Application for an interlocutory stay of action on the basis that it is being funded pursuant to a champertous agreement - Principles applicable to such applications - Whether sufficient risk of abuse of process to warrant a stay

Second Plaintiff : Mr D M Stone & Mr D R Kilpatrick

Second Defendant : Mr D R Meagher QC & Mr J D Karas

Fourth Defendant : Mr M Tobias QC & Mr G R Donaldson

Abraham v Thompson [1997] EWCA Civ 2179; [1997] 4 All ER 362

Buiscex Ltd v Panfida Foods Ltd (1998) 28 ACSR 357

Dataquest (Australia) Pty Ltd v Dataquest Inc, unreported; 8 August 1996

Faryab v Smyth, unreported; English Court of Appeal; 28 August 1998

Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150

Giles v Thompson [1994] 1 AC 143

Grovewood Holdings PLC v James Capel & Co Ltd [1995] Ch 80

Harrison v Schipp [1999] NSWCA 443

Hodges v State of New South Wales [1988] HCA 9; (1988) 77 ALR 1

Magic Menu Systems Pty Ltd v AFA Facilitations Pty Ltd (1996) 72 FCR 261

Martell v Consett Iron Co Ltd [1955] Ch 363

Re Movitor Pty Ltd (1966) 64 FCR 38

Re Oasis Merchandising Services Ltd [1998] 1 Ch 170

Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199

Stocznia Gdanska v Latreefers Inc, unreported; English Court of Appeal; 9 February 2000

Trendtex Trading Corporation v Credit Suisse [1982] AC 679

Wild v Simpson [1919] 2 KB 544

Beatty v Brashes Pty Ltd (1998) 16 ACLC 1138; [1998] 2 VR 201

British Cash & Parcel Conveyers Ltd v Lanson Store Services Co Ltd [1908] KB 1006

Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499

Bulli Coal Mining Co (1897) 18 LR (NSW) (Eq) 146; [1899] AC 351

Carob Industries Pty Ltd (In Liq) v Simto Pty Ltd [1999] WASC 258; (1999) 18 ACLC 177

Christmas Island Resort Pty Ltd v Geraldton Building Company Pty Ltd (No 5) (1997) 18 WAR 334

Condliffe v Hislop [1996] 1 WLR 753; [1996] 1 All ER 431

Elfic v Peter Mack & Ors, unreported; SCt of QLD (Williams J); 22 February 2000

Ellis v Torrington [1920] 1 KB 399

Esso Australia Resources v Federal Commissioner of Taxation [1999] HCA 67; (1999) 168 ALR 123

Fencott v Erretta [1987] FCA 102; (1987) 16 FCR 497

Hill v Archbold [1968] 1 QB 686

Jago v District Court of NSW [1989] HCA 46; (1989) 168 CLR 23

McMullin v ICI Australia Operations Pty Ltd, unreported; FCA (Wilcox J); 18 November 1996

Neville v London Express Newspapers [1919] AC 368

Newton v Gapes (1910) 12 WAR 86

O'Keeffe v Scales [1998] 1 ILRM 393

Pioneer Machinery (Rentals) Limited v El-Jay Inc (1979) 93 DLR (3rd) 726

Re William Felton Co Pty Ltd (1998) 28 ACSR 228

Rogers v The Queen (1994) 181 CLR 257

Roux v ABC [1992] VicRp 87; [1992] 2 VR 577

SA Asset Management Corp v Sheahan [1995] SASC 5182; (1995) 13 ACLC 1138

Schultz v Ocean Accident Guarantee Corp Ltd (1923) 23 SR (NSW) 153

Sinclair v James [1894] 3 Ch 554

Smith v Malony (1998) 19 WAR 209

Stevens v Keogh [1946] HCA 16; (1946) 72 CLR 1

Stocznia SA v Latvian Shipping [1999] 3 All ER 822

Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509

1 The applicants, who are the defendants to this action, seek a stay. They contend that the action is being maintained against them pursuant to champertous agreements or arrangements between the plaintiffs and companies associated with Mr Hugh McLernon and Mr Daniel Martin Hill. Mr McLernon, who was formally a legal practitioner, is now engaged with Mr Hill in the business of litigation funding, through the medium of various companies including Expectation Pty Ltd.

2 The action was commenced by writ issued on 11 October 1999. The first plaintiff is a company which is effectively controlled by Mr McLernon: Bandwill Pty Ltd ("Bandwill"). The second plaintiff is Mr Gad Raveh, an Israeli lawyer who, although an Australian citizen, is now resident in Israel.

3 The first and second defendants are Mr Graham St John Spencer-Laitt and his wife, Malca Spencer-Laitt. Mr Laitt, who is a solicitor by profession, formerly practised as a member of the firm of Freehill Hollingdale & Page ("Freehills").

4 Mr Raveh alleges that Mr Laitt, as a partner of Freehills, acted for him in relation to a number of complex transactions from 1985 onwards. In summary, Mr Laitt is said to have advised Mr Raveh in relation to a discretionary trust known as the Interlaken Trust, of which Mr Raveh was the protector and he and his family the beneficiaries. Further, Mr Laitt is said to have acted in a series of transactions in 1990 which resulted in a substantial amendment to the Interlaken Trust Deed and the appointment of Lodi Holdings Pty Ltd ("Lodi") as a replacement trustee. Lodi, which is controlled by Mr and Mrs Laitt, is the third defendant to the action.

5 As a result of the amendment, Mr Laitt became an additional protector of the Interlaken Trust: and he and his family became additional beneficiaries.

6 The amendment provided also for the notional division of the Interlaken Trust Fund. Upon the nomination of a "trigger date" by either Mr Raveh or Mr Laitt, they and their respective families would each become entitled to an undivided one-half share in the fund, to be known as the A Fund and the B Fund.

7 The present assets of the Interlaken Trust Fund are substantial. According to Mr Raveh, they are worth in excess of $50 million. The principal asset, which is held through a hierarchical corporate structure, is a controlling interest in the Peters and Brownes group of companies, of which Mr Laitt is now the Managing Director.

8 In 1999, Mr Raveh, who claims that he was in urgent need of money, sought to realise his interest in the Interlaken Trust Fund by agreement with Mr Laitt. No agreement was reached.

9 In March 1999 Mr Raveh entered into a loan agreement with Biara Pty Ltd ("Biara") a company controlled by Mr McLernon. Pursuant to that agreement, Mr Raveh borrowed some $7.8 million against the security of his and his family's interest in the Interlaken Trust Fund and any relevant claim or right of action against any past, present or future adviser of any person connected with the trust.

10 In September 1999, Mr Raveh nominated a trigger date with a view to excising the A Fund. He also appointed Bandwill as the trustee of that fund. Bandwill is a wholly owned subsidiary of Biara.

11 Mr and Mrs Laitt and Lodi have denied that Mr Raveh was entitled to act as he did. However, Mr Raveh's interest in the trust fund is not in dispute: the issue is when he is entitled to realise that interest.

12 As I have noted above, this action was commenced on 11 October 1999. Mr Raveh claims against Mr Laitt to set aside the various transactions by which he and his family came to acquire an interest in the Interlaken Trust. Mr Raveh therefore seeks a declaration that Bandwill is the trustee of the entire fund: alternatively that it is the trustee of the A Fund only.

13 Mr Raveh's claim is based principally on his contention that at the material times Mr Laitt was his solicitor and was in breach of the fiduciary duties which he owed to Mr Raveh. The claims against Freehills are also based on alleged breaches of fiduciary duty, both by Mr Laitt, in his capacity as a partner in the firm, and by other "partners, representatives or employees." It is alleged that Freehills should have appreciated that a conflict existed between Mr Raveh and Mr Laitt and advised accordingly.

14 In their defence, Mrs and Mrs Laitt contend, in substance, that at the material times Mr Raveh and Mr Laitt were engaged in a series of commercial transactions as business associates, not as client and solicitor. It is alleged that Mr Raveh is himself a lawyer of considerable experience and that he entered into the relevant transactions in the exercise of his own judgment: not as a result of any influence by Mr Laitt.

15 Freehills, in their defence, contend that Mr Laitt ceased practising as a solicitor from about April 1986; and that thereafter he was a partner in the firm "in name only". This, it is alleged, was known to Mr Raveh. Freehills contend also that in the course of his business activities, Mr Laitt engaged various solicitors, including Freehills, to act for him: and that Mr Raveh was aware of these matters also. In short, Freehills deny all allegations of impropriety.

16 There is a counterclaim by the Laitt applicants in which they contend that in nominating a trigger date, Mr Raveh was in breach of fiduciary duties he owed the B Fund beneficiaries. Further, it is alleged against Mr Hill and Mr McLernon and various companies associated with them that the action is being funded pursuant to the champertous agreement or arrangement which I have mentioned above and to which I shall refer in more detail in due course.

17 It is alleged further that what are described as "the McLernon Interests" have "wrongfully, maliciously and unlawfully conspired" to injure the Laitt interests by various means including the loan and funding agreements.

