Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd
[2014] VSCA 351
•22 December 2014
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2014 0101
| TREASURY WINE ESTATES LIMITED | Applicant |
| v | |
| MELBOURNE CITY INVESTMENTS PTY LTD | Respondent |
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| JUDGES: | MAXWELL P, NETTLE and KYROU JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 10 October 2014 |
| DATE OF JUDGMENT: | 22 December 2014 |
| MEDIUM NEUTRAL CITATION: | [2014] VSCA 351 |
| JUDGMENT APPEALED FROM: | Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited [No 3] [2014] VSC 340 (Ferguson J) |
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PRACTICE AND PROCEDURE – Stay – Abuse of process – Group proceeding – Respondent company initiated proceeding – Respondent is lead plaintiff – Proceeding commenced for predominant purpose of generating legal fees for respondent’s solicitor – Whether proper purpose – Whether proper use of processes of court – Policy considerations – Fairness, maintenance of public confidence – Proceeding constitutes abuse of process – Williams v Spautz (1992) 174 CLR 509 applied – Appeal allowed – Permanent stay granted.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr A G Uren QC with Mr M C Garner | Herbert Smith Freehills |
| For the Respondent | Mr N J O’Bryan SC with | Tan Partners |
| Mr M W L Symons |
MAXWELL P
NETTLE JA:
This proceeding is one of a number of class actions brought by the respondent (‘MCI’) for the predominant purpose of enabling MCI’s sole director and shareholder (‘Mr Elliott’) to earn legal fees by acting as solicitor for MCI in the proceeding. As counsel for the applicant (‘Treasury’) described it in argument, each of the proceedings is ‘make work’ for a solicitor.
The principal question before the judge below was whether, because that is so, the proceeding should be stayed as an abuse of process. Her Honour concluded that there was no abuse of process and refused the application for a stay. At the same time, her Honour ruled that Mr Elliott ought to be restrained from acting for MCI while it was the lead plaintiff in the class actions.
Kyrou JA, whose draft reasons we have had the advantage of reading, would refuse leave to appeal from that decision. For reasons which follow, we respectfully disagree. We would grant leave to appeal, allow the appeal and order that the action be stayed permanently.
The findings below
The relevant facts are set out in the judgment of Kyrou JA. They are not in dispute. On the basis of those facts, her Honour was invited to draw, and did draw, the following inferences:
(a) MCI was created by Mr Elliott as a vehicle for bringing representative proceedings against listed companies alleging breaches of continuous disclosure obligations;
(b) MCI would be the representative plaintiff in such proceedings; and
(c) Mr Elliott would act as its solicitor, and would earn fees from doing so.[1]
[1]Melbourne City Investments Pty Ltd v Treasure Wine Estates Limited [No 3] [2014] VSC 340 (‘Reasons’), [7]–[8].
Her Honour concluded that the reason for MCI’s existence was
to launch proceedings, such as the present proceedings, to enable its sole director and shareholder [Mr Elliott] to earn legal fees from acting as the solicitor for MCI.[2]
Most importantly, her Honour inferred that MCI had commenced the respective proceedings against Treasury and Leighton Holdings
for the purpose of having Mr Elliott act as its solicitor so that he could earn fees.[3]
Her Honour noted that the quantum of any damages claim was ‘at best’ less than $700 in each case. It was therefore unlikely that the proceedings had been commenced for the purpose of recovering compensation.
[2]Reasons, [9].
[3]Ibid [11].
Her Honour summarised her conclusion in these terms:
I have formed the view that MCI commenced the proceeding for the purpose of generating legal fees for Mr Elliott. I agree with the Defendants that that purpose is not a purpose of earning legal fees as a desired by-product of the litigation. It is the predominant purpose.[4]
There was no challenge to any of these findings on the application for leave to appeal.
[4]Ibid [29].
MCI had submitted that, even assuming that its predominant purpose was as her Honour found it to be, that could not justify a stay on the ground of abuse of process. Otherwise, MCI contended, it would not be possible for a lawyer to act on his/her own behalf. As her Honour pointed out, however, that submission overlooked
the important fact that, ordinarily, lawyers acting for themselves prosecute their claims not for the predominant purpose of earning legal fees recoverable from the defendant in the case, but for the substantive remedy; for example, damages.[5]
[5]Ibid [31].
The judge held, nevertheless, that the proceeding was not an abuse of process. She accepted that ‘MCI’s immediate purpose [was] to obtain orders for compensation in the proceedings … which would naturally lead to an award of costs’.[6] Because an order for costs ‘forms part of the relief sought in the proceedings’ and ‘is a likely and natural consequence if MCI succeeds in its claim and is awarded damages’,[7] an order for costs ‘is not a collateral advantage’.[8]
[6]Ibid [33].
[7]Ibid.
[8]Ibid [32].
Consideration
As the law stands, the only legitimate purpose for bringing a proceeding is to vindicate legal rights or immunities by judgment or settlement. Consequently, unless the predominant purpose of bringing a proceeding is a legitimate purpose, the proceeding is an abuse of process and is liable to be stayed.[9]
[9]Williams v Spautz (1992) 174 CLR 509, 533, 543 (‘Williams’).
The question for determination, therefore, is whether MCI’s purpose of ‘generating legal fees for Mr Elliott’ is a legitimate purpose. Plainly enough, generating legal fees does not constitute a purpose of vindicating legal rights or immunities. Obtaining payment of legal costs is but a corollary, or an incident, or a by-product, of the successful vindication of rights.
It is necessary, then, to examine the notion of ‘collateral advantage’. The authorities distinguish between two types of case. On the one hand, a proceeding will not be regarded as an abuse of process by reason only that it is brought for the purpose of taking collateral advantage of any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding. On the other hand, if a proceeding is brought for the predominant purpose of obtaining collateral advantage from the existence of the proceeding as such, as opposed to collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding, it will be an abuse of process and liable to be stayed.[10]
[10]Goldsmith v Sperrings Ltd [1977] 1 WLR 478, 489–90 (Lord Denning MR) (‘Goldsmith’); Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134, 150–1 (‘Flower’).
