Barr v Narui Gold Coast Pty Ltd & Ors - [2004] NSWSC 986 - NSWSC 2004 case summary — Zoe

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Barr v Narui Gold Coast Pty Ltd & Ors

[2004] NSWSC 986

Supreme Court of NSW|2004-10-25|Before: Palmer J

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Court

Supreme Court of NSW

Decision date

2004-10-25

Before

Palmer J

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Judgment (47 paragraphs)

[1]

CITATION : Barr v Narui Gold Coast Pty Ltd & Ors [2004] NSWSC 986 HEARING DATE(S) : 24 August, 2004 JUDGMENT DATE : 25 October 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Motions to stay proceedings dismissed.

[2]

CATCHWORDS : MAINTENANCE - CHAMPERTY - ABUSE OF PROCESS - STAY OF PROCEEDINGS - Whether funder of litigation has genuine commercial interest or other justifiable motive in funding Plaintiff's litigation - whether terms of funding agreement inherently likely to give rise to abuse of process. LEGISLATION CITED : Corporations Act 2001 (Cth) - s.477(2)(c) - Clairs Keeley v Treacy [2003] WASCA 299 - Clyne v The New South Wales Bar Association (1960) 104 CLR 186 - Elfic Ltd v Macks [2003] 2 Qd R 125 - Giles v Thompson [1994] 1 AC 142 - Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 - Marston v Statewide Independent Wholesalers Ltd [2003] NSWSC 816 CASES CITED : - Movitor Pty Ltd, Re (1996) 64 FCR 380 - Roux v Australian Broadcasting Commission [1992] VR 577 - Smits v Roach [2004] NSWCA 233 - Stevens v Keogh (1946) 72 CLR 1 - Stocznia Gdanska SA v Latreefers Inc (No 2) [2000] All ER 148 - Trendtex Trading Corporation v Credit Suisse [1982] AC 679 - Trepca Mines Ltd, In re (No 2) [1963] 1 Ch 199 - William Felton & Co Pty Ltd, Re (1998) 145 FLR 211 2762/02: Tim Barr Pty Ltd - First Plaintiff/First Cross Defendant Timothy James Barr - Second Plaintiff/Second Cross Defendant PARTIES : Narui Gold Coast Pty Ltd - Defendant/Cross Claimant

[37]