18 There is also a counterclaim for defamation against Mr Hill arising out of a press release about Mr and Mrs Laitt said to have been published by him on 11 October 1999.

19 In addition, Mr and Mrs Laitt and Freehills have commenced separate proceedings against the relevant companies associated with Mr McLernon, and Mr Raveh, in which they seek permanent injunctions to restrain the continued maintenance of this action, and damages.

20 On 13 October 1999, two days after the action was commenced, Mr Raveh and the members of his family who are the beneficiaries of the Interlaken Trust entered into a deed with Biara, Bandwill and McLernon Group Ltd ("MGL"), an associate of Biara, whereby Biara agreed to fund the action; and MGL, which is a licensed investigator, agreed to provide investigation and litigation support services for a fee amounting to 55 per cent of any distribution made to the Raveh beneficiaries from the B Fund and 3 per cent of any such distribution from the A Fund.

21 There are two stay applications. One application is brought by Mr and Mrs Laitt and Lodi: the other by Freehills.

22 The applications are interlocutory in the sense that none of the applicants seeks a permanent stay of the action. However, it is contended by Mr Raveh that to stay the action would be effectively to stifle it.

23 Substantial affidavit evidence has been filed in support and opposition to the applications. I declined to permit cross-examination of the deponents, being unpersuaded that the circumstances were sufficiently exceptional to require a departure from the customary practice: see Seaman on Civil Procedure par [26.2.3] .

24 The hearing of the applications was conducted on the basis of both written and oral submissions. Mr and Mrs Laitt and Lodi were represented by senior counsel, as were Freehills. However, each counsel, to a large degree, adopted the other's submissions. It will therefore be convenient to refer to "the applicants' submissions" except where it is necessary to identify the Laitt applicants or Freehills separately.

25 The general concepts of maintenance and champerty are well established, having their origins in medieval jurisprudence. However, there are issues between the parties about the present state of the applicable law and the approach to be taken in applications of this kind.

26 The applicants rely on a definition of unlawful maintenance given by Lord Denning MR in Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199, 217:

"improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse."

27 Lord Denning took his definition from Martell v Consett Iron Co Ltd [1955] Ch 363, a case in which an association for the protection of riparian owners provided financial support for an action brought by a member of the association who alleged that the defendant's iron works was polluting a river. Both Dankwerts J at first instance and the Court of Appeal, held that the association, had a sufficient interest in the subject matter of the action to justify its funding. There was therefore, "just cause or excuse" (to adopt Lord Denning's definition) for the association's conduct, even though it had requested and encouraged the plaintiff to commence the proceedings.

28 To return to Re Trepca Mines: Lord Denning went on to deal with champerty. He said (at 219):

"But there is one species of maintenance for which the common law rarely admits of any just cause or excuse, and that is champerty. Champerty is derived from campi partitio (division of the field). It occurs when the person maintaining another stipulates for a share of the proceeds: see the definitions collected by Scrutton LJ in Haseldine v Hosken [1933] 1 KB 822, 831. The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated; but, be that so or not, the law for centuries has declared champerty to be unlawful, and we cannot do otherwise than enforce the law...."

29 The case was concerned with a funding agreement between a creditor of a company whose proof of debt had been rejected by a liquidator, and a third party. The essence of the agreement was that the third party would fund an appeal from the liquidator's decision, in consideration of a one quarter share of the proceeds.

30 The Court of Appeal held that the agreement constituted "champertous maintenance", there being no "pre-existing common interest which could render the maintenance lawful": see Pearson LJ at 226.

31 On that basis, it is convenient to categorise as "lawful maintenance" an arrangement in which a person funds litigation in which he has a pre-existing interest in common with the plaintiff. If the funder has no such interest (and there is no other relevant exception) his conduct may be categorised as "unlawful maintenance".

32 In the latter situation, a funding agreement which provides for the division of the proceeds of the litigation will be unlawfully champertous. But what if a funder stipulates for a share in the proceeds of litigation in which he has a legitimate interest? That question did not arise in Re Trepca Mines, although Pearson LJ referred to it (at 226). He said it was not necessary to consider whether "champertous maintenance" could in any, and if so, what, class of cases be rendered lawful by the presence of (for example) a pre-existing common interest.

33 The question was considered again, in Giles v Thompson [1994] 1 AC 143. There, actions brought by plaintiffs who had been injured in motor vehicle accidents caused by the defendants, were funded by a company from which the plaintiffs had hired replacement vehicles. The agreements between the hire company and the plaintiffs entitled the company to sue in the plaintiffs' names and recoup the hire charges from the damages recovered.

34 Lord Mustill, with whom the other members of the House of Lords agreed, said (at 163-4):

"it is necessary first to consider whether the transaction bears the marks of unlawful champerty and then to enquire whether it is validated by the existence of a legitimate interest in the person supporting the action distinct from the benefit which he seeks to derive from it. For this purpose, close regard must be paid to Trendtex Trading Corporation v Credit Suisse [1982] AC 679...the law on maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants. For this purpose the issue should not be broken down into steps. Rather, all the aspects of the transaction should be taken together for the purpose of considering the single question whether ... there is wanton and officious intermeddling with the disputes of others in where [sic which] the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse."

35 In the Trendtex decision, to which Lord Mustill referred, the majority of the House of Lords restated the proposition that a bare right to litigate cannot be assigned. But in that case, Lord Roskill held that if the assignment in question was of a property right or interest to which the cause of action was ancillary, it should not be struck down: "the court should look at the totality of the transactions".

36 To return to Giles v Thompson: Lord Mustill went on to say that the question must be looked at first in terms of the harmfulness of the intervention of the funding party "which in turn calls for separate consideration of the risks to the administration of justice and to the interests of the [plaintiff]": in short, a balancing exercise. The implication is that even if the funder has a legitimate interest in the outcome of the litigation, the funding arrangements may still pose a sufficient threat to the administration of justice to render the champertous element unlawful.

37 Lord Mustill went on to consider whether there was any realistic possibility that the administration of justice might suffer in the way in which it undoubtedly suffered centuries ago. His Lordship thought not:

"or at any rate, none with which the skills and coercive powers of the contemporary Judge are unable to grapple".

38 In the result, the agreement in issue was held not to have been champertous: the hire company derived its profit from the hiring, not from the spoils of litigation. It was not, therefore, "wantonly or officiously interfering in the litigation": that being the single criterion by which, as Lord Mustill had held earlier in his speech, both maintenance and champerty should be judged.

39 It follows in my view, that on the "single question" approach, funding arrangements which entitle the funder to share in the proceeds of litigation may or may not be lawful. A situation might arise in which the funder had a legitimate pre-existing interest in the litigation but stipulated for a share in the proceeds on terms which constituted an unacceptable risk to the administration of justice. In those circumstances there would be unlawful champerty. But absent those unacceptable arrangements for division of the proceeds, there would be lawful maintenance.

40 However, if the arrangements involved unlawful maintenance (in the sense of wanton or officious interference, for example) then even an inoffensive agreement for sharing the proceeds would not prevent those arrangements from being classified as unlawful champerty.

41 Hence the need to consider whether the arrangements as a whole are objectionable on the grounds that they constitute an abuse of the court's process.

42 Lord Mustill's approach was considered by the Court of Appeal in Faryab v Smyth, (unreported; 28 August 1998).

43 There, the appellant, who had been ordered to provide security for costs by paying the sum of 40,000 pounds stg into court, had borrowed that amount from a consortium of financiers. The relevant agreements contained a guarantee by the appellant to repay the loan and substantial amounts up to a total of 150,000 pounds stg, depending on the extent to which the appeal succeeded. The appellant acknowledged that he was impecunious. The financiers could therefore obtain their returns only out of the proceeds of the litigation.

44 The respondent to the appeal applied for a stay on the ground that the funding agreements were champertous. In so doing, he relied on the passage in Lord Mustill's speech in Giles v Thompson, to which I have referred above.

"In my view the court is required to consider in the light of the facts of each case whether its process is affected or threatened by the agreement for division of spoils."

He went on to hold that the facts did not reveal any abuse of the court's process:

"although there may well be cases where the court can see that there is some feature - say, some element of trafficking in litigation - which must be regarded as abusive."

46 The other member of the Court, Simon Brown LJ was in general agreement. In his view:

"the point at which any particular funding agreement, even assuming it is technically champertous, could be said to constitute an abuse of process, is ..... very far from clear". (My emphasis)

His Lordship identified several possible factors. These included:

(2) the relationship between the parties to that agreement

(4) the relationship between the fund to be provided, any amount to be repaid and the sum in issue in the proceeding

I understand Simon Brown LJ's reference to "technical champerty" to mean an agreement by which the funder shares in the proceeds of litigation, but which is not objectionable, for that reason only: in other words, "lawful champerty".

