Debt Collectors Licensing Act 1964

Legal Practitioners Act 1893, s 59

Security and Related Activities (Control) Act 1996

Trade Practices Act 1974 (Cth), s 47(6)

Appellant (Sixth Defendant) : Mr A C Archibald QC & Mr S M Davies

Respondents (Plaintiffs) : Mr D H Solomon & Mr J C Giles

Appellant (Sixth Defendant) : Mallesons Stephen Jaques

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

Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965

Alabaster v Harness [1895] 1 QB 339

Allsop v Federal Commissioner of Taxation [1965] HCA 48; (1965) 113 CLR 341

Baxter v Obacelo Pty Ltd & Anor [2001] HCA 66; 205 CLR 635

Bevan Ashford (a firm) v Geoff Yeandle (Contractors) Ltd (in liq) [1999] Ch 239

Brew v Whitlock [1967] VicRp 49; [1967] VR 449

Bright v Femcare Ltd & Anor [2002] FCA FC 243; 195 ALR 574

British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006

Camdex International Ltd v Bank of Zambia [1998] QB 22

Carob Indutries Pty Ltd (In Liquidation) v Simto Pty Ltd, unreported; FCt SCt of WA; Library No 970692; 11 December 1997

Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) 162 VLT 395

Chedambara Chetty v Renga Krishna Muttu Vira Puchaiya Naickar LR 1 Ind App 241

Cliff International Inc v Federal Commissioner of Taxation [1979] HCA 8; (1979) 142 CLR 140

Comfort v Betts [1891] 1 QB 737

Condliffe v Hislop [1996] 1 WLR 753

Egerton-Warburton v Deputy Federal Commissioner of Taxation [1934] HCA 40; (1934) 51 CLr 568

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR

Findon v Parker [1843] EngR 786; 11 M&W 675

Fitzroy v Cave [1905] 2 KB 364

Geo Thompson (Aust) Pty Ltd v Vittadello [1978] VicRp 20; [1978] VR 199

Gray v Motor Accident Commission (1998) 196 CLR 1

Hamilton v Al Fayed (No 2) [2002] EWCA Civ 665; [2003] 2 WLR 128

Hill v Archbold [1968] 1 QB 686

Hodges v New South Wales [1988] HCA 9; (1988) 62 ALJR 190

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

JC Scott Constructions v Mermaid Water Tavern Pty Ltd [1984] 2 Qd R 413

Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 1363 (1999)

Jones v Bouffier [1911] HCA 7; (1911) 12 CLR 579

Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178

Loxton v Moir [1914] HCA 89; (1914) 18 CLR 360

Margetts v Timmer [1999] ABCA 268

McIntyre v Attorney General of Ontario (2002) 218 CLR (4th) 193

McLaurin v Federal Commissioner of Taxation [1961] HCA 9; (1961) 104 CLR 381

Murcia & Associated v Grey & Anor [2001] WASCA 240; 25 WAR 209

National Trustees Executors & Agency Co of Australasia Ltd v FCT [1954] HCA 71; (1954) 91 CLR 540

Neville v London "Express' Newspaper Ltd [1919] AC 368

Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9

Paul v Pavey & Matthews Pty Ltd (1985) 3 NSWLR 114

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221

Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126

Prosser v Edmonds [1835] EngR 1073; (1835) 1 Y&C Ex 481

R (Factortame Ltd & Ors) v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932; [2002] 3 WLR 1104

Re Daniel Efrat Consulting Services (rec apptd) (in liq) [1999] FCA 412; (1999) 30 ACSR 640

Re Vassis: Ex parte Leung [1986] FCA 21; (1985) 64 ALR 407

Roux v Australian Broadcasting Corporation [1992] VicRp 87; [1992] 2 VR 577

Schokker v Federal Commissioner of Taxation [2000] FCA 1734; (2000) 106 FCR 134

Sievwright v Ward (1935) NZLR 43

Skelton v Baxter [1916] 1 KB 321

South Australian Management Corporation & Sheahan (1995) 16 ACSR 45

SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd [1980] FCA 125; (1980) 48 FLR 445

Thai Trading Co (a firm) v Taylor [1998] EWCA Civ 370; [1998] QB 781

The Paul Dainty Corporation Pty Ltd v The National Tennis Centre Trust [1990] FCA 163; (1990) 22 FCR 495

Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574

Torkington v Magee [1902] 2 KB 427

Trendex Trading Corporation v Credit Suisse [1982] AC 67

Trendtex Trading Corporation v Credit Suisse [1980] QB 629

Varawa v Howard Smith Co Ltd [1911] HCA 46; (1911) 13 CLR 35

Woodings (as receiver and manager of Elcos Australia Pty Ltd) (in liq) v Stevenson & Jefferson (as liquidators of Elcos Australia Pty Ltd) (in liq) [2001] WASC 174 (2001) 24 WAR 221

1 MURRAY J: In this matter I have had the advantage of reading in draft the judgments of Templeman and Pullin JJ. I am indebted to Templeman J for his careful exposition of the relevant portions of the agreements between the respondents and the litigation funder, to whom I shall also refer as IMF. I am relieved by his Honour's judgment of the need to canvass in any detail the evidence and the important provisions of the agreements by which the arrangements between the respondents, their solicitors Solomon Brothers, and the litigation funder are made. I shall refer to the evidence only in summary.