32 Maintenance is the assistance or encouragement, usually by funding, of a party to an action in which the maintainer has no interest. Champerty is a species of maintenance in which the maintainer, in consideration for funding the proceedings, shares in their fruits if they are successful: see e.g. Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261, at 267 and the cases there cited. 33 What gives a stranger to litigation a sufficient interest in it to justify maintaining the plaintiff has changed markedly since the common law actions of maintenance and champerty were formulated in the Middle Ages. Indeed, the concept of a sufficient interest in a stranger's litigation has developed throughout the 20th century and is continuing to develop, shaped by changing considerations of public policy and changing ideals as to what is, or is not, conducive to the attainment of justice. As was said by the Full Court in Magic Menu at 267: "… by the time Martell v Consett Iron Co Ltd [1955] 1 Ch 363 came before Danckwerts J, his Honour was able to observe that support of legal proceedings based upon a bona fide common interest, financial or philosophical, must be permitted if the law itself was not to operate as oppressive. The courts today, in our view, are likely to take an even wider view of what might be acceptable, particularly if procedural safeguards are present or able to be applied." 34 It was the weakness of procedural safeguards to protect the interests of the vulnerable against abuse of process by the powerful which in earlier times was regarded as an essential reason for discouraging the funding of litigation by strangers. 35 In 1963, Lord Denning in In re Trepca Mines Ltd (No 2) [1963] 1 Ch 199, at 219, explained as the policy underlying the prohibition against maintenance and champerty the fear of the common law that the champertous maintainer "might be tempted, for his own personal gain, to influence the damages, to suppress evidence, or even to suborn witnesses" . However, as pointed out by Templeman J in Clairs Keeley v Treacy [2003] WASCA 299, para 60, thirty years later the public policy criteria by which maintenance is judged have been relaxed considerably. 36 In Giles v Thompson [1994] 1 AC 142, Lord Mustill observed at p.153 that as the process of the courts became stronger over time, abuses could more easily be detected and forestalled and litigation more easily determined in accordance with the demands of justice. In other words, the fears of procedural abuse expressed by Lord Denning only thirty years ago have been much allayed by the increased supervision of proceedings by the courts, doubtless due to the adoption of case management principles amongst other reasons. 37 Generally speaking, there are four categories of litigation funding to which the law of maintenance and champerty is now relevant: (1) funding of litigation which is ancillary to assignments of choses in action and analogous transactions; (2) funding of litigation to enforce causes of action assigned by liquidators and bankruptcy trustees; (3) funding of litigation by contingency fee arrangements between parties and their solicitors; (4) funding of litigation not falling into these three categories. 38 Litigation funding in categories 2 and 3 falls to be considered within particular legislative regimes. A bare right of action, as part of the property of a company, may be assigned by a liquidator under s.477(2)(c) Corporations Act 2001 (Cth): see e.g. Re Movitor Pty Ltd (1996) 64 FCR 380; Re William Felton & Co Pty Ltd (1998) 145 FLR 211; Elfic Ltd v Macks [2003] 2 Qd R 125. Solicitors' retainers and contingency fee agreements are regulated by Part 11, Div 3 of the Legal Profession Act 1987 (NSW) and special considerations apply to them in so far as they may be affected by the law of champerty and maintenance: see e.g. Clyne v The New South Wales Bar Association (1960) 104 CLR 186, at 203; Smits v Roach [2004] NSWCA 233, at para.64 ff. The principles of law applicable in categories 2 and 3 do not arise for consideration in the present case. 39 Mr R.G. McHugh, who appears with Mr Lazarus for Mr Barr and TBPL, submits that this case falls into category 1. He says that by the Option Deed Austcorp acquired an equitable interest in the Land and its rights to conduct the Lease Proceedings under the Management Deed are ancillary to that interest. He relies on the well known leading case, Trendtex Trading Corporation v Credit Suisse [1982] AC 679. 40 Mr Einfeld QC, who appears with Mr Dubler for Narui, says that the facts of this case do not fit into category 1 at all. His principal submission is that the Trendtex decision shows that to fall into category 1 a litigation funder must have an interest in the litigation before agreeing to fund it; in the present case, he says, Austcorp acquired an interest in the subject matter of the litigation at the same time as it entered into an agreement to fund the litigation. The decision in Trendtex

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41 As the parties take differing views as to how the principles enunciated in Trendtex apply to the facts of the present case, it is necessary to examine that decision with some care. 42 Trendtex contracted to sell a large quantity of cement for shipment to Nigeria. The purchase price was to be paid under a letter of credit issued by a Nigerian bank. The bank failed to honour the letter of credit and Trendtex sued it for damages. Credit Suisse was a substantial creditor of Trendtex and guaranteed the legal costs and expenses of Trendtex in pursuing its litigation against the Nigerian bank because there was no hope of Credit Suisse being paid its debt by Trendtex unless Trendtex succeeded in its claim against the Nigerian bank. Later Trendtex assigned its cause of action against the Nigerian bank to Credit Suisse for the purpose of enabling Credit Suisse to assign the cause of action on to a third party. The third party settled the action against the Nigerian bank for a large sum of money and Trendtex commenced proceedings against Credit Suisse seeking to recover the settlement sum on the ground that its assignment to Credit Suisse of its right of action against the Nigerian bank was void as savouring of maintenance and champerty. 43 The House of Lords held that, while Credit Suisse had a genuine and substantial interest in the success of Trendtex's action against the Nigerian bank, the assignment of Trendtex's causes of action to Credit Suisse for the purpose of enabling an assignment by Credit Suisse on to a third party was a transaction which contemplated the making of a profit by Credit Suisse from the assignment and savoured of maintenance and champerty or trafficking in litigation. 44 Trendtex involved an assignment of a cause of action while the present case does not. However, their Lordships in Trendtex made general observations as to the modern law of champerty and maintenance which have been frequently applied and are instructive in the present case. 45 At p.703, Lord Roskill referred to the established principle that an assignment of a cause of action which was incidental to a property right acquired by the assignee was not ineffective for maintenance or champerty because the assignee was buying not in order to obtain a cause of action but in order to protect the property which he had bought. His Lordship was of the view, however, that it was not necessary for the assignee to show a property right to support his assignment of the cause of action. In an often-quoted passage, his Lordship summarised the law thus: "The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance." 46 Mr Einfeld submits strongly that the effect of this passage is that a person who funds litigation must have a genuine commercial interest in the subject matter of the litigation before a funding arrangement is entered into: the funder cannot acquire the interest in the subject matter of the litigation by virtue of the funding agreement itself such as where, for example, someone in the business of litigation funding agrees to fund a particular action in return for a share of the proceeds, if it is successful. He relies on cases such as Giles v Thompson (supra), at 163.