47 A differently constituted Court of Appeal adopted a similar approach in Stocznia Gdanska v Latreefers Inc, (unreported; 9 February 2000). In that case ship brokers had agreed to pay the costs incurred by a petitioning creditor in the winding-up of a company and to fund an action by the creditor against the company and its ultimate holding company.

48 The action involved a claim for breaches of a ship-building contract. The ship brokers had arranged the contracts and would have earned commission had the ships been constructed. Their commission agreements therefore gave the brokers a legitimate interest in the outcome of the action.

49 The defendant sought a stay on the ground that the funding agreement entitled the brokers to share in the proceeds of the litigation and was therefore champertous. While recognising the funders' legitimate interest, the defendant submitted that their potential share in the proceeds was disproportionately large in comparison with that interest, such as to result in the funders "trafficking in litigation".

50 In a judgment given by Morritt LJ, to which all members of the Court had contributed, that submission was rejected. The Court held that a large mathematical disproportion between a pre-existing financial interest and the potential profit of funders might contribute to a finding of abuse, but not necessarily so.

51 The Court followed the approach of Chadwick LJ in Faryab v Smyth in holding that the question whether its process is affected or threatened by an agreement for the division of spoils is to be considered in the light of the facts of each case. The factors to which Simon Brown LJ had referred might be relevant and important, but they were not "exclusive nor necessarily determinative in the abstract".

52 Turning to the concept of "trafficking in litigation", Morritt LJ thought it undesirable to attempt a definition in different terms. However, he went on to say that it seemed to the court to connote "unjustified buying and selling of rights of litigation where the purchaser has no proper reason to be concerned with the litigation."

53 Lord Mustill's approach in Giles v Thomas has been followed in Australia. In Re Movitor Pty Ltd (1966) 64 FCR 38, Drummond J was asked to give directions to a liquidator who wished to enter into a debt retrieval agreement with an insurance company. The liquidator proposed to use the funds generated by the agreement to prosecute an action against former directors of the company in liquidation. The agreement provided for the proceeds of the litigation to be shared with the insurance company.

54 Drummond J adopted Lord Mustill's view that the arrangements would involve unlawful champerty unless the funder had an interest in the litigation which was separate from the potential benefit. But (at 388):

"old authority ... that an interest in litigation which might justify a stranger maintaining one of the litigants can never be sufficient to justify champerty cannot be accepted as stating the law."

55 Drummond J went on to hold that the arrangement proposed by the liquidator involved both unlawful maintenance and champerty because the insurance company had no interest in the litigation other than the opportunity to make a commercial profit. This involved trafficking in litigation.

56 The arrangements were, however, approved on other grounds, namely the liquidator's right to assign a past cause of action: a long established exception to the rules of maintenance and champerty.

57 The present plaintiffs contend it to be the law in Australia that a disproportionately high return to a litigation funder does not of itself constitute unlawful champerty. That was, in substance the conclusion reached by Hodgson CJ in Equity in Buiscex Ltd v Panfida Foods Ltd (1998) 28 ACSR 357, another case in which a liquidator sought court approval of a funding agreement.

58 The agreement provided for the funders to receive 75 per cent of the net return on any litigation, in return for funding an investigation into the company's affairs. However, Hodgson CJ considered that in all the circumstances, of which the extent of the return was only one, it was appropriate to grant approval. The circumstances included the fact that the liquidator had negotiated the agreement: and that the prospects of substantial recovery were not high.

59 I accept the applicants' submission that litigation involving funding agreements with liquidators must be regarded with some caution because liquidators have statutory rights, subject to court approval, to enter into such agreements. As Hodgson CJ noted (at 363) the public policy considerations underlying the rules about maintenance and champerty are of lesser significance in this context.

60 More to the point, I think, is the decision of a Full Court of the Federal Court in Magic Menu Systems Pty Ltd v AFA Facilitations Pty Ltd (1996) 72 FCR 261.

61 In that case the defendants, who were franchisees, sought injunctions to restrain the plaintiffs, who were their franchisors, from pursuing the action against them. It was said that the action was being maintained pursuant to a champertous funding agreement with the Australian Franchise Association Ltd ("AFA"), a non-profit making organisation, dedicated to advancing the interests of its members. The funding agreement entitled the AFA to a return which included a fee and a sum equal to 20 per cent of the proceeds of the litigation.

62 In a joint judgment the court referred to the vices originally thought to be inherent in champertous agreements: including the temptation to suborn witnesses and pursue worthless claims. However, the court went on to say that public policy considerations which shaped the attitude of the courts had changed with the times. Reference was made to Martell (supra) and the proposition that the court must recognise "a bona fide common interest, financial or philosophical", if the law is not to operate oppressively. The court expressed the view that today, an even wider view is likely to be taken of what might be acceptable, particularly if procedural safeguards are available.

63 Then, after considering some of the manifestations of champerty, and proposals for reform of the law, the court continued:

"That is not to say, however, that the policy considerations which gave rise to the offence and tort have lost all significance today. The ability of the Courts to treat agreements for maintenance as contrary to public policy, and therefore illegal, remains unaffected by the statutory provisions: see Trendtex Trading at 653; McFarlane v EE Caledonia (No 2) at 370; Roux v ABC at 605; Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142. The giving of financial assistance to a litigant by a non-party will not however conclude the question as to whether it is unlawful on this ground (see Condliffe v Hislop). Questions of public policy with which the Courts will be concerned, as Byrne J observed in Roux v ABC at 605, are those which have regard to litigation and its funding in the contemporary world.

Trendtex, and the later cases to which we have just referred, were concerned with the question whether the Court ought lend its aid to the enforcement of champertous agreements. Questions will also likely arise for the Courts, where actions are funded by them, as to the integrity of its processes and in particular as to the uses to which they are being put, and as to the conduct of the maintained party and the maintainer with respect to the proceedings. In this connection it would be necessary to have regard to the provisions of the particular agreement."

64 In the present case the enforceability of the funding agreement is not in issue. But in holding that:

(1) the giving of financial assistance by a funder will not of itself conclude the question of unlawfulness; and

(2) it is necessary to have regard to the provisions of the particular agreement,

the court adopted precisely the approach taken by the English courts in the line of cases to which I have referred above.

65 The Full Court of this court has taken a similar view. In Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150, at par 25, the court said:

"The question whether a particular action has been brought, or is being continued, in abuse of the court's process is one which depends on all of the material circumstances, of which the fact of maintenance or champerty may be only one."

The court went on to say that there was a considerable body of recent authority to support the proposition: including Magic Menu, Faryab v Smyth and Stocznia Gdanska v Latreefers.

66 This approach is binding on me. In requires me to consider whether the agreements or arrangements between Mr Raveh and the companies associated with Mr McLernon involve unlawful champerty and whether for that, or any other reason, there is an abuse of process.

67 However, I am not concerned here with the trial of an action. These are interlocutory applications for a stay, conducted on affidavit evidence without cross-examination. Despite some observations by leading counsel for the Laitt applicants which appeared to suggest otherwise, their application was made on the basis that "there will be no requirement for any cross-examination on affidavits". That was their position as set out in a letter dated 27 April 2000 from their solicitors to my Associate. And Freehills' application was pursued after I had decided not to permit cross-examination on affidavits: a decision which was upheld by the Full Court.

68 I therefore turn to consider the resolution of a stay application in these circumstances.

69 In Magic Menu, the Full Court expressed the view (at 72 FCR 268) that:

"where there may be the real potential for an abuse of the Court's processes ... a stay might, in some cases, be justified". (My emphasis)

The court noted that the question whether a stay should be imposed had been left open by Atkin LJ in Wild v Simpson [1919] 2 KB 544. The issue in that case was whether an agreement made between a solicitor and his client was champertous and therefore unenforceable. Atkin LJ pointed out that even if the agreement was illegal, there were two parties at least who were "not privy to the illegality - namely the opposing party and the Court itself". For that reason, Atkin LJ said, he would not expect proceedings to be declared void:

"...though I reserve my opinion as to whether the Court, on being satisfied that pending proceedings are being unlawfully maintained, has not power to stay them as being vexatious and oppressive and an abuse of the process of the Court, and to continue such stay until the Court is satisfied that the proceedings are purged of the taint of illegality."

70 Dankwerts J, in Martell ([1955] Ch at 388), regarded that as "a not unfavourable comment" on the availability of a stay, although he noted that no case had been found in which a stay had been granted.

71 However, the Court of Appeal was of the view that a stay should not be granted on the grounds of unlawful maintenance only. This was because, as Jenkins LJ explained:

1. The fact that an action is being maintained illegally is not a defence to the action and therefore provides no proper ground for a stay of the proceedings.

2. Once there has been illegal maintenance, the proceedings are tainted irretrievably. The taint cannot therefore be purged except by discontinuing the proceedings and bringing a fresh action. But this would effectively make maintenance a defence to the action, which it is not.

3. It is undesirable that the question whether the action is being maintained illegally should be adjudicated in interlocutory proceedings in the action. This is because the procedure would involve the trial of what was, at least theoretically, still a crime, in the absence of the accused.