2 I am reminded that, as I understand it, a bench of five judges was convened in this case as a result of the suggestion that the proper decision of this case might involve this Court in overruling its judgment in Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150. For my part, I would see it as being unnecessary to embark for the purpose of the decision of this case upon any review of the law as stated in the previous judgment of the Full Court, but I should also say that for my part I would see no reason to resile from what the Full Court then said.

3 This was an application for a stay of proceedings which failed at first instance. The stay was to be regarded as being of an interlocutory character because it was sought pending an adjustment of the relationships between IMF, Solomon Brothers and the respondents in such a way as would not attract the concern of the Court. It was therefore necessary when the application failed at first instance to seek leave to appeal. For the reasons which follow and with respect to the contrary view, I would refuse leave.

4 The proceedings in question have been described by Templeman J. The application for a stay is centred entirely upon the involvement by the respondents of their litigation funder, IMF. It is said that the arrangement between IMF, the respondents and their solicitors is champertous and therefore contrary to public policy. Upon that ground and having regard to the specific features of the contractual arrangements involved, it is argued that the Court should take the exceptional step of staying the proceedings brought by the respondents, effectively pending the dismantling of the funding arrangements involved and their reinstatement in such a way as not to attract the concern of the Court. In truth, I think, when one considers the terms of the stay which would be granted, the stay would be permanent and it should be accepted that the respondents' capacity to pursue their action would be frustrated by such an order.

5 I should, at the outset, declare that I have previously been involved as a single Judge in ruling upon such an application as that now before the Full Court: Choules v Siglin [2002] WASC 230. I refused the application for a stay in that case, having regard to evidence which seems to me now to have established a funding arrangement not materially different from that relied upon by the applicants in this case. I have carefully reconsidered the views to which I then came, but, again with respect to the contrary view, can see no reason to resile from the views which I then expressed.

6 The essential factual elements seem to me to be these:

• There is a retainer agreement for the engagement of the solicitors between the firm of Solomon Brothers and IMF. I am not clear in my mind how that relates to any agreement between the solicitors and the respondents, although it is described as part of a tripartite arrangement.

• By that agreement, Solomon Brothers undertake to reduce their charges by 20 per cent below their standard rates until the recovery by the respondents is such as to defray all the costs and expenses incurred by IMF in achieving that recovery.

• Thereafter, IMF agrees that Solomon Brothers solicitors' costs will be increased retrospectively to 25 per cent above their standard rates.

• These costs are payable out of moneys recovered by the respondents. The agreement to which I have referred is one between IMF and the solicitors. As I said in Choules v Siglin, there must be a real question, having regard to the provisions of the Legal Practitioners Act 1893, whether any such costs arrangements would be enforceable by Solomon Brothers ultimately against the respondents, who seem not to be parties to this retainer agreement. I note that Templeman J takes the same view.

• Perhaps from a pragmatic point of view, the concern so expressed matters little because it is IMF who is liable for the solicitors' costs. The sting in that tail is the asserted entitlement of IMF (under their funding agreement) to reimburse itself from moneys successfully recovered on behalf of the client.

7 The respondents have agreements with IMF, whom they appoint as their agent to collect the debt claimed by the respondents, to investigate the claim and receive the moneys. The agreements together then create the asserted tripartite arrangement, but there is another entity involved in the funding agreements, the Real Estate Consumer Association Inc, known as RECA, Ms Brailey. Her interest is acknowledged in the recitals and her fee arrangements, payable by IMF, are disclosed. In fact, she seems to do little to merit the payment of her fees. Her activities seem to be concerned basically with introducing clients to IMF and providing some sort of liaison between clients such as the respondents, IMF and the solicitors. The role of RECA is discussed by Templeman J. It seems to me to be irrelevant to the issue raised by the applicants' application and I propose to make no further mention of it.

8 The essential features of the funding agreements appear to me to be:

• IMF agrees to pay the costs of investigation, the costs of evidence-gathering, the solicitors' fees, the taxed costs of successful defendants and to provide any security for costs required by order of the court.

• The clients, such as the respondents, are the only persons entitled to instruct the solicitors. It is by them that the solicitors will be instructed in the ordinary way of a solicitor/client relationship.

• IMF is to receive monthly reports from the solicitors upon the conduct of any litigation and it is to receive immediate advice of any proposed settlement.

• There are detailed provisions in relation to the achievement of a settlement. Again, the solicitors are to take their instructions from the client, but IMF is to be advised so that it may review the adequacy of a proposed settlement. If it disputes the adequacy of the settlement and ends up in disagreement with the client, IMF may insist upon the opinion of senior counsel being taken by the solicitors. If ultimately the client decides to proceed with a settlement which IMF thinks to be inadequate or which is not supported by the opinion of senior counsel, a penalty applies. IMF is entitled to retain as its fee 10 per cent more of the moneys received at settlement than would otherwise be the case.