In our view, the proceeding by MCI against Treasury falls into the second of these categories. What distinguishes the two categories is the use to which the proceeding is put.[11] In the present case, MCI is using the cause of action to create an income-generating vehicle for its solicitor. It has no interest in vindicating its rights, or obtaining a remedy, as such.
[11]Williams (1992) 174 CLR 509, 527, 530, 531; Maxwell-Smith v S & E Hall Pty Ltd (2014) 308 ALR 149, [41]; Paradise Grove Pty Ltd v Stubberfield [2001] QCA 117.
The nature of the cause of action — as a claim based on an alleged breach of disclosure requirements — is immaterial to MCI’s purpose. Its sole purpose has only ever been to create for itself — in this case, by acquiring a small parcel of shares — a cause of action of sufficient merit to induce the defendant company to pay Mr Elliott’s fees.
It seems to us that this is a clear example of an abuse of process. The processes of the Court do not exist — and are not to be used — merely to enable income to be generated for solicitors. On the contrary, they exist to enable legal rights and immunities to be asserted and defended. In the common form of class action, that is the sole purpose of the proceedings. The members of the class wish to vindicate their rights. The fact that success will result in the solicitors’ fees being paid does not affect the propriety of the proceeding.
Her Honour’s decision relied in part on the following passage from the plurality judgment in Williams:
To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event.
Thus, to take an example mentioned in argument, an alderman prosecutes another alderman who is a political opponent for failure to disclose a relevant pecuniary interest when voting to approve a contract, intending to secure the opponent’s conviction so that he or she will then be disqualified from office as an alderman by reason of that conviction, pursuant to local government legislation regulating the holding of such offices. The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor. But the immediate purpose of the prosecutor is within that scope. And the existence of the ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor’s favour.
It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers.[12]
[12]Williams (1992) 174 CLR 509, 526–7 (citations omitted); quoted in Reasons, [25].
In her Honour’s view, there was a direct parallel between MCI’s ultimate purpose — for Mr Elliott to earn legal fees — and the alderman’s ultimate purpose, being to bring about the disqualification of his political opponent. In each case, her Honour held, that purpose could not be achieved unless the legal claim succeeded.[13]
[13]Reasons, [33].
With great respect, however, we think there is a critical distinction between the two cases. Once again, it lies in the use to which the relevant proceeding is put. In the case of the alderman, achieving the purpose of the opponent’s disqualification from office depends on there being a successful prosecution. The ‘cause of action’ must be prosecuted to a successful conclusion in order to achieve the ultimate purpose. The criminal proceeding is thus used for its proper purpose of establishing criminal liability. The ultimate purpose of disqualification does not rob the proceeding of that proper purpose.
By contrast, MCI has no wish, and no need, to prosecute its claim against Treasury to its conclusion. As her Honour noted, Mr Elliott has set out in writing his expectation that each class action will settle before judgment. Just as the nature of the cause of action is immaterial to MCI’s purpose, so is the question of ultimate success. Obviously, MCI has no interest in recovering the relatively paltry sum of $700. Her Honour’s finding allows of no other conclusion. Hence, it is no part of MCI’s purpose to secure a ‘result for which the law provides in the event that the proceedings terminate in [its] favour’.[14]
[14]Williams (1992) 174 CLR 509, 526.
That conclusion is unaffected by the fact that, in order to generate maximum fee income for Mr Elliott, the cause of action had to be strong enough to create the risk for the defendant company that it might be liable to pay costs. All that was needed to make this ‘vehicle’ suitable for the purpose of generating costs was that any claim issued on behalf of MCI be sufficiently arguable to encourage the defendant to negotiate a settlement and pay MCI’s costs.
The better analogy, we think, is with the decision of the Full Federal Court in Flower.[15] There, the plaintiff had no interest in securing the remedy the subject of the proceeding. Rather, its purpose was delay. The proceeding was instituted for that purpose. In the same way, MCI has created these proceedings not in order to vindicate the right to compensation which it asserts, but in order to produce legal fees for its solicitor.
[15](1999) 87 FCR 134.
As Kyrou JA observes,[16] Treasury was unable to cite any authority in which it has been held that a proceeding brought with the predominant purpose of generating legal work for a solicitor is an abuse of process. But, with respect, that is neither surprising nor significant. In view of the economics of what is involved, there would have been very few cases in the history of Anglo-Australian litigation where a plaintiff has instituted a proceeding with the predominant purpose of enriching its solicitor, and indeed it would probably not have been a realistic possibility until the advent of the modern form of class action litigation during the last 20 years.
[16]See [72] below.
Conclusion
Ultimately, the policy considerations which inform the law relating to abuse of process are twofold: to ensure that the processes of the Court are used fairly, and to maintain public confidence in the ability of the Court to function in that way.[17] In this case, there is a palpable unfairness in a defendant being brought to court for the predominant purpose of enriching the plaintiff’s solicitor, and the community’s confidence would undoubtedly be shaken if that were held to be a legitimate purpose for bringing proceedings.
[17]Williams (1992) 174 CLR 509, 520.
KYROU JA:
Introduction and summary
This is an application for leave to appeal from an order made by a judge in the Trial Division on 31 July 2014 (‘Order’). The Order dealt solely with the question of costs in respect of which no complaint is made by the applicant, Treasury. Rather, Treasury’s complaint relates to the Order’s implicit dismissal of Treasury’s application for certain orders, including an order that the proceeding be stayed as an abuse of process (‘Implicit Dismissal’).
The Implicit Dismissal is clear from the following statements in the ‘Other Matters’ section of the Order:
1.As a consequence of the Defendant’s application … and the delivery of the Court’s reasons for judgment dated 23 July 2014 (the Reasons), the Plaintiff appointed a new solicitor to act for it in this proceeding on 25 July 2014.
2.As a result of the matters recorded in paragraph 1 above, and upon the provision of the undertakings referred to in paragraphs 3, 4 and 5 below, no order is required to give effect to the Reasons.
3.The Plaintiff through its solicitor undertakes to the Court not to engage Mark Elliott to act as its solicitor in this proceeding or otherwise to engage Mark Elliott to provide legal services in this proceeding for remuneration.