72 I am told that since 1955, there have been two reported cases in which stays have been granted. The first is Grovewood Holdings PLC v James Capel & Co Ltd [1995] Ch 80, a decision of Lightman J, on which the present applicants place considerable reliance.

73 The application for the stay arose out of a funding agreement between a liquidator and a "sponsor" who was to receive one-half of the recoveries in the action, in which negligence and misrepresentation were alleged against Grovewood's former financial adviser. His advice, it was said, had resulted indirectly in the collapse of the company. The company's creditors and shareholders were unwilling to fund the litigation. The agreement authorised the sponsor to pursue the litigation without being subject to the control or interference of the liquidator.

74 There was a further agreement, between the sponsor and a provider of funds for the litigation. The agreement provided for the sponsor and the provider to share the liabilities (and in particular, any sum ordered to be paid into court as security for costs) and the 50 per cent share of recoveries. The agreement also enabled the sponsor to "unitise", or sell the share of the recoveries to which he was entitled to other providers, in return for payments of, or contributions towards, the half share of any security for costs for which he was liable.

75 It was common ground that the sponsorship agreement was prima facie champertous (ie involving unlawful champerty) because the sponsors did not assert any requisite interest or motive to justify their intermeddling.

"First, I cannot see how a liquidator can properly or at all surrender his fiduciary power to control the proceedings commenced in the name of the company. Second, I consider the provision for unitisation and further trafficking in the litigation objectionable."

77 It may be added that leading counsel for the liquidator, who opposed the stay, had nevertheless conceded in argument that it was "inconceivable" that a reputable liquidator, which his client was, would or could proceed with an action which was held to be champertous.

78 Lightman J accepted the submission that when proceedings are maintained champertously, the proceedings constitute an abuse of process. His Lordship said:

"This appears to me both logical and right in any ordinary case. The law of champerty is based on public policy considerations designed to protect both the administration of justice and the defendant from the prosecution of such proceedings. If the court does not intervene, it may be taken to be countenancing this abuse of its process."

79 Lightman J was encouraged in his decision by Lord Atkin's comment in Wild v Simpson, to which I have referred above, which he also described as "not unhelpful". He doubted that the expressions of opinion in Martell's case remained good law, since the crime of maintenance had been abolished and other grounds existed, which did not constitute defences, on which a stay might be granted. However, he was in no doubt that a stay could be granted in the particular circumstances, so as to put an end to an obvious abuse of process.

80 It seems to me, with respect, that the decision in Grovewood Holdings was entirely justified on the merits, although the reasons for the decision have been criticised: most notably by Millett LJ in Abraham v Thompson [1997] EWCA Civ 2179; [1997] 4 All ER 362; 377 - 378:

"I find it difficult to see how the decriminalisation of maintenance can form any rational basis for distinguishing (Martell). It is, to say the least, counterintuitive to reason that conduct which was not regarded as an abuse of the process of the court when it constituted a crime and a tort should be regarded as an abuse of its process when it is neither."

81 The second case in which a stay was granted was Re Oasis Merchandising Services Ltd [1998] 1 Ch 170.

82 There, the Court of Appeal held that a liquidator should not be permitted to enter into a champertous funding arrangement with a litigation support company on terms which enabled the company to conduct the litigation to the exclusion of the liquidator.

83 More fundamentally, the fruits of the litigation which were assigned by the liquidator were not the property of the company in liquidation, so as to be capable of assignment pursuant to the exercise by the liquidator of his statutory power.

84 It was that factor which persuaded the Judge at first instance to grant a stay, despite "considerable difficulty with that part of Lightman J's judgment on which Grovewood Holdings was decided". The Judge's decision was upheld by the Court of Appeal, which in addition, expressed itself to be "far from happy" about the right of interference given by the funding agreement to the litigation support company.

85 The case is not therefore of assistance in the present context, when the question is whether a stay should be granted on the grounds of actual or threatened abuse of process.

86 As to that: in Abraham v Thompson (supra) the Court of Appeal was of the view that the logic of Jenkins LJ in Martell retained its general force. I have referred above to the judgment of Millett LJ. The other member of the court, Potter LJ, observed (at 374):

"[Martell] assumes and recognises the general principle that a plaintiff is entitled to proceed to trial without a stay in a case where the action is brought bona fide and the ground on which the stay is sought is one which would involve a pre-trial investigation of facts, which even if established, would afford no defence to the persons sued."

"In my view, the starting point in any case where a stay is sought in circumstances which are not provided for by statute or rules of court, should be the fundamental principle that in this country an individual (who is not under a disability, a bankrupt or a vexatious litigant) is entitled to untrammelled access to a court of first instance in respect of a bona fide claim based on a properly pleaded cause of action, subject only to the sanction or consideration that he is in peril of an adverse costs order if he is unsuccessful, in respect of which the opposing party may resort to the usual remedies of execution and/or bankruptcy if such order is not complied with. This principle is of course subject to the further proviso that, if the court is satisfied that the action is not properly constituted or pleaded, or is not brought bona fide in the sense of being vexatious oppressive or otherwise an abuse of process then the court may dismiss the action or impose a stay whether under the specific provisions of the rules of court or the inherent jurisdiction of the court."

87 In Faryab v Smyth the Court of Appeal followed Abraham v Thompson. Chadwick LJ, while accepting that the court has power to stay proceedings which constitute an abuse of its process, said that the court:

"should be careful not to use that power so as to deny access to justice to a party who has sought to fund his proceedings in a way which may itself be contrary to public policy, unless that which has been done can be seen to amount to an abuse of the court's own process".

88 Earlier in his judgment Chadwick LJ had said that unless it was "plain and obvious" that the funding contracts were champertous, the court should avoid deciding that question in the absence of lenders, unless it was necessary to do so.

89 That view is of lesser significance in the present application, because the principal lender, Biara, is Bandwill's parent company. However, a reference by Chadwick J to discouraging "satellite litigation" is in my view, relevant in this jurisdiction.

90 The Court of Appeal in Stocznia Gdanska v Latreefers agreed with the view expressed by Chadwick LJ, that it would not usually be necessary to decide whether an agreement is champertous unless it is "plainly and obviously" so. In both of these cases, I understand the reference to champerty to mean unlawful champerty.

91 In my view, the approach to issues of this kind is the same in Australia as it is in England.

92 In Hodges v State of New South Wales [1988] HCA 9; (1988) 77 ALR 1, Brennan J, sitting as a single Judge of the High Court, heard an application to strike out a statement of claim in proceedings in which it was contended that the Transport Accidents Compensation Act 1987 of New South Wales was invalid.

93 Among other arguments, it was submitted that the proceedings constituted an abuse of process because the New South Wales Bar Association had provided financial assistance to the plaintiff to prosecute the challenge to the legislation. Brennan J observed (at 16):

"If the defendants had claimed that the Bar Association was unlawfully maintaining the action, the submission that the proceedings were an abuse of process would have been comprehensible. Even had such an allegation been made, however, it would be wrong to stay proceedings pending a determination of the issue of unlawful maintenance: Martell v Consett Iron Co Ltd".

94 As the Full Court pointed out in Magic Menu Systems (at 72 FCR 268), Martell was an action said to have been brought on the tort of maintenance. But that issue had not been determined when the stay application was made. Thus, an interlocutory stay would have been premature.

95 The position was similar in Hodges, where the potential issue to which Brennan J referred was whether maintenance by the Bar Association would constitute an abuse of process. The Martell approach was appropriate, because it was then possible in New South Wales, to bring a civil action for maintenance and champerty: that right remained until 1993, when the Maintenance and Champerty Abolition Act was passed.

96 Thus the position in New South Wales in 1993 was the same as it is now in this jurisdiction: and as it was in Queensland when Magic Menu Systems was decided. This, I think, explains the apparent lack of enthusiasm for an interlocutory stay: I repeat, with my emphasis, the observation of the Full Court in Magic Menu Systems that:

"Where there may be the real potential for an abuse of the court's processes it seems to us that a stay might, in some cases, be justified."

97 Given the reluctance of the courts to pre-judge in satellite or interlocutory proceedings, an issue which does not afford a substantive defence in any event, it seems to me that an applicant for a stay must demonstrate that the circumstances so clearly give rise to an abuse of process as to make that proposition almost unarguable. As Chadwick LJ said in Faryab v Smyth, the abuse must be "plain and obvious" (as it was in my view, in Grovewood Holdings).

98 Indeed, that reflects the usual approach of the courts to applications to stay proceedings. It is stated thus in Halsbury's Laws of England, 4th Ed, Vol 36 par 75:

"The court also has an inherent jurisdiction to stay or dismiss proceedings which are an abuse of its process. The jurisdiction may properly be exercised where facts are proved by affidavit which show an abuse of the process of the court, but the jurisdiction should be sparingly exercised, and only in very exceptional circumstances."