• As I read the agreements, it is only in respect of its oversight of the settlement process that IMF has a capacity conferred by the contract to interfere in the processes of any claim or litigation which, by the funding agreement, is to be driven by the client, the person in the position of the respondents, who retain the capacity to instruct the solicitors, who are in turn obliged to seek and receive instructions from the client, not from IMF.

9 That is not to say, of course, that IMF may not, in fact, exercise a considerable degree of influence in relation to the processes of pursuing a claim and the processes of any litigation undertaken, but to my mind, with respect for the contrary view, there is nothing in the evidence to suggest that it is intended that the contractual arrangements should be mere window-dressing permitting a different and more objectionable arrangement to be pursued behind the scenes.

10 There is no doubt that on the face of the contract, IMF will fund the process of investigation and the making of a claim. It is responsible for payment of the solicitors' costs at whatever rate they are ultimately charged. It is obliged to undertake such assistance, and provide funding to meet disbursements, required by the solicitors. IMF is obliged to meet all party and party costs which may be incurred along the way and ultimately to meet the costs of a successful defendant, when taxed. They are to meet any required security for costs. IMF, indeed, carries the entire risk of the litigation by the respondents in this case and it is evident that unless the litigation is funded by IMF, it could not proceed, at least at present (there being, I think, no more than a suggestion that alternative funding might be obtained).

11 The reward available to IMF, if a claim and any consequent litigation is pursued to a successful end is considerable. The respondents will never incur an independent liability to pay costs or fees or disbursements to anyone. It is only out of moneys recovered that such payments are to be made. IMF is entitled first to be reimbursed for all costs it has incurred in funding the litigation and in the process of investigation. If the moneys recovered exceed the sum required to repay these amounts, then, as has been mentioned, there will be an additional obligation by way of solicitors' costs which, from the outset of the solicitors' involvement, will increase from 20 per cent below to 25 per cent above the solicitors' standard rates. I suppose that, in itself, is a sort of success fee. When all those obligations have been discharged, IMF's fee is 35 per cent of the moneys collected, if enough remains in the pot to permit that charge.

12 In Choules v Siglin I expressed my concern about the capacity of such contractual arrangements to consume all or most of the moneys which may be recovered. I said then that I thought the contractual arrangements were, from the point of view of both the solicitors and IMF, "of a frankly commercial character". I described them as undesirable and "not noticeably altruistic". But I thought then that to conclude that the ultimate recovery by people such as the respondents might, if at all, be limited to a relatively small proportion of their original investment, was not a factor which would justify a stay of proceedings of a kind calculated to create a grave risk that the action in question would be stultified.

13 Perhaps from the point of view of IMF, although IMF is not, of course, a party to these proceedings, it might be said that the 35 per cent fee (putting to one side the 45 per cent fee which might arise on a settlement, which has a distinct penalty element in it) is justified by the extent of the risk and the financial burden which IMF must carry before any recovery is made. In addition, it should not be overlooked that IMF may only control the extent of that risk by terminating it, by revoking its appointment. While it may have an input into the settlement process which I have discussed, it is overall subject to the terms of clause 8 of the funding agreement which provides:

"The Appointor [the client] shall ensure that IMF's rights under this Agreement are observed but, in exercising such rights or providing services under this Agreement IMF will not interfere with the conduct of legal proceedings or the terms of any settlement thereof which shall remain at the discretion of the Appointor and the Solicitors."

14 I move from that brief review of the factual material before the Court, to remind myself that the proceedings before the Court are an application by a firm of solicitors, a defendant in an action brought by the respondents. They seek leave to appeal the decision of Scott J, by which their application to stay the respondents' action was dismissed. We should not overlook, in my respectful opinion, that the applicant wishes to be relieved of the burden of defending the respondents' claim on the essential ground that it is the nature of the funding arrangements between the respondents, their solicitors and IMF which make the litigation to which they are subjected, possible.

15 They do not, of course, rely simply upon that fact, but point to what are asserted to be the objectionable aspects of those funding arrangements which they contend the Court ought to be alert to make ineffectual because they are contrary to public policy. In effect it is said to be against public policy that the courts should be used by plaintiffs who would not otherwise get their claims before the court, and it is unfair that defendants should be oppressed by claims brought in those circumstances, of which it is said there may be some thousands available to be brought by litigants such as these respondents, against a variety of defendants, including solicitors such as the applicant firm.

16 I hasten to add that the applicants' argument relies substantially, as it must, upon what are described as elements of the arrangements between the respondents, their solicitors and IMF, which are said to pose a risk to the administration of justice and a risk that the proceedings themselves may be subverted to serve the interests of IMF, which may be in conflict with those of the respondents. In that regard, it is to be borne in mind that, as is generally the case in such matters, the application is brought by a defendant.

