discipline that the usual rule as to costs imposes on the client is an essential safeguard of the adversarial system. The ethical character of the client’s legal representation does not compensate for its omission. In my view, a paramount consideration in the weighing of the relevant different factors in the present case is that, under the existing contractual arrangements, this discipline is missing.

121 After giving due consideration to all the factors I have mentioned, I have come to the conclusion that, to the limited extent that the arrangements between Austcorp, TBPL and Mr Barr remove any liability for Narui’s costs from the factors that Austcorp has to bear in mind in controlling and conducting the Lease Proceedings, a material tendency exists for the proceedings to result in the “misuse of [the Court’s] procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it” (per Lord Diplock in Hunter v ChiefConstable of the West Midlands Police [1982] AC 529 at 536). In other words, I have come to the view that, without an appropriate indemnity by Austcorp to the Barr Interests for Narui’s costs, there is a material tendency that the processes and procedures of the Court could be “converted into instruments of injustice or unfairness” (Walton v Gardiner at 392-393).

Conclusion

122 In the circumstances, to the extent I have indicated, I consider that the arguments of Narui should be upheld. In my view, a stay of proceedings should be granted but only on a conditional basis, namely, until Austcorp provides TBPL and Mr Barr with an indemnity against any costs that they might be ordered to pay Narui.

123 I propose the following orders:

(a) The application for leave to appeal in the House Proceedings (CA 41018/04) is dismissed with costs.

(b) The application for leave to appeal in the Lease Proceedings (CA 41019/04) is granted.

(c) The appeal in regard to the Lease Proceedings is upheld and the orders made by Palmer J in regard thereto are set aside.

(d) The Lease Proceedings are stayed until Austcorp provides TBPL and Mr Barr with an indemnity against any costs that they might be ordered to pay Narui.

(e) TBPL and Mr Barr to pay the costs of the application for leave to appeal and the appeal in the Lease Proceedings as well as the costs of the application for a stay of the Lease Proceedings before Palmer J.

124 CAMPBELL AJA: I agree with Ipp JA.

125 Following the judgment of this Court in Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd [2005] NSWCA 83 it seems to me that the interest in the subject land found by Palmer J may well be a factor relevant to whether proceedings should be stayed on the grounds of abuse of process. That being so even though that interest was not the kind of commercial interest that would have the effect contemplated in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 and the other cases referred to by Ipp JA at [41].

126 At the least such an interest would negative a relevant, although not determinative, factor that the proceedings were funded by a litigation funder.

127 In this matter there is, arguably, a genuine commercial interest in the transactions the subject of the litigation of the kind contemplated in Trendtex. It is, accordingly, unnecessary to develop further the question whether other interests are relevant and the criteria for that relevance.

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