99 It was submitted by leading counsel for the Laitt applicants that the acknowledged discretion to grant an interlocutory stay should not be exercised until all the material facts are known. Once it is established that there is champerty then, it is submitted, the onus is on the plaintiff and his funder to prove that the evils of champerty and the potential for abuse of the court's process will not be realised. Unless and until the court is satisfied about these matters, there is no room for the exercise of discretion: the proceedings should be stayed.

100 There are, I think, two difficulties with that submission. First, these are interlocutory proceedings conducted on affidavit evidence. The affidavits have been directed not only to the present application, but, to some extent, to a previous application by the Laitt applicants which was not been pursued because it would have involved cross-examination on affidavits. The issues in the present applications did not crystallise fully until the evening before the commencement of the hearing. The Laitt applicants then delivered substantial written submissions and an analysis of the evidence, from which they sought to draw many inferences favourable to their case. Some of those inferences had been addressed in affidavits filed by or on behalf of the plaintiffs: but by no means all.

101 In these circumstances, I think it would be inappropriate for me to attempt to make findings of fact in relation to contested issues, or issues which have not been addressed by the plaintiffs. Apart from the general undesirability of adopting this course in interlocutory proceedings, there is the additional consideration that it would pre-judge to a considerable extent the Laitt applicants' counterclaim and the applicants' separate actions based on maintenance and champerty.

102 Secondly, the applicants' submission seems to me to be inconsistent with what I regard as now the orthodox approach, which requires an applicant for an interlocutory stay to make out a "plain and obvious" case.

103 The necessity for such a case is emphasised by the fact that although technically interlocutory, a stay based on abuse of process, in substance, terminates the action. That is because an action tainted with abuse can never be restored to a pure state.

104 Anticipating that their primary approach might not be accepted, the Laitt applicants sought alternative relief: namely that directions be given for the hearing and determination as a preliminary issue of their counterclaim for a permanent injunction to restrain the various companies associated with Mr McLernon from providing any financial or other assistance to the plaintiffs for any proceedings against Mr and Mrs Laitt.

105 I consider such a course to be equally unacceptable. It would involve a substantial trial of issues which are inseparable from those arising in the main action. In particular, it would be necessary to consider whether there had been "wanton and officious intermeddling" by Mr McLernon in the dispute between Mr Laitt and Mr Raveh: a dispute which Mr Laitt contends cannot be understood except in the context of their dealings over the past 15 years.

106 There is a further difficulty with this approach. The trial of a preliminary issue could result only in findings about abuses of process which had actually occurred. To the extent that the applicants rely on the potential for abuse such a trial would be of little, if any, utility.

107 Not being persuaded that I should accept the applicants' submissions as to the appropriate approach, I turn to consider their case on the evidence.

108 The applicants contend that the loan agreement of March 1999, and the funding agreement of October 1999 should be regarded as a single champertous transaction which was orchestrated by Mr McLernon, a trafficker in litigation. These circumstances, it is said, have the result that the present litigation is an abuse of the process of the court.

109 The applicants contend that even if the loan and funding agreements should be regarded as separate transactions, the funding agreement is champertous in any event.

110 The applicants contend also that some of the vices of champerty have already been manifested in various specific abuses of process: and that there is the real potential for further abuses. Before dealing with the "single transaction" submission, I turn to consider the loan and funding agreements.

111 The loan agreement was made, effectively, on 23 March 1999 when an earlier agreement was restated. The agreement was made between Mr Raveh as borrower and Biara as lender. Biara provided a facility to Mr Raveh of $7.8 million, and various defined expenses and "additional expenses" as defined.

112 The loan was secured by a mortgage granted by Mr and Mrs Raveh and their children (defined as the Primary A Fund beneficiary) in respect of various interests, including their interest in that fund, any property or assets which might be distributed from it, and the benefit of any award or judgment which they might at any time receive.

113 The security extended to any claim or right of action to which Mr Raveh or the beneficiary is or might become entitled:

"in respect of or in connection with the [Interlaken] Trust fund or the A Fund, or the establishment, variation or administration of the Trust or the A Trust...."

The persons against whom any such claim or right of action might exist included any past, present or future adviser (professional or otherwise); and anyone who, in the past, present or future had, or might have any connection with the Trust or the A Fund.

114 These potential defendants would obviously include Freehills: a matter which, it is now submitted, must have been in the contemplation of the parties which they entered into the loan agreement. That submission is made on the basis of cl 12.1(c) which contains a warranty by Mr Raveh that he had fully disclosed to Biara, in writing, all the facts "material to the assessment of the nature and amount of the risk" undertaken.

115 Interest was to accrue at 10 per cent per annum (plus 3 per cent on overdue amounts). The principal outstanding was to be repaid by 8 March 2001.

116 The applicants submit that this date was fixed with a view to litigation: a period of two years allowing a reasonable time in which to obtain a judgment.

117 The submission that litigation was contemplated from the outset is based also on cl 13.2(c), which imposes on Mr Raveh an obligation to use his best endeavours to procure that any of the claims or rights of action "referred to in cl 3.2(d) are actually pursued." This appears to be intended as reference to cl 3.2(a) in which the various claims are charged.

118 The funding agreement was made on 13 October 1999, between parties including Mr and Mrs Raveh and their family; and Biara, MGL and Bandwill.

119 The agreement recites the loan agreement. It states that neither Mr Raveh nor Bandwill would be able to repay the loan without recourse to the Trust assets: nor did they have the financial capacity to pursue legal proceedings.

120 The recitals refer also to Biara's interest as a mortgagee, by the A Fund beneficiaries, of "the legal proceedings and funds arising from the legal proceedings".

121 The agreement goes on to provide that Biara and MGL will make funds available to Bandwill and the beneficiaries sufficient to pay the legal costs and expenses of legal proceedings. Any such payments would become "additional expenses" for the purposes of the loan agreement.

122 There follow provisions on which the applicants place considerable reliance:

"12. Neither Biara nor MGL will have any estate or interest in any judgement or any judgement sum.

13. (a) In consideration for MGL providing the Services and in consideration for the work done by MGL from March 1999 to the date of this Deed, the Beneficiaries shall pay the following amount jointly to MGL from any distribution or vesting of income or capital made to them from the Trust or the A Fund;

i) an amount equal to 55 per cent of any distribution made to them from the assets of the B Fund;

ii) an amount equal to 3 per cent of any distribution made to them from the A Fund."

123 The applicants contend that the attempt to avoid champerty, which is the apparent objective of cl 12, is shown by cl 13 to have been unsuccessful. Clause 13, it is submitted, reveals the champertous nature of the funding agreement.

124 The submission is based on the proposition that if Bandwill or Mr Raveh are successful, any moneys recovered will be paid to Bandwill to be held in trust for the beneficiaries, either of the A Fund, or the Trust as a whole, depending on the outcome of the claim that the 1990 transactions should be set aside. It follows that any damages paid by Freehills, would fall within the operation of cl 13.

125 The result, it is submitted, is that, at least as far as Freehills are concerned, the funding agreement is champertous. It provides MGL with an opportunity to share in the proceeds of the action against Freehills: an action in which it has no legitimate interest.

126 I accept the applicants' submission that the funding agreement is champertous, in the sense that it provides MGL with a share in the proceeds of the litigation in which it had no pre-existing interest.

127 However, to reach the conclusion that the arrangements constitute unlawful champerty is, I think, to engage in what Lord Roskill, in Trendtex, described as "over-analysis of the position". That is because there is not here (as there was in Trendtex) some anonymous third party who stands to gain from trafficking in the litigation.

128 In the present case, it is clear enough that Bandwill, Biara and MGL are controlled by Mr McLernon and owned beneficially by Mr Hill. Indeed, that fact is asserted by the Laitt applicants in their substituted defence. Given the association between those companies and Mr McLernon, it is artificial, in my view, to say that MGL has no pre-existing interest in the outcome of the litigation. It has such an interest as a member of the Expectation group.

129 Subject to the "single transaction" argument, Biara clearly has such an interest as the lender. Bandwill is a legitimate plaintiff in any event, as the entity to which Mr Raveh has assigned his rights. Those rights include the cause of action against Freehills. However, Freehills does not submit that this constitutes an assignment of a bare right to litigate which is therefore impermissible, for the reasons advanced in Trendtex.

130 I do not think such an argument would be open in any event. In my view, if a person relies on his solicitors to secure for him a property right, which he then assigns, only to be met with an assertion that the right does not exist, the assignee has a genuine interest both in enforcing the right and in seeking an appropriate remedy against the solicitors as his assignor might have done.

131 I have therefore reached the conclusion, accepting as I do the applicants' submissions in this respect, that the funding agreement is "technically champertous" (to borrow the expression used by Stephen Brown LJ in Faryab v Smyth): but not unlawful for that reason, given Mr McLernon's pre-existing interest through Biara and the association between Biara, Bandwill and MGL.

132 Furthermore, on the evidence as it now stands, I do not think the terms of the funding agreement are so onerous as to take it across the border from lawful to unlawful champerty.