17 I propose to approach consideration of the merits of the application for a stay, and hence the question whether it is arguably the case that Scott J erred in dismissing the application and whether an appeal against his Honour's decision should be allowed, from the starting point of a consideration of the grounds upon which a stay of proceedings may be granted.

18 That a court such as this possesses an inherent jurisdiction to grant such a remedy is undoubted, but it is also accepted that it is a remedy of an exceptional character, to be granted only in an extreme or clear case. In my opinion, that must be so, once it is appreciated that the remedy involves the incapacity immediately, if not permanently, for the other party to pursue to the point of its adjudication a claim which presents a recognisable cause of action to the court. That would be this case and ordinarily the court will be astute to facilitate the process by which a litigant may bring such a claim to the point of its final adjudication.

19 There could never be a closed list of circumstances in which the Court would be moved to exercise its discretion to grant a stay, but the grounds have always been accepted to come under the general rubric of an appeal to public policy. They will generally be found in cases "in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness": Walton v Gardiner (1993) 177 CLR 378 at 393. There are many different cases which provide examples of the exercise of the jurisdiction, cases where the defendant is exposed to litigation in an inappropriate forum, where the matter truly at issue between the parties has already been decided, where the plaintiff's claim may be seen to be foredoomed to fail for reasons which would not necessarily entitle the other party to summary judgment.

20 Here, as I understand the applicants' argument, it relies upon the perceived unfairness of its exposure to the respondents' action, but of course it is appreciated that there can be no unfairness or injustice for a defendant who is exposed to litigation by a plaintiff who has a legitimate claim against the defendant. Further, to say in such a case that the claim should be stayed because the plaintiffs may see very little of any moneys recovered, which will be substantially, or even entirely, consumed in paying people like the plaintiffs' solicitors, IMF and RECA, remuneration which may, in part at least, be unjustified, seems to me to add nothing to the application for a stay.

21 From the point of view of the defendant, if those events should ensue, it does not seem to me to be a circumstance which adds any element of injustice or unfairness by way of a subversion of the legitimate judicial process to an improper end, by way of permitting a situation where those apparently acting in aid of the litigation may be exposed in a conflict of interest, or any such circumstance.

22 It is, I think, the need to rely upon such a circumstance as constituting relevant injustice or unfairness which causes the applicant to rely upon the notion that the funding agreement is properly to be regarded as being champertous. While it may be that such an agreement may constitute a ground for the grant of a stay of proceedings: cf In Re Oasis Merchandising Ltd [1998] Ch 170, to find that litigation is being improperly or wrongfully maintained under a champertous agreement, while it may result in the agreement being held to be unenforceable as being contrary to public policy, will not necessary result in the proceedings so supported being stayed: Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150 by the Full Court at [25].

23 Maintenance, and that form of it particularly constituting champerty, is not a crime. I see no reason to revisit the question whether it constitutes a tort. In my view, the decision of the Full Court in Newton v Gapes (1910) 12 WALR 86, 89, remains good law, but in a real sense the debate about that is a distraction in the present proceedings and the question how maintenance and champerty are properly to be defined is very much a matter of semantics. I do not propose again to discuss any of the cases. I remain of the view that the law of maintenance and champerty is, and its relevance to the grant of a stay of proceedings is, as I expressed it to be in Choules v Siglin at [30]:

"I would summarise my conclusions in the following way: maintenance is the improper support or promotion of litigation. There would seem to be no closed category of cases where relevant impropriety of that kind might be established, but maintenance will not lie merely in the support of litigation for a party by a stranger to the litigation. It will lie in some wrongful intermeddling, some interference with the processes of the courts, some oppression or attempt at a collateral advantage. Champerty is the employment of such impropriety for a share of the spoils by way of reward. In a grave or clear case such an arrangement may amount to an abuse of the processes of the court of sufficient gravity by reason of the unfairness or injustice involved, to warrant a stay of the proceedings, at least until the abuse is remedied, even in a case where it is recognised that the plaintiff has a legitimate claim which may be stifled, even permanently, by the grant of a stay."

24 When one analyses the contractual arrangements between IMF and the respondents' solicitors and between IMF and the respondents, I can see no ground upon which the Court would be justified in taking the grave step of the grant of a stay of proceedings. Relative to the role of this Court, I can see no basis upon which it might be held that Scott J erred in the exercise of his discretion in this regard. I can see no relevant conflict of interest between IMF and the solicitors and the respondents which might cause injustice to the defendants.

25 In particular, I can see no problem in the way the contractual arrangements are framed in respect of the process of settlement. Certainly, the nature of the fee arrangements means that IMF and the solicitors have an interest to maximise the respondents' recovery and to do so as cheaply as possible. Perhaps the respondents might refuse a reasonable offer of settlement, preferring to hold out for more, against the advice of their solicitors, and against the perceived interest of IMF because the risk of failure entirely or substantially in the litigation would then remain. I see nothing in that circumstance which exacerbates the situation unfairly from the point of view of the applicant defendant or which might be said to involve any capacity to subvert the legitimate processes of the court arising out of the terms of the funding agreement.