[39]

47 There is no suggestion in the evidence that Austcorp is in the business of funding litigation or that it is actuated by ill will against Narui. All that the Court knows of Austcorp is what appears in the Option Deed, in the Management Deed, and in Mr Einfeld's description of Austcorp as a rival land developer. Recital H of the Option Deed makes it clear that Austcorp wishes to acquire the Land, or Narui itself, in order to obtain all of the land which Narui owns, for the purpose of development as residential lots and resale at a profit. Other provisions in the Option Deed provide that if Austcorp achieves that objective it will pay TBPL a stipulated fee. 48 These circumstances indicate that Austcorp had a genuine commercial interest in acquiring the land for redevelopment before it actually entered into the Option Deed. I mean by this that I infer that, no matter how Austcorp came to find out about TBPL's option to acquire the Land and that that option was being contested in the Lease Proceedings, Austcorp was motivated to fund the Proceedings, not because it was in the business of litigation funding and wanted to take a share of the fruits of successful litigation, but rather because, as a developer, it wanted to acquire the Land for redevelopment. 49 By means of the Option Deed, Austcorp advanced its commercial interest in the Land by acquiring from TBPL an interest in the nature of a proprietary interest, although that interest is contingent on TBPL successfully enforcing its option against Narui. But, as Trendtex and other authorities demonstrate, it was not necessary that Austcorp's interest in the subject matter of the Lease Proceedings prior to its entering into the funding arrangements with TBPL be proprietary in nature. 50 In Trendtex what was held to give Credit Suisse a sufficient and legitimate interest in funding the litigation against the Nigerian Bank was not that Credit Suisse had any pre-existing proprietary interest in the proceeds of that litigation, but rather the practical consideration that if Trendtex did not succeed in the litigation it would not be able to repay a debt to Credit Suisse. The circumstances giving rise to a sufficient interest, or what has sometimes been called "a real and bona fide interest", or "a justifiable motive for involvement" in litigation such as to justify a stranger in funding it are infinitely various, each case depending upon its own particular facts: see Roux v Australian Broadcasting Commission [1992] VR 577, at 606; Magic Menu (supra) at 267; Clairs Keeley (supra) at para. 52. For example, in Stevens v Keogh (1946) 72 CLR 1, the funding by a Police Association of an action to which it was not a party was held not to be maintenance because, but for the funding, the plaintiff, a member of the Association, would not have been able to afford the legal costs. 51 In my opinion, the Option Deed did not savour of maintenance. Austcorp had a genuine commercial interest in acquiring the Land from TBPL and it therefore had a genuine commercial interest in funding the Lease Proceedings in order to ensure that it was able to acquire the Land through TBPL. A fortiori, the Option Deed could not be champertous, as champerty is merely a species of maintenance. Further, the essence of champerty is the sharing of the spoils of victory between the plaintiff and the maintainer. In the present case, of course, the Option Deed did not give Austcorp a share of the proceeds of the Lease Proceedings in return for funding; it gave Austcorp the right to acquire the whole of the subject matter of the Lease Proceedings. 52 Another, and equally valid, way of analysing the funding arrangements for the Lease Proceedings is to say, as Mr McHugh does, that by the Option Deed Austcorp acquired an interest in the Land of a proprietary nature, and its agreement to fund the Lease Proceedings as provided in the Option Deed and in the Management Deed was ancillary to the realisation of that interest. 53 I do not think that Trendtex establishes a rigid requirement that in all cases a funder of litigation must be shown to have acquired some "commercial interest" in the litigation before the funding agreement is actually executed. In my opinion, all that Trendtex establishes is that the funder must have a genuine reason for entering into the funding agreement which the law regards as justifiable. In the present case, Austcorp had a genuine and justifiable reason to enter into the Option Deed and the funding arrangements therein because, by so doing, it would acquire a contingent interest in the Land.