133 The plaintiffs have filed evidence from Mr John Sheahan, an official liquidator and a director and shareholder of Australian Litigation Fund Pty Ltd. Mr Sheahan refers to a number of entities which fund litigation in Australia, pursuant to agreements approved by the courts under s 477 of the Corporations Law. Mr Sheahan's company has negotiated success fees of 75 per cent of the judgment recovered: and 40-50 per cent is "not unusual".

134 I have accepted that funded litigation pursued by liquidators subject to the approval of the court is in a somewhat special category. However, the fact remains that the courts do approve very substantial percentage returns in these circumstances.

135 In any event, the figure of 55 per cent in the present case apparently reflects Mr McLernon's view that the action is speculative insofar as it relates to the B Fund. This is a factor which it is relevant to take into account in considering whether there is a significant disproportion between the value of the funder's legitimate interest and the magnitude of his return: see Stocznia Gdanska v Latreefers, at 17.

136 I am not persuaded, therefore, that in the present case the technically champertous nature of the funding agreement, with a percentage return of 55 per cent of any distribution from the B Fund, is alone such as to warrant the conclusion that the proceedings are an abuse of process, or involve sufficient risk of such abuse, as to require a stay.

Are the Loan and Funding Agreements a single transaction?

137 The applicants have produced an analysis of the large volume of affidavit evidence. From that analysis, they submit, an inference should be drawn that from his first awareness of Mr Raveh's position, Mr McLernon recognised a commercial opportunity which might be exploited: an opportunity which ripened into the loan and funding Agreements and set Mr Raveh on a course which led inevitably to champertous litigation funding by Mr McLernon.

138 Mr McLernon denies that. It is his evidence that he entered cautiously into the dealings with Mr Raveh: initially as a lender, but contemplating that some relatively small-scale litigation might be required for the purpose of enforcing Mr Raveh's rights.

139 Mr McLernon says he encouraged Mr Raveh to settle the dispute with Mr Laitt. Only when that proved impossible did Mr McLernon negotiate the funding agreement, which he considers justifiable, given Biara's pre-existing interest as the lender.

140 I emphasis that this is very much an over-simplified summary of a considerable body of evidence. However, in my view it is neither necessary nor desirable to review the evidence in detail. It is not desirable to do so because, for the reasons set out above, I could not properly make findings of fact on contested affidavit evidence without cross-examination.

141 Nor is it necessary to review the evidence. This is because I accept for present purposes that the inference, which the applicants say should be drawn from it, is indeed open.

142 However, even if Mr McLernon saw the Loan Agreement as the precursor to something more lucrative, that agreement was sufficient to give him, through Biara, a proper interest in the ensuing litigation.

143 The result would be different if Mr McLernon had engineered or encouraged the dispute between Mr Raveh and Mr Laitt which led to the litigation: if he had "wantonly or officiously intermeddled". But in my view, on the evidence as it now stands, Mr McLernon did not engage in conduct of that kind. To the contrary, the preponderance of evidence suggests that Mr McLernon encouraged Mr Raveh to settle the dispute; and that there were genuine negotiations to that end.

144 While reminding myself of the dangers of making a final determination about these matters (which I do not), I am encouraged in this view by an open letter dated 10 September 1999 from Mr Laitt's solicitors, Fisher Jeffries, to Mr Michael Bowen of Clayton Utz, Mr Raveh's then solicitors. The letter contained the observation that "if no commercial resolution proves feasible, it seems to us that the only way in which these issues can be determined definitely will be by the Court." The letter concluded with the statement that Mr Laitt "does not intend to abandon the attempts to find a basis for a negotiated settlement of this matter...."

145 The letter accused Mr Raveh of many things, including various forms of misconduct and breach of fiduciary duty. But it neither accused him of intransigence nor suggested that on his part, the attempts to settle were not genuine.

146 Despite its references to settlement of the dispute, the Fisher Jeffries letter was far from conciliatory. It might reasonably be described as aggressive or inflammatory. I emphasise that I make no comment about the substance of the letter. But it was written in terms which suggest to me that Mr Laitt then regarded litigation as virtually inevitable.

147 I appreciate that Mr Laitt's solicitors did not know what had passed between Mr McLernon and Mr Raveh in relation to settlement. And there is, in the evidence, a file note written by Mr McLernon on 6 May 1999 in which he referred to "the real low point in the relationship" between Mr Raveh and Mr Laitt having been reached, and:

"If ever there was an emotional low point at which the Trust should be triggered, this is it".

However, notwithstanding Mr McLernon's views, the division of the trust fund was not "triggered" until 13 September, following failure of negotiations.

148 The applicants have raised a further matter from which they submit it may be inferred that Mr McLernon attempted to promote a breakdown in the relationship between Mr Raveh and Mr Laitt.

It is submitted that Mr McLernon acted improperly in seeking to obtain privileged documents from Mr John Butler, Mrs Raveh's former solicitor, for the purpose of revealing that Mr Laitt incited a matrimonial dispute between Mr and Mrs Raveh. Mr Butler is a family law practitioner who acted for Mrs Raveh in 1995.

149 The allegations of impropriety arises from Mr McLernon's file note of 6 May 1999 in which he said:

"We need to continue our pursuit of Butler. We should be offering Butler an undertaking that we will not make any complaint against him or pursue any action against him in relation to his representation of [Mrs] Raveh. This would be given on him delivering to us a copy of his notes."

150 On 8 April 1999, Mrs Raveh wrote to Mr Butler and asked him to give her files to Mr Bowen on a confidential basis. After some correspondence between Mr Bowen and Mr Butler, he complied with that request on 27 April. In a covering letter Mr Butler referred to the fact that the file contained diary notes which, as a matter of law, he believed he was not required to provide.

151 However, on 6 April 2000, in answer to a subpoena, Mr Butler produced his entire file to the court. The file contains what appear to be diary or attendance notes. No claim of privilege was made.

152 Although it was suggested in inter-solicitor correspondence that Mr Butler may have acted improperly, that suggestion I think arose from an unfounded suspicion about Mr Butler's recent conduct: not about the way he had acted for Mrs Raveh in the past. In any event, the suggestion came from a fellow solicitor, not Mr McLernon. Mr Butler categorically denied any impropriety on his part, and was at pains to clarify his actions.

153 In my view therefore, whatever Mr McLernon may have had in mind on 6 May 1999, when he wrote his file note, the matter was in the hands of the solicitors for Mr and Mrs Raveh respectively, and was progressed and concluded in a proper manner.

154 I am not persuaded therefore, that Mr McLernon interfered in the relationship between Mr Raveh and Mr Laitt so as to encourage a dispute which might not have otherwise arisen. In my view, once Mr Laitt denied Mr Raveh access to the Interlaken Trust Fund, in the circumstances as they existed in mid-1999, litigation was virtually inevitable.

155 Furthermore, in my view, once that point had been reached between Mr Raveh and Mr Laitt, the joinder of Freehills was equally inevitable, given their alleged involvement in the various arrangements and agreements which governed the relationship of the principal protagonists.

156 That proposition can be supported by reference to a letter written to Mr Raveh by Mr Hayward of Freehills, on 30 August 1990, apparently in response to a request for advice about the then proposed amendments to the Interlaken Trust Deed.

157 The letter contains clear and unequivocal advice that even though Mr Raveh would be required to consult with Mr Laitt about the nomination of a trigger date for the division of the fund:

"... you are nevertheless master of your own destiny in relation to the A Fund and can deal with it over any objections from [Mr Laitt]".

It is alleged by the applicants that the letter was procured by Mr Raveh without informing Mr Hayward of the facts and matters which rendered his advice incorrect: that is an issue in the action. But the letter emphasises the proximity of Freehills to the dispute between Mr Raveh and Mr Laitt.

158 In all the circumstances, I consider the submission that the loan and funding agreements should be regarded as a single transaction to be based on a perception involving hindsight. In summary, given the evidence about negotiations, I am not persuaded that even if Mr McLernon saw an opportunity for profit, it is plain or obvious that he "wantonly or officiously" intermeddled in the dispute to the extent necessary to constitute trafficking in litigation. That is an issue to be resolved at trial.

159 The applicants contend that Mr McLernon should properly be described as a trafficker in litigation because, on his own evidence, his organisation has funded some 100 litigious matters, apparently for profit.

160 The applicants submit that, on its dictionary definition, "trafficking" means "dealing": a term which describes Mr McLernon's activities However, as the authorities show, the pejorative term "trafficking", in this context, is not susceptible of either a simple or a comprehensive definition, but involves more than simply dealing. It will be recalled that the Court of Appeal in Stocznia Gdanska v Latreefers thought trafficking would involve buying and selling rights of litigation in which the dealer had no proper reason to be concerned. That appears also to have been the view of Lord Wilberforce in Trendtex. And it was one of the aspects of the Grovewood Holdings case which prompted Lightman J to regard the arrangements there in issue as an abuse of process.