26 On the other hand, it might be that, despite the penalty of increased payment to IMF which may be involved, the respondents would wish to take a settlement offered by the applicant which is less than that advised by the solicitors and thought by IMF to be appropriate. In that event, it seems to me that the respondents' position is protected by the requirement that they should have access to the independent advice of senior counsel and, in any event, I can again see nothing in that process which, on public policy grounds, should cause the Court to stay the litigation entirely as an abuse of process.

27 I have already said that I can see nothing of relevance in the prospect that the respondents will be enabled to maintain an action against the applicant which they might not otherwise get to court, or in the prospect that there might be many other plaintiffs who would be similarly enabled to pursue their claims, if necessary, by a process of litigation. I have already said that I can see no or insufficient ground for the grant of a stay in the circumstance that there may be, in the end, an element of exploitation of the respondents in the way of the recovery of fees by the solicitors, IMF and RECA.

28 Nor do I think it is permissible to disregard clause 8 of the funding agreement and to approach the matter upon the basis that, in breach of that contractual provision, IMF will, in some way, take over the pursuit of such litigation as this, presumably in connivance with the solicitors, in a way which would be unfair and unjust to the applicant and in conflict with the best interests of the respondents.

29 Finally, I should mention, as does Templeman J, that we were advised that since Scott J gave judgment at first instance on the application for a stay, IMF and Solomon Brothers have agreed that what is misleadingly described as a "20 per cent uplift" in a letter by Mr McLernon should be paid to the solicitors out of what is referred to as "the share of IMF". I am not sure that I have understood the effect of the correspondence between Mr McLernon and Mr Solomon by which agreement to modify the retainer agreement is said to have been reached. I think what is referred to is the uplift of 45 per cent from a fee rate of 20 per cent below Solomon Brothers' standard rates to 25 per cent above them, an entitlement they achieve retrospectively at the point where recovery raises sufficient funds to repay all other costs and outgoings incurred by IMF and produces funds out of which IMF may be paid their fee.

30 The terms of the correspondence suggest that what is proposed is that IMF will continue to deduct from the funds so available 100 per cent of the solicitors' costs and disbursements charged at their standard rate. In effect then, that will become a cost to the respondents, whose payout will be reduced accordingly. The further 25 per cent uplift is to be paid by IMF out of its 35 per cent fee and so the cost would not be passed on to the respondents.

31 As I say, I am not sure that I have understood the effect of the arrangement from the correspondence, but however that may be, I can see nothing in this development which bears either way upon the exercise of a discretion to grant or refuse a stay of proceedings and it was not, of course, a matter in evidence before Scott J.

32 For my part then, and with respect for the contrary view, I would refuse the application for leave to appeal.

33 PARKER J: I have very greatly benefited from reading in draft the reasons of Templeman and Pullin JJ. What their Honours have written essentially reflects my own views. There is no other matter of significance that I would wish to add.

34 I agree, for the reasons given by Templeman and Pullin JJ, that the application for leave to appeal should be granted and that the appeal should be allowed to the extent indicated by Templeman J.

35 TEMPLEMAN J: The applicants, who are a firm of solicitors, are the sixth defendants to an action brought by a number of their former clients. The applicants sought an interlocutory order to stay the action on the basis that it was an abuse of the process of the Court, being champertous and unlawfully maintained. The application was unsuccessful before the learned primary Judge, Scott J. The applicants now seek leave to appeal from the decision of Scott J. It will be convenient to refer to the respondents as "the plaintiffs".

36 The applicants have prepared a draft notice of appeal which raises a multitude of grounds. I do not propose to deal with them individually, because I do not think it helpful: the real issues are few, and well defined.

37 The plaintiffs loaned moneys to the first defendant. The loans were secured by a mortgage granted by the first defendant in respect of several

properties which it owned: a pooled mortgage. In addition, the second defendant guaranteed repayment of the loans.

38 The transactions were arranged by the third defendant, a mortgage broker. The fourth and fifth defendants were directors of that company.

39 Subsequently, the first defendant - the borrower - became insolvent and was placed in voluntary liquidation. The plaintiffs obtained a judgment against it and the guarantors. The plaintiffs alleged against the broker that it had engaged in various kinds of conduct in breach of the Fair Trading Act 1987, the Trade Practices Act (Cth) 1974, the Corporations Law or the Corporations Act 2001, The Australian Securities and Investment Commission Act 2001, and in negligence. The plaintiffs obtained a default judgment against the broker.

40 The plaintiffs contend that the applicants acted not only as their solicitors, but also as solicitors for the borrower and the broker. It is alleged that the solicitors preferred their own or their other clients' interests over the plaintiffs' interests. The plaintiffs' claim against the applicants is based on alleged breaches of fiduciary duty, negligence, breaches of the various statutes to which I have referred above, or being knowingly concerned in, party to, or aiding abetting or counselling various breaches of those statutes by other defendants.