4.Mark Elliott undertakes to the Court not to act as solicitor for the Plaintiff in this proceeding or otherwise to provide legal services in this proceeding for remuneration.
5.Tan Partners undertakes to the Court not to engage Mark Elliott to provide legal services in this proceeding for remuneration.
The background to these statements is as follows. The judge published her reasons for concluding that the proceeding was not an abuse of process on 23 July 2014.[18] In the Reasons, her Honour stated that she was satisfied that Mr Mark Elliott ought to be restrained from acting as solicitor for MCI in the proceeding while MCI is the lead plaintiff and that the proceeding ought not be permitted to continue as a group proceeding under pt 4A of the Supreme Court Act 1986 (‘the Act’) while MCI is the lead plaintiff and Mr Elliott is its solicitor.[19] On 25 July 2014, prior to the making of the Order, MCI appointed Tan Partners as its new solicitors and Mr Elliott and Tan Partners gave the undertakings recorded in the Order.
[18]Reasons.
[19]Reasons [68]. The lead plaintiff is the representative plaintiff in a group proceeding under pt 4A of the Act.
In the light of the above, I will proceed on the basis that Treasury seeks leave to appeal against the Order insofar as it contains the Implicit Dismissal.[20]
[20]The question of whether leave to appeal is required is discussed at [46]–[50] below.
For the reasons that follow, I have concluded that the Implicit Dismissal is neither wrong nor attended with any doubt and that leave to appeal should be refused.
Facts
MCI was incorporated on 1 November 2012. Since its inception, Mr Elliott has been MCI’s sole director and shareholder.
On the day of its incorporation, MCI purchased 140 shares in Treasury for $693. MCI also purchased 39 shares in Leighton Holdings Ltd (‘Leighton’) for $684.06 and small parcels of shares costing less than $700 in various other publicly listed companies. The purchases of shares in companies other than Treasury and Leighton are not directly relevant to this application and accordingly will not be discussed.
In 2013, MCI commenced this proceeding against Treasury and a separate proceeding against Leighton under pt 4A of the Act. Mr Elliott has acted in both proceedings on a ‘no win, no fee’ basis.
The two proceedings are what are known as ‘securities class actions’ in which MCI, as the lead plaintiff, alleges that Treasury and Leighton failed to disclose material matters in breach of s 674(2) of the Corporations Act 2001 (Cth) and engaged in misleading or deceptive conduct in breach of s 1041H of that Act.
In the proceedings against Treasury and Leighton, MCI seeks damages comprising the difference between the prices at which it acquired its shares and the prices that would have prevailed had each company made what is alleged to be proper disclosure. In both cases, the quantum of damages cannot exceed $700. MCI also seeks legal costs.
In this proceeding, the members of the class represented by MCI as lead plaintiff are all shareholders in Treasury who purchased their shares within a defined period, except those shareholders who take steps to ‘opt out’ of the proceeding in accordance with s 33J of the Act.
Treasury applied for an order staying this proceeding on the basis that it was commenced for the collateral purpose of generating legal fees for Mr Elliott and thus constituted an abuse of process. In the alternative, Treasury sought orders in the exercise of the inherent jurisdiction of the Court to restrain Mr Elliott from acting for MCI in the proceeding while MCI is the lead plaintiff. In the further alternative, Treasury sought an order under s 33N(1)(d) of the Act[21] that the proceeding not continue as a group proceeding or an order under s 33ZF of the Act[22] that MCI cease to be the lead plaintiff.
[21]Section 33N(1)(d) empowers the Court, on application by the defendant, to order that a proceeding no longer continue as a group proceeding if the Court is satisfied that it is in the interests of justice to do so because ‘it is … inappropriate that the claims be pursued by means of a group proceeding.’
[22]Section 33ZF empowers the Court of its own motion or on application by a party to make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.
Leighton made a similar application in the proceeding against it.
Neither Treasury nor Leighton contended that MCI was a sham plaintiff on the basis that it purchased shares in publicly listed companies for the purpose of contriving a loss.
The applications by Treasury and Leighton in the two proceedings were heard together by the judge.
As Leighton has not sought leave to appeal, I will not discuss Leighton’s application further except where the context requires this.
Decision under appeal
The judge found that MCI was incorporated by Mr Elliott for the purpose of bringing representative proceedings against listed companies alleging breaches of continuous disclosure obligations, and to act as lead plaintiff in those proceedings. Her Honour also found that it was intended that Mr Elliott would act as MCI’s solicitor and earn fees from doing so.[23]
[23]Reasons [7]–[9], [11].
Consistent with the above findings, her Honour made the following specific finding in respect of this proceeding:
MCI commenced the proceeding for the purpose of generating legal fees for Mr Elliott. I agree with the Defendants that that purpose is not a purpose of earning legal fees as a desired by-product of the litigation. It is the predominant purpose.[24]
[24]Reasons [29].
After discussing the principles relating to abuse of process, particularly those set out in Williams[25] the judge concluded that MCI’s predominant purpose did not render the proceeding an abuse of process. Her Honour’s reasons were as follows:
Bearing in mind that the power to grant a stay should only be exercised in the most exceptional circumstances, to my mind based on the submissions made, categorisation of each of these proceedings as an abuse of process would broaden the concept beyond its recognised boundaries. … [T]he High Court in Williams v Spautz cautioned against such an approach. The point is illustrated by adapting the alderman example, used by the plurality in that case, to the present facts. MCI’s ultimate purpose is for Mr Elliott to earn legal fees (the alderman’s was to bring about disqualification of his political opponent). MCI’s immediate purpose is to obtain orders for compensation in the proceedings against the Defendants, which would naturally lead to an award of costs (the alderman’s immediate purpose was to secure the conviction that would lead to the disqualification of the political opponent). The ultimate purpose does not render the proceeding an abuse of process. Even more is that so in this case. As Senior Counsel for MCI contended, the ultimate purpose of the alderman was not within the scope of the proceeding, yet the plurality did not classify it as an abuse. That is, the disqualification of the political opponent was not something that could be achieved in the criminal process itself instituted by the prosecutor. Rather, it was a consequence of it. Here, the likely costs order (were MCI to be successful) forms part of the relief sought in the proceedings. Whilst I accept that the principal relief is damages and that an award of costs on its own is unlikely, nevertheless, an order for costs would form part of the compensation payable to MCI to recompense it for having brought the proceedings. In any event, an order for costs is a likely and natural consequence if MCI succeeds in its claim and is awarded damages. It is ‘an entitlement or benefit which the law gives the litigant’ if the litigant succeeds in the case.[26]
[25](1992) 174 CLR 509.
