Queensland Supreme Court confirms legality of litigation funding agreements in class actions

On 13 September 2019, the Queensland Supreme Court handed down a decision in Murphy Operator & Ors v Gladstone Ports Corporation & Anor (No 4) [2019] QSC 228 (Gladstone Ports decision). 

The Court found that the litigation funding agreements in play in that case were not, by reason of the 17^th century torts of maintenance (supporting litigation without an interest) or champerty (maintaining litigation for a share in profits) or public policy, unenforceable. 

However, the Court found it unnecessary to decide whether the torts of maintenance and champerty remain torts actionable in Queensland. 

The decision is important because it:

• confirms that third party funding is lawful under Queensland’s class action regime – introduced by Part 13A of the Civil Proceedings Act 2011 (Qld) (CPA);
• provides comfort to litigation funders and defendants that the torts of maintenance or champerty will not affect the enforceability of litigation funding agreements; and 
• reminds litigation funders that Courts remain concerned with ensuring litigation funders do not improperly interfere with the conduct of the Court. 

The class action 

During 2011 and 2012, government-owned Gladstone Ports Corporation (GPC) undertook dredging in Gladstone Harbour to improve shipping lanes, depositing the dredge spoil behind a bund wall. 

On 21 July 2017, Murphy Operator Pty Ltd and others commenced representative proceedings against GPC in the Queensland Supreme Court on behalf of a number of fishing and processing businesses. The plaintiffs and group members allege negligence and public nuisance against GPC, claiming economic loss and damage suffered from the serious depletion of commercial seafood species from the waters affected by dredge spoil. 

The class action is funded by litigation funder, Litigation Capital Management (LCM), who was joined as a respondent on the funding application.

The application

The plaintiffs applied for declarations that the litigation funding agreements with LCM were not unenforceable by reason of maintenance, champerty or public policy. 

The decision 

The Court found that the litigation funding agreements did not involve unlawful conduct or purpose and were not prejudicial to the administration of justice. The Court declared that the agreements were not – by reason of maintenance, champerty or public policy – unenforceable.

The plaintiffs and LCM had submitted that the 17^th century torts of maintenance and champerty no longer existed in the common law of Australia, and if they did, they ought to be offered ‘a decent common law burial’.[1] However, the Court did not consider it necessary to decide whether the torts still exist at common law, reasoning that it was not necessary to do so ‘in the absence of legislation abolishing them’.[2] 

Queensland as one of the outliers 

Historically, maintenance and champerty were offences (i.e. crimes) and torts. The offences and torts were abolished in the United Kingdom following a report to the Parliament by the Law Commission in 1966,[3] and by legislation in Victoria in 1969, South Australia in 1992, and New South Wales in 1995. However, in each case, the legislation preserved a statutory carve out for ‘any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal’.[4] 

In Queensland, the crimes of maintenance and champerty have not existed since the commencement of the Criminal Code Act 1899 (Qld). However, in Queensland, Western Australia, Northern Territory and Tasmania, the torts of maintenance and champerty have not been abolished and, in theory, arguably remain actionable.[5]  

Australian approach to maintenance and champerty 

The Court considered the evolution of the Australian approach to maintenance and champerty and, in particular, the High Court decision of Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (Fostif).[6] 

The Court relied upon the reasoning by Gummow, Hayne and Crennan JJ in Fostif, where their Honours considered that:

• questions of illegality and public policy arise when considering the enforceability of a funding agreement;
• there was no overarching rule of public policy barring the prosecution of actions funded by commercial litigation funders; and
• the existing doctrine of abuse of process and other procedural and substantive elements of the court's processes provide protection from funders improperly interfering with the conduct of the court.  

Those procedural and substantive levers include:

• the court’s power to make direct costs orders against commercial litigation funders;
• the requirement ordinarily imposed for the payment of substantial security for costs; and
• the ability of the defendant to seek an order for early termination of the proceedings either as an abuse of process or by way of an application for summary judgment.[7]

Following the reasoning in Fostif, the Court considered that the relevant question was not whether the litigation funding agreement disclosed an arrangement that constitutes champerty or maintenance, but rather ‘what exactly is the corruption of the court processes that is feared’ as a result of the litigation funding agreement? The Court acknowledge three possibilities noted by the Federal Court in Deloitte Touche v JP Morgan:[8] 

• the fear of inflammation of damages; 
• suppression of evidence; or 
• suborning witnesses.[9] 

GPC submitted that the litigation funding agreements raised ‘a fear of an inflammation of damages’, on the basis that the statement of claim had been amended in a way which enlarged the area of affected waters significantly.[10] But the Court was unpersuaded by that submission – no factual material was given in support of it, and GPC could be allayed by appropriate particularisation of the damages claim and the disclosure of any expert evidence on quantification of damages.[11]

Does having a ‘commercially motivated litigation funder’ distort the curial process?