41 The plaintiffs are five of some 2,000 investors who claim to have suffered financial loss as a result of the activities of unscrupulous finance brokers, in what has become known as "the finance brokers scandal". Many of those investors, including the plaintiffs, have brought an action against the Finance Brokers Supervisory Board ("FBSB") based on misfeasance in public office and negligence (AB 1079).

42 The plaintiffs' actions are being funded by a company known as Insolvency Management Fund Ltd ("IMF"), a public company, listed on the Australian Stock Exchange. IMF's executive chairman is Mr Hugh McLernon who, through the medium of various companies, has carried on business in the litigation funding field since 1990 (AB 462-3).

43 One such company is Insolvency Litigation Fund Pty Ltd ("ILF"), which was previously named IMF, but which is now a wholly-owned subsidiary of IMF. It will be convenient to use the abbreviation IMF to refer to both IMF and ILF.

44 The plaintiffs have all entered into funding agreements with IMF and, as part of the arrangements, have all agreed to retain the firm of Solomon Brothers as their solicitors.

45 It is the nature of the litigation funding arrangements and the relationship between IMF, Solomon Brothers and the plaintiffs, which prompted the applicants to seek a stay of the action.

46 Much has been written in recent years on the subject of maintenance and champerty, no doubt because of the increased incidence of litigation funding. I reviewed the law in Bandwill Pty Ltd v Spencer-Laitt [2000] WASC 210; (2002) 23 WAR 390, an interlocutory application for a stay of an action which was being funded in an allegedly champertous manner, also by a company controlled by Mr McLernon.

47 I do not wish to repeat what I said in Bandwill about the modern law of maintenance and champerty, but I offer some additional observations.

48 In Bandwill, the applicants relied on the tort of unlawful maintenance, as defined by Lord Denning MR in Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199 at 217:

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

49 The present applicants take their definition of maintenance from Halsbury's Laws of Australia, Vol 6, [110-7135]:

"The giving of assistance or encouragement, by a person who has neither an interest in the litigation nor any other motive recognised as justifying the interference, to a party to litigation."

The authorities cited in support of that proposition include Re Trepca Mines (No 2).

50 The present applicants take their definition of champerty from Halsburys Laws (supra) at [110-7140]:

"'Champerty' is a particular form of maintenance, namely maintenance of an action in consideration of a promise to give the maintainor a share in the proceeds or subject matter of the action."

51 Halsbury cites many authorities (including Re Trepca Mines) in support of those definitions, which are now generally accepted.

52 The definitions are important. There cannot be champerty without maintenance. And there cannot be maintenance unless the assistance or encouragement (by way of litigation funding, for example) is unjustified. If, therefore, the maintainer has a legitimate interest in the proceedings, or a justifiable motive for his involvement, the fact that he stipulates for a share of the proceeds of litigation, will not, of itself, render the relevant agreement champertous.

53 For this reason, I adopted in Bandwill, the apparent oxymoron "lawful champerty". I used that term to refer to circumstances in which an action was being funded by a person who contracted to take part of the proceeds, but where there was no "maintenance" in the pejorative sense. I derived the term from a passage in Lord Mustill's speech in Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142, 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." (my emphasis)

54 In a similar way, in Faryab v Smyth (unreported, Court of Appeal, UK, 28 August 1998, Simon Brown LJ referred to the possibility of a funding agreement being "technically champertous", that is, (in my terms) involving "lawful" champerty.

55 In summary, therefore, it is incorrect to describe a litigation funding agreement as champertous simply because it provides the funder with a share of the proceeds of the action. The essential question is whether the litigation funder is "maintaining" the action in the impermissible sense. And that, in the modern law relating to maintenance and champerty, requires a consideration of the arrangements as a whole.

56 In Bandwill, I was bound, as was Scott J in this application, by the unqualified statement in the judgment of the Full Court in Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150 at [27]:

"There is no doubt that the tort of maintenance and champerty remains part of the law of Western Australia."

57 However, the plaintiffs have submitted to this Court that it would now be appropriate to restate the law, having regard to the fact that the crimes of maintenance and champerty have long been abolished. That being so, it is submitted, the eponymous torts have also ceased to exist.

58 Whether that is so, is an interesting question. It is raised in a Notice of Contention. However, it is not a question which requires an answer in these proceedings. That is because the present applicants do not make a tort-based claim.

59 Mr Archibald QC, leading counsel for the applicants, made his clients' position plain:

"We do not ground ourselves at all on the probable tortious character of this conduct .... We ground our application on the circumstance that champerty is contrary to public policy ... because of the risk to the administration of justice posed by conduct of that kind." (TS 11-12)

This approach accords with the observation made by the Court in Freehill Hollingdale & Page v Bandwill Pty Ltd, at [27] that:

"There is no doubt also that a maintenance agreement could, depending on its circumstances, so taint or infect proceedings as to render them an abuse of the process of the court."