[26]Reasons [33] (citations omitted).
The judge rejected a submission by Treasury that the proceeding is an abuse of process because it is oppressive and brings the administration of justice and the legal profession into disrepute. Her Honour said the following:
The proceedings are no more oppressive than any other proceeding simply because they are brought by a plaintiff who has engaged its sole director and shareholder as its lawyer. I also do not view the proceedings themselves as bringing the administration of justice or the legal profession into disrepute. Rather, it is the conduct of the solicitor that requires further consideration in this regard.[27]
[27]Ibid [36] (emphasis in original).
On the question of whether Mr Elliott should be restrained from acting for MCI, her Honour applied the following principles for restraining a legal practitioner from acting for a particular client:
(d) the test to be applied is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice;
(e) the jurisdiction is exceptional and is to be exercised with caution;
(f) 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;
(g) the timing of the application may be relevant, in that the cost, inconvenience and impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief; and
(h) whether the lawyer will be required to give evidence in the proceeding may be taken into account.[28]
[28]Ibid [39]–[40], citing Kallinicos v Hunt (2005) 64 NSWLR 561, 582–3 [76], 584–5 [87].
Her Honour made the following findings:
In my view, the hypothetical fair‑minded independent observer (the ‘Observer’) would be reasonably informed of the shareholdings of MCI … and that:
(a) Mr Elliott has at all times been MCI’s sole director and shareholder;
(b) MCI has commenced the … group proceedings;
(c)Mr Elliott is the solicitor on the record for MCI in each of those proceedings;
(d)MCI does not stand to gain much in terms of compensation if the proceedings are successful but, in that event, the costs awarded in its favour and payable to Mr Elliott would be substantial;
(e)if MCI is unsuccessful in any of the proceedings, it will likely be exposed to an adverse costs order, which would be substantial; and
(f)that liability would likely reduce the value of Mr Elliott’s shareholding in MCI.
In my opinion, with knowledge of those matters, the Observer would conclude that Mr Elliott is the decision-maker in the conduct of the proceedings, both from the point of view of what is in MCI’s commercial interests as plaintiff and also as its solicitor. In this regard, the Observer would reasonably conclude that Mr Elliott, through MCI, is in the business of purchasing small shareholdings in listed companies with the objective of subsequently commencing group proceedings against some of them for alleged breaches of their continuous disclosure obligations. Moreover, the Observer would reasonably conclude that MCI’s (and Mr Elliott’s) business model is likely to depend upon the outcome of the proceedings against the Defendants …
In addition, the Observer would consider that Mr Elliott is compromised in his role as a solicitor such that there would be a real risk that he could not give detached, independent and impartial advice taking into account not only the interests of MCI (and its potential exposure to an adverse costs order), but also the interests of group members. The group members do not have control over the action, yet unless they opt out, they are bound by judgment in the group proceedings. In the context of group proceedings affecting group members, the Observer would consider it important that the solicitor who is acting for the plaintiff is independent, so that forthright and strident advice is given, untainted by the personal interest of the lawyer beyond their normal interest. In this regard, Mr Elliott’s interest goes beyond that of other solicitors acting for plaintiffs in group proceedings. Those solicitors have an interest in recovering their fees. That does not mean that they should be restrained from acting. Here, however, Mr Elliott has not only that interest, but also an interest in ensuring that MCI does not suffer the consequences of adverse costs orders. Mr Elliott may be very confident that the claim MCI brings is a good one and will succeed, such that he does not consider the risk of adverse costs orders being made against MCI as very high. Nevertheless, litigation is often uncertain and these proceedings are no different from others in that regard. If justice is to be seen to be done, the Observer would expect that MCI would be represented by a person without the vested interests that Mr Elliott has in the proceedings.
Overall, then, the Observer would conclude that the proper administration of justice requires that Mr Elliott be prevented from acting for MCI whilst the proceedings remain as group proceedings with MCI as the representative plaintiff.[29]
[29]Ibid [48]–[51]. Earlier at [44], her Honour concluded that the likelihood of Mr Elliott giving evidence in the two proceedings was not a matter that necessitated an order restraining him from acting for MCI.
The judge declined to make an order under s 33N(1)(d) of the Act that the proceeding not continue as a group proceeding. However, in the light of her findings about the role of Mr Elliott, her Honour decided that there were grounds for making an order under s 33ZF of the Act that the proceeding ought not be allowed to continue as a group proceeding under pt 4A for so long as Mr Elliott is acting for MCI or, if Mr Elliott continues to represent MCI, for so long as MCI remains the lead plaintiff.[30] Her Honour’s key concern was that, as the sole shareholder in MCI, Mr Elliott would be adversely affected by any costs order against MCI and thus he would not be in a position to give legal advice that was free from that consideration.[31]
[30]Reasons [62], [65].
[31]Ibid [63]–[64].
Is leave to appeal required?
As discussed at [23] above, Treasury seeks leave to appeal against the Implicit Dismissal in the Order of Treasury’s application for certain orders, including an order that the proceeding be stayed as an abuse of process, rather than the formal part of the Order dealing with costs. It is evident from MCI’s submissions that it has interpreted Treasury’s application for leave to appeal as having this effect. MCI has not complained about the competency of the application for leave to appeal.