[44]

the Management Deed allows Austcorp, for its own private purposes, to abuse the Court's processes, including the processes of discovery and subpoena, particularly as TBPL must provide Austcorp with copies of all documents received by it in the course of the proceedings, in breach of an implied undertaking to the Court not to do so. 55 In support of these submissions, Mr Einfeld relies on statements appearing in cases such as Magic Menu (supra), Elfic Ltd v Macks (supra), Clairs Keeley v Treacy (supra) and Marston v Statewide Independent Wholesalers Ltd [2003] NSWSC 816. 56 In Magic Menu , Clairs Keeley and Marston , the funder of the litigation in question was in the business of litigation funding. The only interest which the funder had in the litigation was as an investment, the return being a share in the proceeds of the litigation if successful. In Elfic Ltd v Macks , the plaintiff being funded was a liquidator. The Queensland Court of Appeal held that the funding arrangement was authorised by the predecessor of s.477(2)(c) of the Corporations Act , but drew attention to the difficulties which might be created where a funder sought control of proceedings in which a liquidator, as plaintiff, had duties and responsibilities under the Act which must be unfettered and are largely non-delegable: see para.105. 57 Elfic Ltd v Macks was in a category of litigation funding which is in a special class. Likewise, litigation funding as a business raises its own special concerns as to whether the Court's process is under threat of abuse. These concerns were discussed in Clairs Keeley by Templeman J, with whom Parker, Wheeler and Pullin JJ agreed. 58 Templeman J was of the view that the funding arrangements between the plaintiff and the funder gave de facto control of the entire litigation to the funder, even though the funder was entitled only to a percentage of the proceeds of the litigation. In his Honour's view, that amounted, in effect, to an assignment of a "bare right to litigate" , so that the Court's resources would be "subverted to a commercial enterprise" . Assignment of a bare right to litigate was, his Honour said, still regarded as an abuse of process: see at paras.134 to 144. 59 For the reasons which I have given, I do not regard the present case as one in which TBPL has, in effect if not form, assigned to Austcorp a bare right to litigate: TBPL has agreed to sell to Austcorp its entire rights in certain property in which Austcorp had a genuine interest and Austcorp must fund, and is entitled to control, the litigation by which those rights are to be secured. Accordingly, this case does not fall within the category of "litigation trafficking" which in itself may constitute an abuse of process: see e.g. Elfic Ltd v Macks at para.67, citing Stocznia Gdanska SA v Latreefers Inc (No 2) [2000] All ER 148. 60 Are there, nevertheless, aspects of the funding arrangements which amount to, or which may give rise to, abuse of process? 61 To stay proceedings on the ground of abuse of process is always a serious matter: the claims of a party may be denied even before he or she crosses the doorstep of the Court. Where, as in the present case, a stay is sought, not on the ground that the Court's process is actually being abused, but rather because it may be abused, a persuasive case should be made out. The possibility or potential for abuse should be real and substantial, not hypothetical. 62 Here, the identity of Austcorp as funder of the Lease Proceedings and the nature of its interest in and control of those proceedings are known to Narui. If Narui becomes aware that the Court's process is being abused in the course of the proceedings, it may always apply for a stay or for any lesser remedy which will protect its position adequately. Just because Austcorp is not directly a party to the proceedings does not mean that it is not amenable to the Court's orders. A stay of proceedings will affect the financial interests of Austcorp just as much as it will affect the interests of TBPL. Indeed, perhaps more so, since a stay of proceedings would deprive Austcorp of any opportunity of acquiring the Land. 63 I do not see that the payment of a fee to Mr Barr in consideration of his assistance in the litigation is inherently likely to induce him to perjure himself any more than the payment of a fee to an expert witness is inherently likely to produce that result. Nor is the payment of the fee inherently likely to cause continuation of litigation which should properly be abandoned. The litigation is in the hands of competent and reputable solicitors on behalf of Austcorp who will doubtless advise their client on the strengths and weaknesses of the case and as to whether it is commercially worthwhile pursuing. 64 Finally, I do not see that the Court is powerless to prevent Austcorp from using improperly documents produced on discovery or subpoena. Austcorp's role in the Lease Proceedings is out in the open. If documents are produced which Narui regards as confidential, it may apply to this Court for orders protecting that confidentiality. Such orders are an everyday occurrence in the Court. 65 For these reasons, I do not accept that the funding arrangements between TBPL and Austcorp relating to the Lease Proceedings constitute, or are inherently likely to produce, an abuse of the Court's process such as to warrant a stay of the proceedings.