161 In the present case it seems to me, on the evidence as it now stands, that even if Mr McLernon himself saw the loan agreement as the precursor to something more profitable, no finding should be made in this application that his subsequent conduct amounted to trafficking in litigation.

The potential for conflict in settlement negotiations

162 The applicants point to the fact that the total amount recoverable by Biara under the Loan Agreement has grown from $7.8 million to some $17 million, and the maximum returns to MGL would be a similar amount: an "uplift", as the applicants put it, of 100 per cent. However, as I have noted above, the disproportion is theoretical only.

163 Given that Bandwill, albeit a trustee, is controlled by Mr McLernon, it is submitted that a conflict might well arise between Bandwill and Mr Raveh in any future settlement negotiations. In short it is submitted, Mr Raveh might be prepared to settle for a lesser amount than would be acceptable to Mr McLernon.

164 Accepting that to be a possibility, there would not I think be a conflict of interest within the usual meaning of that expression. Mr Raveh and Mr McLernon have a common interest in maximising the plaintiffs' recovery in the action. The return to the McLernon interests is a percentage of the recovery: it has no independent existence.

165 In any settlement negotiations, the point would no doubt be reached at which the applicants made their best offer. That would depend on their perception of the prospects of success or failure of the action: a matter independent of Mr McLernon's involvement.

166 If, as a result of a disagreement between Mr Raveh and the McLernon interests, the applicants' best offer was not accepted, the applicants would no doubt do as any prudent litigant does in that situation: they would pay money into court or protect their position in some other appropriate way.

167 If the action went to trial in that situation, there would be no abuse of the court's process. Although settlements are encouraged, it could never be said that a litigant with a bona fide claim was abusing the process of the court by electing to pursue it, however unreasonable his decision might seem.

168 If the claim failed, the opposing party would be compensated by an appropriate order as to costs. Here, the applicants are protected against that result: in effect cl 5 of the Funding Agreement provides for Biara and MGL to indemnify the plaintiffs against any order for costs made against them.

169 In these circumstances I do not regard the existence of the funding agreement as oppressive, given my present view that Mr McLernon has a legitimate interest in the litigation.

170 For the same reason, I do not accept the applicants' submission that the level of Mr McLernon's involvement in the proceedings is a cause for concern. Even if his involvement was limited to funding, then as Hodgson CJ in Equity said, in Buiscex (28 ACSR at 363): "It is reasonable that the funder have some say and control in relation to settlement". The position is a fortiori, given Mr McLernon's involvement through Bandwill as a plaintiff.

171 Although I doubt the potential for a conflict in the conventional sense, between Mr Raveh and Mr McLernon, they have proceeded on the basis that such potential might arise.

172 In a letter dated 12 October 1999, Mr Raveh's solicitors wrote to Mr McLernon stating that there appeared to be no question of conflict between Bandwill and Mr Raveh: but it was their understanding that if some conflict did arise, both parties would wish them to continue to act for Bandwill, rather than Mr Raveh.

173 However, Mr Stone has informed me, and I accept, that if a conflict did arise between Mr Raveh and the McLernon interests, his firm would cease acting for any party. No explanation was proffered for this change of position, but I accept Mr Stone's assurance. That is of course, the appropriate response when a conflict arises between two clients who had previously a common interest.

174 The applicants rely also on an exchange of correspondence between Mr Raveh and Mr Bowen in June 1999, in which it was acknowledged that a conflict existed between Mr Raveh and Biara. But that was a conflict between a borrower and a lender. Once the funding agreement had been executed, after the litigation had commenced, the position was different. For the reasons set out above, Mr Raveh and Mr McLernon then had a common interest.

175 I am not persuaded therefore, that there is any substance to the conflict point. Further, that point does not appear to have been identified in the authorities as one of the evils of champerty. Indeed, the risk of conflict - if that is the appropriate term in these circumstances - must exist even in an action which is being maintained lawfully. For example, if a litigant was funded by his solicitor, it might be said that a conflict would arise between them if an offer of settlement was made which involved payment of a lesser amount than the outstanding fees.

176 No authority has been cited to me which suggests that such a possibility would result in the litigation constituting an abuse of process.

177 The applicants contend that Mr McLernon has attempted to exert pressure on one Charles McFadden, in order to deter him from giving evidence in the proceedings. It is submitted that this is a clear contempt of court.

178 It is alleged in the substituted statement of claim that between 1989 and 1990 various judicial proceedings were commenced by Mr Raveh in England, Switzerland and Australia. These proceedings were commenced against persons including Mr McFadden who, it was alleged, had improperly assumed control of companies which, in turn controlled the Peters and Brownes group of companies. Mr Laitt, as Mr Raveh's solicitor, is said to have co-ordinated those proceedings with the assistance of other partners of Freehills, .

179 It is then alleged that following the appointment of a judicial trustee to one of the companies, by order of the Vice Chancellor, Mr Laitt as (inter alia) Mr Raveh's solicitor, negotiated with (inter alia) Mr McFadden, to settle the various judicial proceedings.

180 It appears to be common ground that the proceedings were commenced and settled, as Mr Raveh alleges. However, the applicants deny that Mr Laitt was involved as Mr Raveh's solicitor.

181 In any event, it is common ground that the settlement of the proceedings led to the amendments to the Interlaken Trust Deed and to the agreement for the division of the fund by the triggering mechanism which is in issue in the present proceedings.

182 The complaint against Mr McLernon is that he attempted, albeit unsuccessfully, to purchase a substantial debt owed to English solicitors Herbert Smith by Mr McFadden; which debt Mr McLernon proposed to register in Western Australia. It is said that Mr McLernon's objective was to deter Mr McFadden from visiting Western Australia and giving evidence in these proceedings.

183 Mr McLernon admits that he attempted to acquire the debt, through MGL, which is a licensed debt collector. He admits also that he proposed to register the debt. But not for the improper purpose attributed to him by the applicants. Mr McLernon says his objective was to make Mr McFadden "think twice about issuing any oppressive proceedings against Mr Raveh in Western Australia". Mr McLernon says he wanted to thwart Mr McFadden's commencement of proceedings which would have been brought, as he understood it, at Mr Laitt's instigation, for the improper purpose of oppressing Mr Raveh.

184 The law in relation to interference with witnesses is clear. It is set out in Halsbury's Laws of England, 4th Ed, Vol 9.1, par 435, as follows:

"Any interference with a witness to a pending or imminent suit, the purpose or effect of which is to deter the witness from giving evidence or to influence the nature of the evidence given, is a serious interference with the administration of justice and a contempt of court."

185 It is equally well settled that in order to establish a contempt, it must be proved beyond reasonable doubt, that the alleged contemnor was aware that the person concerned was a witness or potential witness.

186 The applicants assert that Mr McFadden will be "a significant witness in this action". This is said in an affidavit sworn by Mr Nicholas Linke, a partner in the firm of Fisher Jeffries. Mr Linke refers to Mr McFadden's involvement in relevant events, as pleaded in various paragraphs of the substituted statement of claim. Those paragraphs were mentioned to me in the course of submissions, but without any explanation of the evidence which Mr Fadden would give, or would be likely to give.

187 The matter was referred to again in written submissions in reply, filed on behalf of Freehills after the conclusion of the hearing. In those submissions the question is posed:

"Is it implausible that Mr McFadden might not give evidence as to his understanding of the basis upon which Mr Laitt acted in his negotiations with him in 1989 and 1990?"

In my view, it is implausible. I think it unlikely that Mr McFadden's understanding of Mr Laitt's position would be admissible: the issue is what Mr Laitt's position actually was.

188 More to the point, I think, is the fact that Mr McLernon denies that he had any intention to suborn Mr McFadden as a witness. He says he did not, and does not, believe that Mr McFadden would be a witness.

189 I appreciate that I am not bound to accept Mr McLernon's denial. However, given that the events complained of took place in April 1999, some six months before the action was commenced, and that the applicants have not given a satisfactory explanation about Mr McFadden's likely role as a witness, I am far from persuaded that I should find even the contemplation of a contempt of court proved beyond reasonable doubt.

190 That is not to say that I accept Mr McLernon's explanation of his intention as reasonable or acceptable. Mr McLernon said in his affidavit that he believed his proposal was "a legitimate forensic aim to thwart, if I could, the issue of oppressive court proceedings by Mr McFadden against Mr Raveh."

191 This appears to be an admission by Mr McLernon that he intended to register the McFadden debt not primarily for the purpose of collecting it (although, as he points out, it would have been worth $750,000 to MGL) but for the purpose of denying Mr McFadden access to the court.

192 Assuming for present purposes that Mr McFadden had intended to commence oppressive proceedings, Mr McLernon's proposal would have been an inappropriate way of dealing with them. Had the proposal come to fruition, it is likely that there would have been a contempt of court.

193 However, as the proposal came to nothing (because Herbert Smith had very proper reservations about selling the McFadden debt) there is no question of any actual contempt or abuse of process.