While the Reasons made it clear that Treasury’s application was unsuccessful, ss 17(2) and 17A(4)(b) of the Act and r 64.01 of the Supreme Court (General Civil Procedure) Rules 2005 (‘Rules’) permit appeals or applications for leave to appeal in respect of judgments and orders, rather than the reasons for judgments or orders.[32] In the light of the conclusions set out in the Reasons, the Order should have formally dismissed Treasury’s application. For the purpose of regularising Treasury’s application for leave to appeal, this Court should make an order pursuant to r 64.22(1) of the Rules amending the Order accordingly.[33] In that way, it will be clear that Treasury is seeking leave to appeal from that part of the Order that dismissed its application.
[32]The references to the Act and the Rules are to those instruments as in force at the time the application for leave to appeal was filed. See also Commonwealth v Bank of New South Wales (1949) 79 CLR 497, 625; Legal Practitioners Complaints Committee v A Practitioner (1987) 46 SASR 126, 127.
[33]A similar approach was adopted by the New South Wales Court of Appeal in New South Wales Crime Commission v Lee (2012) 84 NSWLR 1, 3–4 [2], 5–6 [15]–[16].
Both parties have correctly proceeded on the basis that the Implicit Dismissal in the Order was interlocutory in nature and therefore leave to appeal is required under s 17A(4)(b) of the Act. In HPM Pty Ltd (in liq) v Fear,[34] an order of a judge dismissing proceedings by an applicant as an abuse of process was stated to be interlocutory in nature.[35]
[34][2002] FCAFC 403 (‘HPM’).
[35]HPM [2002] FCAFC 403, [1]–[2], [37].
It was common ground that the application for leave to appeal cannot succeed unless this Court is satisfied that the judge’s decision is wrong or attended with sufficient doubt to justify the grant of leave and that substantial injustice would occur if the decision is not set aside.[36]
[36]Niemann v Electronic Industries Ltd [1978] VR 431, 439–42 (‘Niemann’).
MCI submitted that as the Order is not only an interlocutory order but an order made in a specialist managed list, ‘an even greater degree of clarity as to the [Order] being erroneous must appear.’ MCI relied on the judgment of Hansen JA (with whom Nettle and Ashley JJA agreed) in RSD Chartered Accountants v Bolitho[37] for this proposition. However, that case dealt with an order made in a specialist list on a matter of practice or procedure. An order dealing with an application for a stay of a proceeding on the basis that it constitutes an abuse of process does not relate to a mere matter of practice or procedure in the same way as a routine application to amend pleadings or to seek further and better particulars, discovery or answers to interrogatories. Such an order can have a significant impact on the scope and outcome of the proceeding.[38]
[37][2014] VSCA 186, [11]. See also Regent Holdings Pty Ltd v Victoria (2012) 36 VR 424, 426 [7]; Knörr v CSIRO [2014] VSCA 84, [26].
[38]Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564, 584 [43].
Proposed notice of appeal
Treasury seeks to rely on the following grounds of appeal:
1.Having found (at [29] of the Judge’s Reasons) that the Respondent commenced the proceeding for the predominant purpose of generating legal fees for Mark Elliott, its solicitor, it ought to have been held that the proceeding was an abuse of the process of the Supreme Court, and the proceeding should have been permanently stayed.
2.It ought to have been held that the predominant purpose of the Respondent in commencing the proceeding of generating legal fees for Mark Elliott, its solicitor, was an improper purpose, or a purpose outside the scope of the proceeding, or a purpose which would bring the administration of justice into disrepute, and that the proceeding be permanently stayed as an abuse of the process of the Court.
3. The Judge was wrong in holding that
(a)the Respondent’s immediate purpose was to obtain an award of damages which would then lead to an award of costs,
(b)that such an award is an entitlement or benefit which the law gives a litigant,
(c)the commencement of the proceeding was not an abuse of process notwithstanding that the Respondent had commenced the proceeding for the predominant purpose of incurring those costs and thereby generating legal fees for Mark Elliott, its solicitor, and of recouping them for his benefit from an award of costs in the event of success in the proceeding.
4.It ought to have been held that an award of costs is not an entitlement or benefit which the law gives a litigant in proceedings which are not taken for the predominant purpose of obtaining principal relief, or which are taken for the predominant purpose of incurring costs so that the other party will pay them, for the benefit of the litigant’s solicitor.
5.It ought to have been found that the continuance of the proceeding by the Respondent will be for the predominant purpose of Mark Elliott receiving a benefit or reward, other than as a shareholder from the receipt of damages by the Respondent, and that such purpose is an improper purpose, or a purpose outside the scope of the proceeding, or a purpose which would bring the administration of justice into disrepute, and that the proceeding be permanently stayed as an abuse of the process of the Court.
6.Having found (at [50] of the Judge’s Reasons) that Mark Elliott has not only an interest in recovering his legal fees, but also an interest in ensuring that the Respondent does not suffer the consequences of an adverse costs order, it should also have been found that for so long as the Respondent remains as lead plaintiff in the proceeding, and even if it engages a different solicitor to represent it and the group members:
(a)the Respondent will give advice and give instructions in the conduct of the proceeding to the solicitor for the group members through Mark Elliott as a director of the Respondent;
(b)Mark Elliott’s interests as the sole member of the Respondent will be affected by the possibility of adverse costs orders being made against the Respondent that would affect him personally;
(c)neither the group members nor the Court could have confidence that the Respondent would be representing the interests of the group members as well as its own, in giving that advice and instructions; and
(d)by reason of these matters, the proceeding should not proceed as a group proceeding pursuant to Part 4A of the [Act]; alternatively the proceeding should not proceed as a group proceeding pursuant to Part 4A of the [Act] for so long as the Respondent remains the plaintiff.
7.It should have been found that for so long as the Respondent remains as lead plaintiff in the proceeding, and even if it engages a different solicitor to represent it and the group members in the proceeding:
(a)if the proceeding is successful then Mark Elliott will receive a benefit or reward, other than as a shareholder from the receipt of damages by the Respondent;
(b)the Respondent will give advice and give instructions in the conduct of the proceeding to the solicitor for the group members through Mark Elliott as a director of the Respondent;
(c)in consequence, neither the group members nor the Court could have confidence that the Respondent would be representing the interests of group members as well as its own, in giving that advice and instructions; and
(d)by reason of these matters, the proceeding should not proceed as a group proceeding pursuant to Part 4A of the [Act]; alternatively the proceeding should not proceed as a group proceeding pursuant to Part 4A of the [Act] for so long as the Respondent remains the plaintiff.