"The question whether a particular action has been brought, or is being continued, in abuse of the Court's process is one which depends upon all of the material circumstances, of which the fact of maintenance or champerty may be only one." (at [25])

60 If an applicant for a stay who alleges champerty relies on the tort, he has only to prove the existence of the elements of that tort, as set out above, in order to establish a prima facie case. It is not necessary to identify any particular risk to the administration of justice, although such risks provide the rationale for the tort. As Lord Denning said, in Re Trepca Mines (supra) at p 219:

"The common law fears that the champertous maintainer might be tempted, for his own personal gain, to influence the damages, to suppress evidence, or even to suborn witnesses."

That was in 1963. Over 30 years later, when Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 was decided, the public policy criteria by which maintenance was judged, had been relaxed considerably. As Lord Mustill said, at p 153:

"As the centuries passed the courts became stronger, their mechanisms more consistent and their participants more self-reliant. Abuses could be more easily detected and forestalled, and litigation more easily determined in accordance with the demands of justice, without recourse to separate proceedings against those who trafficked in litigation. In the most recent decades of the present century maintenance and champerty have become almost invisible in both their criminal and their tortious manifestations. In practice, they have maintained a living presence in only two respects. First, as the source of the rule, now in the course of attenuation, which forbids a solicitor from accepting payment for professional services on behalf of a plaintiff calculated as a proportion of the sum recovered from the defendant. Secondly, as the ground for denying recognition to the assignment of a 'bare right of action'. The former survives nowadays, so far as it survives at all, largely as a rule of professional conduct, and the latter is in my opinion best treated as having achieved an independent life of its own."

61 Later in his speech, Lord Mustill expressed the view that:

"the law on maintenance and champerty can best be kept in forward motion by looking to is origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants." (at p 164)

62 The interests of vulnerable litigants was emphasised by Atkin LJ in Wild v Simpson [1919] 2 KB 544 at 563, who said:

" ... the offence of maintenance, apart from the interest of the public generally, is directed primarily, not at the client maintained, but at the other party to the litigation. He has the right to be free from litigation conducted by the assistance of persons working for their own interests, and not in order to give lawful professional aid to the opposing litigant."

63 This principle is reflected in the proposition stated by Lord Loughborough in Wallis v Duke of Portland [1797] EngR 536; (1797) 3 Ves 494:

"that parties shall not by their countenance aid the prosecution of suits of any kind, which every person must bring upon his own bottom, and at his own expense."

64 This proposition was accepted as "the general rule against maintenance" by Dixon J in Stevens v Keogh [1946] HCA 16; (1946) 72 CLR 1 at 35. But as his Honour noted, "the law from the earliest times has countenanced some relaxation of the utmost strictness of that rule". One notable exception to the rule is the poverty of the litigant. Thus, in Stevens v Keogh the funding by the Police Association of New South Wales of an action brought by an impecunious member did not constitute maintenance.

65 Dixon J observed earlier in his judgment (at 28) that "the law of maintenance is founded not so much on general principles of right or wrong or of natural justice as on consideration of public policy. However:

"Notions of public policy are not fixed but vary according to the state and development of society and conditions of life in a community."

66 Although the applicants base their case on public policy, they have not identified any specific risks to the administration of justice in their written submissions. There, they rely on various features of the arrangements between IMF, Solomon Brothers and the plaintiffs, which, although they might provide a foundation for alleging the tort, are not directly relevant to a claim based only on public policy grounds.

67 In the course of argument, leading counsel for the applicants was asked by the Court to say what the mischief is, which threatens the administration of justice so as to result in champerty being regarded as contrary to public policy today (TS 15).

"It inevitably has the tendency to distort what's sometimes called the purity of the litigious process."

69 When pressed to clarify that answer, counsel submitted that this could happen in a variety of ways: "... the more extravagant ways are the ones that tend to be identified in the cases, suborning witnesses and so on". Counsel submitted that a distinction should be drawn between, on the one hand, litigation in which a plaintiff seeks only to recover compensation for a loss; and on the other, litigation maintained champertously, where "the funder is in it for the profit" (TS 16).

70 Counsel submitted, in substance, that it is inappropriate, or impractical to wait and see whether some "gross evil" actually happens. If it did happen, it might never be discovered: or at least until it was too late to be remedied. Hence,

" ... the public policy sets itself against entertaining that risk" (TS 16)

71 It may be that litigation funding agreements give rise to risks of the kind identified by counsel. But are those risks any greater than they would be (for example) in litigation funded by an insurance company? Obviously, the situation is different in that, there, a pre-existing relationship exists: that of insurer and insured. However, whether the claim arises from a motor vehicle accident or alleged negligence on the part of a legal practitioner, it is common practice for the insurer, who is subrogated to the rights of the insured, to investigate the claim, assemble evidence, instruct its own solicitors and generally exercise control over the litigation.

72 In terms of risk of abuse, therefore, there may be no difference in fact between a litigation funder with an eye to maximising profits and an insurance company with an eye to minimising losses. Indeed, it may be said that the litigation funder has a greater incentive to ensure that he conducts himself properly. Not only are his activities likely to be the subject of close scrutiny, but any transgression is likely to have a markedly deleterious effect on his ability to conduct his business in the future. By contrast, only a small portion of an insurer's business is likely to lead to litigation.