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66 The property the subject of the House Proceedings is a house occupied by Mr Barr as his residence during the course of his management of the development of Narui's Land. It is clearly of concern to Mr Barr to acquire that house pursuant to the Sale Agreement. Part of the bargain which he struck with Austcorp when negotiating the terms upon which TBPL would grant an option to acquire the Land under the Option Deed was a promise by Austcorp that if it succeeded in acquiring all of Narui's land with the assistance of Mr Barr it would transfer the house to him for no further consideration: Clause 10.1(1)(ii). 67 The issues in the Lease Proceedings and in the House Proceedings seem to be separate and distinct but both proceedings are part of a larger battle being fought between Mr Barr and Narui, all arising out of or connected with Narui's endeavours to develop its Land at King's Forest. It is not necessary to go into a great deal of detail. Narui has cross claimed against Mr Barr in proceedings in the Supreme Court arising out of a contract between a Mr Harrison and Narui for the sale of some of the land at King's Forest to Mr Harrison. Narui has also cross claimed against Mr Barr in proceedings brought in the Land & Environment Court against Narui by the Tweed Shire Council. Finally, forty-seven criminal charges have been laid against Mr Barr arising out of his management of the King's Forest development project on behalf of Narui. 68 By a deed dated 23 May 2003, the Management Deed was amended. Austcorp agreed to pay the costs of other proceedings in which Mr Barr and TBPL were engaged, including the House Proceedings, but on different terms. 69 Relevantly, Austcorp was entitled to assume control of all other proceedings the subject of the Deed, except the House Proceedings . Solicitors nominated by Austcorp were to conduct the House Proceedings but on behalf of Mr Barr not Austcorp (Recital F). Clause 8.1(b) provided that Austcorp was obliged to pay the legal costs and disbursements of TBPL (sic) incurred in using the solicitors nominated by Austcorp to conduct the House Proceedings, up to a limit of $30,000. Payments made by Austcorp under Clause 8.1(b) were to be deducted from the purchase price which Austcorp was to pay TBPL upon successful acquisition of the Land by TBPL and on-sale to Austcorp, in accordance with the Option Deed: Clause 8.1(e). 70 Under the amended Management Deed, Austcorp is not entitled to any of the fruits of victory if the House Proceedings are successful nor is it entitled to access to any documents produced in the House Proceedings on discovery or subpoena. 71 It will be seen that the funding agreement between Austcorp, Mr Barr and TBPL relating to the House Proceedings amounted to little more than assisting Mr Barr in the payment of legal costs up to a certain amount which will then be deducted from the purchase price of the Land if the Lease Proceedings are successful. In one sense, the funding assistance provided by Austcorp can be regarded as part payment of the purchase price of the Land from TBPL in advance. 72 It is for Narui to satisfy the Court that Austcorp has no justifiable interest or motivation in funding the House Proceedings to the extent which it has agreed to do so, or that the funding agreement is otherwise an abuse of process or inherently likely to produce an abuse of process. I am satisfied of neither proposition. 73 In a real sense it may be said that Austcorp had a genuine interest in the subject matter of the House Proceedings before it entered into the amended Management Deed whereunder it agreed to fund part of the costs of the House Proceedings. This is because under the Option Deed Austcorp secures Mr Barr's co-operation in assisting it to acquire all of Narui's land, including Lot 1 on which the house is built, and promises that if it is successful in achieving its object it will transfer the house to Mr Barr. Funding the House Proceedings may therefore be seen as part of the common objective of the parties, stated in the Option Deed, of securing the house for Mr Barr. 74 Further, an inference may be drawn that Mr Barr and TBPL require financial assistance in order to fund all of the litigation in which they are involved with Narui. Mr Barr's goodwill and co-operation with Austcorp in the Lease Proceedings is clearly desirable and Austcorp has extracted covenants from Mr Barr that he will give that co-operation. Austcorp's assistance to Mr Barr in funding the House Proceedings to a limited extent, with no entitlement to control those proceedings, is explicable as motivated by a desire on its part to secure Mr Barr's goodwill and thereby more effectively to secure the co-operation which it seeks from him in order to attain Austcorp's objects under the Option Deed. I do not think that Austcorp's limited participation in the funding of the House Proceedings can properly be described as officious inter-meddling such as to constitute maintenance. 75 As the amended Management Deed gives Austcorp no control of the House Proceedings and no access to documents produced compulsorily in those proceedings, and as the solicitors acting for Mr Barr in the proceedings, although nominated by Austcorp, are acting on his instructions, I can see no reason to conclude that the funding arrangement is inherently likely to give rise to an abuse of process.

Barr v Narui Gold Coast Pty Ltd & Ors

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