Is the primary decision wrong or attended with sufficient doubt?
The principles regarding abuse of process are not in dispute. Insofar as they are relevant to Treasury’s application for leave to appeal, they are summarised at [53] to [63] below.
The Supreme Court has inherent jurisdiction to order a stay of any proceeding which is an abuse of process.[39]
[39]Williams (1992) 174 CLR 509, 518. See also Rules r 23.01(1).
The categories of abuse of process are not closed.[40]
[40]Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256, 264 [7] (‘Batistatos’); Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427, 452 [89] (‘Michael Wilson’).
Those categories include the following circumstances:
(a) where the court’s processes are invoked for an illegitimate or collateral purpose;
(b) where the use of the court’s procedures would be unjustifiably oppressive to a party; and
(c) where the use of the court’s procedures would bring the administration of justice into disrepute.[41]
[41]Rogers v The Queen (1994) 181 CLR 251, 286; PNJ v The Queen (2009) 83 ALJR 384, 385–6 [3]; Michael Wilson (2011) 244 CLR 427, 452 [89].
The category in (a) above has also been described as where the predominant purpose of bringing the proceeding is improper.[42]
[42]Williams (1992) 174 CLR 509, 529.
The question of whether the purpose of bringing a proceeding is improper must be assessed in the context of statements in the authorities that the legitimate purpose for bringing a proceeding is the protection or vindication of particular legal rights or immunities.[43]
[43]Williams (1992) 174 CLR 509, 532; White Industries (Qld) Pty Ltd v Flower & Hart (Unreported, Federal Court of Australia, Goldberg J, 14 July 1998) 102 (‘White Industries’); Flower (1999) 87 FCR 134, 150–1 [63]–[64].
The question of what constitutes an improper purpose was recently considered by the Privy Council in Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd.[44] Lord Wilson JSC approved of a statement by Isaacs J in Varawa v Howard Smith Co Ltd[45] that a purpose is improper if it is ‘entirely outside the ambit of the legal claim upon which the Court is asked to adjudicate’.[46] His Lordship stated that a purpose of achieving victory in the proceeding ‘with all such consequences as may flow from it’ is not improper.[47] Lord Sumption JSC described an improper purpose as a ‘purpose of obtaining some wholly extraneous benefit other than the relief sought and not reasonably flowing from or connected with the relief sought.’[48]
[44][2014] AC 366 (‘Crawford Adjusters’).
[45](1911) 13 CLR 35 (‘Varawa’).
[46]Varawa (1911) 13 CLR 35, 91.
[47]Crawford Adjusters [2014] AC 366, 393 [63], 401 [79].
[48]Crawford Adjusters [2014] AC 366, 422 [149].
There is a distinction between bringing proceedings to a successful conclusion, so as to take advantage of an entitlement or benefit which the law gives the litigant in that event, and bringing proceedings when the purpose is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers.[49]
[49]Williams (1992) 174 CLR 509, 526–7; Klement v Randles [2010] VSCA 336, [32].
Where a proceeding is instituted for the purpose of vindicating a right but with the aim of settling the claim before trial, the proceeding is not an abuse of process.[50] In Crawford Adjusters, Lord Wilson JSC rejected the proposition that the bringing of a proceeding in the hope of settling it rather than securing a judgment is improper. His Lordship said:
But the settlement of an action is often reached on terms which, had it proceeded, the court could not have ordered; and not infrequently claimants reasonably initiate actions in the hope that some such settlement might eventuate. In Goldsmith v Sperrings Ltd … Bridge LJ neatly allowed for this possibility in suggesting … that
when a litigant sues to redress a grievance no object which he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance.[51]
[50]Williams (1992) 174 CLR 509, 533, 543; White Industries (Unreported, Federal Court of Australia, Goldberg J, 14 July 1998) 102; Flower (1999) 87 FCR 134, 150, [63].
[51]Crawford Adjusters [2014] AC 366, 393 [64] (citations omitted).
In Williams, the plurality referred to Goldsmith[52] and agreed with the doubt expressed by Bridge LJ as to whether an abuse of process would exist where a litigant with a genuine cause of action which the litigant intends to pursue has an ulterior purpose in view as a desired by-product of the litigation.[53]
[52][1977] 2 All ER 566.
[53]Williams (1992) 174 CLR 509, 522.
The onus of satisfying the court that there is an abuse of process lies on the party alleging it. The onus is a heavy one and the power to grant a permanent stay is one to be exercised only in the most exceptional circumstances.[54]
[54]Williams (1992) 174 CLR 509, 529.
If a proceeding is an abuse of process, there is no discretion to refuse a stay.[55]
[55]Batistatos (2006) 226 CLR 256, 256 [7].
The main thrust of Treasury’s submissions in support of its application for leave to appeal was that, having found that the predominant purpose for the commencement of this proceeding was for Mr Elliott to earn legal fees and that this was not a desired by-product of the litigation at [29] of the Reasons, the judge was bound to find that this was an improper purpose and thus the proceeding was an abuse of process. Treasury also contended that her Honour misapplied Williams by distinguishing between an immediate purpose of obtaining substantive relief in the proceeding and an ultimate purpose of being paid legal costs.
In my opinion, the judge correctly applied the principles summarised at [53] to [63] above. Fundamentally, this is because an order for costs is at the discretion of the court and such an order ordinarily follows from pursuing litigation to a successful conclusion rather than being independent of, or collateral to, such success.[56]
[56]The Court’s power to award costs is set out in ss 33ZD and 33ZJ of the Act.