194 The applicants submit that these events demonstrate the magnitude of the potential for abuse, should the action not be stayed. However, the risk is relatively slight, in my view, now that a warning shot has been fired. Further, it seems to me that the crucial witnesses in the litigation, apart from Mr Raveh and Mr Laitt, are likely to be professional people who would hardly be amenable to any improper pressure of the kind identified by the applicants.

195 The applicants are critical of Mr McLernon for, as they submit, manipulating the media to place pressure on Mr Laitt. It is said that this conduct was calculated to obstruct or interfere with the proper administration of justice and constitutes an abuse of process.

196 Mr McLernon has disclosed a file note apparently made on about 10 June 1999, in which he referred to publicity; and not then wanting to "rock the boat". This, the applicants submit, demonstrates that Mr McLernon contemplated "rocking the boat" at some later date: there being an inference that he wanted to embarrass Mr Laitt by use of the media.

197 A media release was published on the day the writ was issued. This was the day before a meeting of the shareholders of Peters and Brownes, at which Mr Laitt presided. The release, which is alleged by Mr and Mrs Laitt to be defamatory, referred to the legal proceedings against them and Freehills. It set out in summary form, the claim made by Mr Raveh and the basis for it: and it noted Bandwill's support for Mr Raveh.

198 The applicants refer to a letter written by Mr Raveh to Mr McLernon on 30 September 1999, in which Mr Raveh said that if the writ was issued on 11 October (as it was), it would be "perfect timing" because Mr Laitt would attend the meeting without preparation, and "the matter goes to the air and the public" on the same day.

199 The applicants submit that this is an example of conduct identified by the Court of Appeal of New South Wales in the following passage from Harrison v Schipp [1999] NSWCA 443:

"For a litigant and/or a solicitor to take steps (including the use or threat of publicity) motivated by spite or which have the purpose or effect of subjecting a litigant to improper pressure to discontinue proceedings or compromise them constitutes a serious contempt of court (Harkianakis v Skalkos (1987) 42 NSWLR 22)."

200 I emphasise that in the present case there is no suggestion that the plaintiffs' solicitors were involved in the activities about which complaint has been made.

201 The matters raised by the applicants are of legitimate concern. However, as is apparent from the judgment of Mason P in Harrison v Schipp and Powell JA in Harkianakis, this is a difficult area of the law. As Mason P said, at 42, "the whole context needs to be examined before what is said and the manner it is expressed can be identified as having crossed the line between the offensive and the contemptuous."

202 One of the difficulties, identified by Mason P (at 29) arises from the question of whether, if material has a tendency to impose improper pressure on a litigant, the tendency is to be measured against the capacity of the particular litigant to withstand, or "some hypothetical litigant of 'ordinary' fortitude ...." Mason P thought the latter: but it was not necessary to resolve the issue. It may well be necessary to resolve it in this case.

203 The plaintiffs rely on the decision of Tamberlin J in Dataquest (Australia) Pty Ltd v Dataquest Inc, unreported; 8 August 1996. There, an injunction was sought to restrain the issue of a media release which had been sent to the applicant under cover of a solicitor's letter. The covering letter stated that it would not be published if a dispute was settled on terms proposed, or on the basis of a reasonable counter offer. The injunction was sought on the grounds of abuse of process and an "arguable" contempt of court.

204 Tamberlin J declined to grant relief, being satisfied that the media release was not unfair or inaccurate: and that it had not been shown that the applicant was impeded or constrained in the preparation or prosecution of a defence. Tamberlin J also referred to "the strong public interest in the open administration of justice", which called for information to be generally available. However, the question of defamation did not arise in that case.

205 In my view, it would be inappropriate to consider in this application whether the media release of 11 October 1999 was defamatory. That is a matter to be tried in proceedings in which Mr Hill is represented. The question of contempt should not be considered, I think, until after the defamation issue has been resolved.

206 Assuming, without deciding, that Bandwill's media release of 11 October 1999 was intended to embarrass Mr Laitt, I consider that the applicants have delayed for far too long in seeking a stay for that reason. They were content to allege that the media release was defamatory, and to counterclaim for damages, including exemplary damages for libel. That counterclaim is brought against Mr Hill; not Mr McLernon.

207 The applicants rely also on a document apparently prepared by a media consultant appointed by Mr McLernon, who, in October 1999 proposed a "concerted information campaign" against Mr Laitt by a combination of "initiatives", including pressure on Peters and Brownes board. It is not suggested that Mr McLernon or Mr Raveh adopted the proposal, or that it has been implemented, although the applicants say that they have been denied access to the media consultant's files, a matter about which there has been disagreement across the bar table. I am not therefore in a position to form any view about the merits of that issue. It is not suggested that any report has been published in the media which does not present a balanced view of the dispute.

208 The media consultant's proposal was also directed at Freehills, in a way which, it is submitted on their behalf, was "chilling". The proposal was to impugn the professional reputation of the firm among solicitors in Perth, and those having influence with the Legal Practice Board.

209 There is no doubt that conduct of the kind proposed by the media consultant would be quite unacceptable, and, if implemented would attract an appropriate sanction. But it would be wrong, in my view, to stay the proceedings on the basis that a proposal by a media consultant would have constituted a contempt of court, had it been implemented, when apparently it has not. Again, the warning having been sounded, I think there is little risk of that happening.

210 Having considered all the evidence on which the applicants rely, and their respective submissions, I am not persuaded that the matters about which they complain, either separately, or in combination, justify a stay of this action.

211 I accept that champerty is generally undesirable, because of the potential for abuse of process, and may still be regarded as contrary to public policy. Thus, the funding agreement may be unenforceable as between the parties: a matter which has not been raised in this application and about which I express no view.

212 The applicants contend that human nature has not changed over the centuries since champerty was first condemned as unlawful. It is therefore submitted that the risk of abuse of process is substantial and ever present. However, much has changed. In particular, discovery, including third-party discovery, enables a litigant to monitor his opponent's conduct in a way which would have been quite impossible until relatively recent times. This application is an example of those processes in action.

213 Furthermore, the litigation is being conducted by legal practitioners who are required to observe high professional standards. The applicants say the risk to the administration of justice lies not with the solicitors, but arises from the involvement of persons who are not bound by professional constraints. However, the plaintiffs' solicitors have filed evidence which demonstrates that they have a proper appreciation of their ethical responsibilities and may therefore be expected to exert a moderating influence on their clients. Although there have been some rumbles of discontent from the applicants, they have not sought to impugn the conduct of the plaintiffs' solicitors.

214 There are several factors which combine to engender a feeling of confidence that the risk of abuse of process is slight. These are:

(1) the plaintiffs' case is being conducted in a proper manner by their solicitors;

(2) the litigation is subject to the supervision of the court;

(3) the applicants are ever vigilant in monitoring the activities of Mr McLernon and his advisers;

(4) Mr McLernon's activities will be subjected to the closest scrutiny at trial;

(5) if, in the meantime, those activities appear to be plainly and obviously improper, the applicants could apply again for a stay.

215 Furthermore, it is necessary to balance the risk of abuse of process against the risk of injustice if the action is stayed. As to that, as I have noted already, it appears likely that a stay would bring to an end what must be regarded as a genuine claim in which Bandwill is a proper party and in which Biara and MGL have a legitimate interest.

216 Mr Raveh regards Mr McLernon as a lender of last resort: a description with which the applicants concur. On the evidence as it now stands, Mr Raveh was driven to that position because Mr Laitt would not consent to Mr Raveh charging his interest in the Fund as security for a less onerous loan.

217 If the action was stayed, therefore, it seems likely that Mr Raveh would be denied the opportunity of having a genuine and substantial claim adjudicated by the court.

218 I accept that I have only Mr Raveh's assertion that if the action was stayed, it would be stifled. However, that seems to me to be a strong probability. The litigation is much more complex now than it appeared at the outset: at least from the plaintiffs' perspective. They sought to have the dispute resolved by a summary judgment application, based on the construction of the Interlaken Trust Deed, and evidence about the consultation between Mr Raveh and Mr Laitt. That application was not pursued because Mr Laitt asserted that the dispute could not be understood or resolved without an appreciation of the history of their relationship over a 15 year period.

219 In these circumstances, I think it unrealistic to suppose that a new financier would now wish to become involved on any less onerous terms.

220 If the action proceeds and fails to the extent that every claim is dismissed, the applicants will have their costs, on an indemnity basis if appropriate. As I have noted, they are protected against that possibility by the indemnity contained in the Funding Agreement.

221 Further, if the applicants are able to demonstrate that they have suffered special damage as a result of a champertous agreement, they will have a remedy.

222 I accept the applicants' submission that if there has been abuse, or there exists an unacceptable risk of abuse such as to a warrant a stay, the possibility that a litigant will be denied access to the court is of relatively small concern. It is a concern nevertheless because as Chadwick LJ said in Faryab v Smyth, there is a risk of injustice to the plaintiff. Hence the reluctance of the court to grant a stay except in a plain and obvious case. But in my view this is not such a case. The result is that the applications should be dismissed.