With respect to public policy, GPC submitted that third party funding had a tendency to ‘distort the curial process’.[12] GPC argued that the failure of Queensland to enact legislation extinguishing the crimes and torts of maintenance and champerty supported their public policy assertion.[13] 

However, the Court rejected this submission on the grounds that:

• the crimes of maintenance and champerty had been extinguished by the Criminal Code;
• the application did not bring a cause of action based on the torts of maintenance and champerty;
• the legislation in other states extinguishing the torts and crimes of maintenance and champerty had preserved their effect with respect to contracts, and preserves any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal.[14] 

What is the public policy in light of Part 13A of the CPA?

In considering what the public policy was in light of the provisions of Part 13A of the CPA,  Justice Crow reasoned that:

• section 103K(1)(e) confers a broad power on the Court to stop a class action when it is in the interests of justice to do so;[15]
• section 103K(2)(b) plainly expresses the Queensland Parliament’s intent that persons be identified as group members and grouped together for a particular purpose including ‘a litigation funding arrangement’;[16]
• section 103R(2) gives the Court power to determine what proportion of a settlement sum is paid to a litigation funder which helps ensure protection of the interests of group members.[17]

The Court considered that the adoption of section 103K(2) in Queensland, with identical wording to section 166(2) of the Civil Procedure Act 2005 (NSW), demonstrates the Queensland Parliament’s statutory adoption of the decision of the Full Federal Court in Multiplex Funds v P Dawson Nominees[18] as representative of contemporary public policy – being that class action proceedings are permitted to be funded by a commercial litigation funder.[19]

Are the litigation funding agreements otherwise unlawful?

The Court found the terms of the litigation funding agreements to be ‘sufficiently similar to the agreements in Multiplex’,[20] but noted that even if the terms were different, that would not be a basis in public policy, to suggest the agreements were unlawful.[21] 

Justice Crow also rejected GPC’s submission that ‘control’ or ‘improper control’ is an element of the torts of maintenance and champerty,[22] but nevertheless found that the litigation funding agreements did not provide LCM with any level of unlawful or improper control.[23] His Honour found that the litigation funding agreements might properly be viewed as a partial assignment of future proceeds, which was not against public policy, but rather permitted in class actions by the operation of Part 13A.[24] 

GPC’s central submission was that Fostif provides no guidance in Queensland, absent legislation abolishing the torts of maintenance and champerty.[25] GPC relied on paragraph 85 of Fostif which provides:

“In jurisdictions where legislation has been enacted to the same effect as the Abolition Act, the premise for the second proposition identified [that for the maintainer to institute and continue proceedings, in the name of or on behalf of plaintiffs who were thus maintained, was an abuse of process which could be avoided only by ordering a stay of the proceedings] is not valid; there are several reasons to reject it. It is neither necessary nor appropriate to decide what would be the position in those jurisdictions where maintenance and champerty may remain as torts, perhaps even crimes.”[26]

The Court rejected GPC’s position that as a ‘non-abolition State’, the reasoning of Fostif does not apply. However, while acknowledging Queensland does not have an ‘Abolition Act’, Justice Crow ultimately relied on the existence of the Criminal Code 1899 (Qld) and Part 13A of the CPA (Qld) to support his finding that ‘the funding agreement cannot be found to be unlawful’. [27] His Honour held that:

“s 103K(2)(b) of the Civil Proceedings Act does not impliedly, and for all purposes, abolish the torts of maintenance and champerty but I do take the view that s 103K(2)(b) together with the balance of Part 13A, authorises commercial litigation funding agreements in respect of “class actions” in Queensland.”[28]

His Honour hypothesised that as the crimes of maintenance and champerty do not exist in Queensland, the logical conclusion is that the torts also no longer exist, as an essential element of the torts coming into existence is the commission of the crime and the suffering of special damage.[29] However, for the reasons already stated, the Court did not consider it necessary to rule on whether the torts still existed at common law. 

Accordingly, whether the 17^th century torts of maintenance and champerty will be consigned to the ‘museum of legal history’ remains uncertain for the moment, but it clear that litigation funding agreements are not illegal per se in Queensland. To the contrary, they accord with the public policy of the class actions regime.