An award of costs in favour of MCI would be ‘reasonably related to the provision of some form of redress for [MCI’s] grievance’[57] and would not be ‘entirely outside the ambit of the legal claim [by MCI] upon which the Court is asked to adjudicate’.[58] Such an award could not be described as a ‘wholly extraneous benefit’ or as ‘not reasonably flowing from or connected with the relief sought’ in the proceeding.[59] Further, such an award would not be a benefit that can be obtained ‘otherwise than by verdict, by order or by compromise of the particular claims made in the proceeding.’[60] Costs normally follow the event and thus ‘flow naturally from a verdict’ and are ‘within the scope of the remedy.’[61] They are a consequence which flows from achieving victory in the proceeding.[62] A costs order provides indemnity for the expenses incurred by a plaintiff in obtaining substantive relief and is a by‑product of that relief rather than collateral to it. As Brennan J said in Williams, ‘[i]n a case where a plaintiff intends to obtain relief within the scope of the remedy available in a proceeding, there is no abuse of process’.[63]
[57]Goldsmith [1977] 2 All ER 566, 586; Williams (1992) 174 CLR 509, 537.
[58]Varawa (1911) 13 CLR 35, 91.
[59]Crawford Adjusters [2014] AC 366, 422 [149].
[60]Williams (1992) 174 CLR 509, 536.
[61]Williams (1992) 174 CLR 509, 532–3.
[62]Crawford Adjusters [2014] AC 366, 393 [63].
[63]Williams (1992) 174 CLR 509, 535.
MCI could not achieve its predominant purpose of earning fees for Mr Elliott unless it pursues this proceeding to a successful conclusion and obtains an order for costs from the Court or negotiates a favourable settlement which is approved by the Court. The outcome of the proceeding, the nature and scope of any costs order, and the question of whether a settlement should be approved are matters to be determined by the Court in accordance with well-established legal principles. A costs order cannot be pursued by MCI separately from the substantive relief sought in the proceeding. Likewise, there would have to be very good reasons for the Court to approve a settlement which merely involves payment of MCI’s costs. In other words, the legal process contains robust safeguards against abuse.
It follows that the judge’s analysis as set out at [41] above is correct. Her Honour’s reference to immediate and ultimate purposes simply sought to explain that, while the substantive relief sought in the proceeding was a means to an ultimate end, both the means and the ultimate end were standard and legitimate components of any litigation. Similar language was used by the plurality in Williams.[64] Given that costs cannot be awarded without a court order and such an order is usually not made unless a plaintiff is successful in obtaining substantive relief, there is nothing improper about a party commencing a proceeding which has legal merit for the purpose of obtaining such relief and such an order, even if the predominant purpose is to obtain such an order. This is because that predominant purpose cannot be achieved without the court being satisfied that it is appropriate to award costs.
[64]Williams (1992) 174 CLR 509, 526–7.
In the present case, Treasury has not contended that the proceeding is devoid of legal merit and is bound to fail or that MCI does not intend to pursue the proceeding to verdict. If the proceeding fails, MCI will be exposed to an order for costs. If the proceeding succeeds and a damages award is made, the award will be substantial — because it will cover the losses of all group members and not just MCI’s loss — and MCI will almost certainly be awarded costs. Accordingly, it is inappropriate to focus on MCI’s modest loss as a basis for concluding that the costs that will be incurred by MCI will be disproportionate to the damages sought, as damages are claimed on behalf of all group members. Any damages award will have the effect of holding Treasury legally accountable for breaching its obligations under the Corporations Act 2001 and promoting transparency and fairness in the securities market. In those circumstances the judge was correct to state that an order staying the proceeding because MCI’s predominant purpose was earning legal fees for Mr Elliott would be extending the principles of abuse of process beyond the circumstances that the authorities have so far recognised.
The present case falls within the first type of proceeding described at [59] above, that is, a proceeding which is to be brought to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event. It is not a case where MCI’s purpose is not to prosecute the proceeding to a conclusion but to use the proceeding as a means of obtaining some advantage for which the proceeding is not designed or some collateral advantage beyond what the law offers.
When considered in context, the judge’s statement at [29] of the Reasons that MCI’s purpose was ‘not a purpose of earning legal fees as a desired by-product of the litigation’ simply emphasised that the earning of fees was the predominant purpose. The judge went on to describe that purpose as MCI’s ultimate purpose and to explain that it could only be achieved through success in the litigation. Even if MCI’s focus was predominantly on obtaining a costs order in its own right rather than as a by‑product of substantive relief, as a matter of law and by its very nature, a costs order can only be obtained as a by‑product of a verdict for substantive relief or a successful settlement of the substantive claim. As such, the earning of fees is an entitlement or benefit which the law usually confers on a successful litigant. There is nothing improper about seeking such an entitlement or benefit by means of proceedings which have sufficient legal merit to succeed.
Treasury conceded that its contention that the circumstances of this proceeding constitute an abuse of process is unique. Treasury also conceded that it is not aware of any authority in which a proceeding instituted for the predominant purpose of obtaining a remedy — such as an order for costs — which can only be conferred by a court order following the granting of substantive relief — such as damages — has been held to constitute an abuse of process.
This is not surprising. As the plaintiff in such a case seeks a consequential remedy which a court will only grant if it is satisfied that it is proper to do so, the bringing of the proceeding cannot constitute an abuse of process. That is so even though, as in the present case, obtaining the consequential remedy is the plaintiff’s predominant purpose in bringing the proceeding. This is because that predominant purpose cannot alter the fact that the consequential remedy can never be a primary remedy but can only follow from a decision whether to grant primary relief. In a case such as the present, the primary relief and the consequential remedy will usually be refused by a court unless the plaintiff is successful in establishing its cause of action.
In response to questions from the Bench, MCI submitted that, even if the proceeding constituted an abuse of process when it was instituted by reason of the predominant purpose of Mr Elliott earning legal fees, the proceeding can no longer be an abuse of process. This was said to be so because Mr Elliott’s replacement as MCI’s solicitor means that the predominant purpose can no longer be achieved; the only benefit that Mr Elliott can now attain from the proceeding is a damages award in favour of his company, MCI.
As I have concluded that the predominant purpose was not improper and that the proceeding when instituted was not an abuse of process, it is not necessary for me to decide whether a proceeding which would be an abuse of process upon its commencement due to the presence of a vitiating circumstance can cease to be an abuse of process upon the removal of that circumstance.
As MCI’s predominant purpose of commencing the proceeding is not improper in the relevant sense, and no complaint has been made by Treasury about how the proceeding has been conducted to date, there is no basis for any finding that the proceeding is unjustifiably oppressive to Treasury or that it would bring the administration of justice into disrepute.
It follows from the above analysis that the judge’s decision to refuse to grant Treasury’s application for an order staying the proceeding on the basis that it constitutes an abuse of process is neither wrong nor attended by sufficient doubt so as to justify the granting of leave to appeal.
It also follows that grounds 1 to 5 of Treasury’s proposed notice of appeal are not made out.
The remaining grounds of appeal concern the judge’s decision to refuse to grant one of the alternative forms of relief that Treasury had sought, namely that the proceeding cease to be a proceeding under pt 4A of the Act while MCI remains the lead plaintiff. The judge considered that, in the light of Tan Partners being appointed as MCI’s solicitors in the place of Mr Elliott and the giving of the undertakings recorded in the Order, such relief was not warranted.
Treasury’s complaints about the judge’s refusal to grant the alternative relief sought by it are based on an assumption that, notwithstanding the appointment of Tan Partners and the giving of the undertakings recorded in the Order, while MCI remains the lead plaintiff, Mr Elliott will continue to provide not only instructions but also legal advice regarding the conduct of the proceeding. Treasury contends that such advice will not be independent because Mr Elliott will continue to have a conflict of interest due to MCI’s potential exposure to a costs order. It followed, so it was said, that it is inappropriate for the proceeding to continue as a group proceeding under pt 4A of the Act while MCI remains the lead plaintiff.
Treasury also contended that the undertaking given by Mr Elliott is inadequate because, while it prevents him from giving legal advice for remuneration, it does not prevent him giving legal advice for some other reward or financial benefit. Treasury boldly submitted that, given MCI’s business model, ‘the inescapable inference is that Mr Elliott will continue to receive a benefit or reward other than as a shareholder from the receipt of damages by MCI.’
Treasury’s contentions must be rejected because they are not supported by any evidence. They are speculative generalisations. As officers of the Court, Mr Elliott and the members of the firm of Tan Partners can be expected to honour their undertakings. At all times, they remain subject to the supervisory jurisdiction of the Supreme Court. Tan Partners can be expected to provide independent and arm’s length legal advice to MCI and to act in the best interests of MCI and other group members. They can also be expected to treat Mr Elliott as the alter ego of their client, MCI, and deal with him within that solicitor–client relationship. They will be required to abide by the ethical and professional rules that apply to such a relationship. In that context there is no basis for any concern that Tan Partners will be inappropriately influenced by Mr Elliott or place themselves in a conflict of interest situation. The conflict of interest alleged against MCI — that is, its potential exposure to an order for costs — is common to all lead plaintiffs in a group proceeding under pt 4A of the Act. The task of Tan Partners in managing that conflict of interest will be no different from that of any other solicitor acting for a lead plaintiff.
It is also important to note that proceedings under pt 4A of the Act are subject to the control of the Supreme Court. Under s 33T(1), the Court may, on application by a group member, substitute another group member as lead plaintiff if the lead plaintiff ‘is not able adequately to represent the interests of the group members’. Under s 33N, the Court can make an order that the proceeding cease to be a group proceeding under pt 4A if circumstances arise that warrant such an order. Under s 33V, the Court must approve any settlement or discontinuance of the proceeding while it remains a group proceeding under pt 4A. Finally, under s 33ZF the Court may, of its own motion, make any order it thinks is appropriate or necessary to ensure that justice is done in the proceeding.
For the reasons set out at [82] to [83] above, the judge’s decision to refuse to grant the alternative relief sought by Treasury has not been shown to be wrong or attended with sufficient doubt to warrant the granting of leave to appeal.
Will substantial injustice be caused if the primary decision is not set aside?
My conclusions at [77] and [84] above mean that it is not necessary for me to consider whether substantial injustice would be caused if the primary decision is not set aside.
Had it been necessary for me to consider this issue, I would not have been satisfied that substantial injustice would occur if the Order is not set aside because the undertakings that are recorded in the Order have overcome the potential for abuse and injustice. As stated at [74] above, Mr Elliott’s replacement as solicitor for MCI means that the allegedly improper purpose of securing legal fees for Mr Elliott can no longer be achieved. Indeed, the only injustice upon which Treasury has relied is that it will be put to the expense and inconvenience of defending the proceeding.
As discussed at [69] above, Treasury has not contended that the proceeding is devoid of legal merit and is bound to fail. Implicit in the alternative relief sought by Treasury before the primary judge was that it would have no grounds to complain were the proceeding to continue as a group proceeding under pt 4A of the Act if MCI were not the lead plaintiff and Mr Elliott were not acting for that plaintiff. In the light of the powers of the Supreme Court set out at [83] above, any problems that arise in the future from MCI’s ongoing status as lead plaintiff or the undertakings that have been given by Mr Elliott and Tan Partners can be dealt with by the Court. In those circumstances, any injustice that might arise can be addressed.
In relation to the incurring of legal costs, Treasury can seek to protect its position by seeking an order for security for costs. In fact, Treasury has filed an application for such an order.
In support of its submission that substantial injustice would not be caused to Treasury if the primary decision is not set aside, MCI relied on the fact that another securities class action against Treasury has been commenced by a another plaintiff, Mr Brian Jones, in the New South Wales registry of the Federal Court of Australia. The allegations against Treasury in that proceeding are said to be similar to the allegations in the present proceeding. Treasury has apparently applied for an order that Mr Jones’ proceeding be transferred to the Supreme Court of Victoria. MCI contended that no substantial injustice would arise from a continuation of the proceeding, as Treasury will be required to defend the alleged breaches of ss 674(2) and 1041H of the Corporations Act 2001.
Had it been necessary for me to do so, I would have concluded that Treasury has failed to establish substantial injustice independently of the existence of the proceeding commenced by Mr Jones. Accordingly, it is not necessary for me to consider that proceeding any further.
Conclusion
For the above reasons, I would make an order amending the Order as set out at [47] above and an order dismissing the application for leave to appeal.
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