73 How then, does the court identify or define public policy in this area of the law? In Giles v Thompson [1993] UKHL 2; [1993] 3 All ER 321, in the Court of Appeal, Steyn LJ referred to public policy as "an intractable field". As he pointed out:

"The private notions of judges as to what is good or inexpedient policy are irrelevant. Still less is it relevant what judges consider the policy in an ideal community should be."

74 In a different context - whether an agreement was contrary to public policy and therefore void - Isaacs J said in Wilkinson v Osborne [1915] HCA 92; (1915) 21 CLR 89 at p 97:

"In my opinion the 'public policy' which a Court is entitled to apply as a test of validity to a contract is in relation to some definite and governing principle which the community as a whole has already adopted either formally by law or tacitly by its general course of corporate life, and which the Courts of the country can therefore recognize and enforce. The Court is not a legislator: it cannot initiate the principle; it can only state or formulate it if it already exists."

75 The High Court considered a similar question in A v Hayden [1984] HCA 67; (1984) 156 CLR 532. There, at 558, Mason J referred to a passage in the judgment of Jordan CJ in Liebermann v Morris [1944] HCA 13; (1944) 69 CLR 69 who said:

" ... the phrase 'public policy' appears to mean the ideas which for the time being prevail in a community as to the conditions necessary to ensure its welfare; so that anything is treated as against public policy if it is generally regarded as injurious to the public interest ... public policy is not, however, fixed and stable. From generation to generation ideas change as to what is necessary or injurious, so that 'public policy is a variable thing. It must fluctuate with the circumstances of the time': Naylor, Benzon and Co v Krainische Industrie Gesellschaft [1918] 1 KB 331 at 342."

"The problem is one of formulating with any degree of precision the criteria or the circumstances which will justify a court in refusing to enforce a contract on the ground that there is a countervailing public interest amounting to public policy. The difficulties in ascertaining the existence and strength of an identifiable public interest to which the courts should give effect by refusing to enforce a contract are so formidable as to require that they 'should use extreme reserve in holding such a contract to be void as against public policy, and only do so when the contract is incontestably and on any view inimical to the public interest', to use the words of Asquith LJ in Monkland v Jack Barclay Ltd [1951] 2 KB 252 at 265." (my emphasis)

77 In my view, the same consideration should apply not only to striking down a contract on the grounds that it contravenes public policy but also, in staying proceedings on that basis.

78 That being so, the applicants face two significant obstacles. First, it cannot now be said that every litigation funding agreement is inherently bad. Under the Corporations Laws, liquidators are empowered to enter into such agreements, subject to court approval. It must therefore be regarded as being in the public interest to enable liquidators of insolvent companies to proceed in this way, so as to obtain compensation for wrongs which might otherwise go unremedied.

79 Litigation funders who contract with liquidators for this purpose will usually have a profit motive. And the fact that the Court approves the arrangements cannot eliminate the risks of the kind identified by the present applicants. However, such risks are no doubt regarded as acceptable when the liquidator is an experienced professional, who has the benefit of advice from an independent legal practitioner. In a compulsory liquidation, the liquidator is also an officer of the court. In those circumstances, there would be little likelihood of the defendants being oppressed unfairly by the litigation.

80 Secondly, in this case, the arrangements offered by IMF appear to have the approval of the executive government, at least in principle. On 31 July 2001, the Minister for Consumer and Employment Protection made a statement in the Legislative Assembly about "Litigation funding for victims of the finance broking scandal".

81 The Minister said he wished to give the Assembly "details of funding for investors taking legal action to recover losses from finance brokers and their professional advisers. This included funding to be made available through the Legal Aid Commission. The Minister's statement concluded:

"Investors now have a choice between applying for Government Assistance for their legal case or using the services of (IMF).

Investors will know that (IMF) will collect a 30 per cent fee from any successful case. A further five per cent will be paid to the Real Estate Consumers' Association." (AB 1082)

82 In my view, the Minister's recognition of IMF in this way reflects a public interest in permitting litigation funding. If this amounts to an endorsement of IMF's activities, it emphasises the need for the applicants to identify some devil in the detail of the funding arrangements, if they are to succeed in their application for a stay.

83 I therefore turn to an examination of the arrangements in question. There are two related elements: funding agreements and retainer agreements. I deal with them in turn.

84 The agreement dated 14 August 2001 and made between IMF and Joanne Marie Treacy, the first named plaintiff, provides the basis for the applicant's submissions, being typical of the agreements in question (AB 317).

85 The agreement recites that IMF is licensed pursuant to the provisions of the Debt Collectors Licensing Act 1964 and the Security and Related Activities (Control) Act 1996. The recitals then refer to the debt owed by the first defendant to Ms Treacy (there referred to as "the Appointor") which is said to have arisen out of a mortgage lending transaction brokered by the third defendant. The recitals continue:

"The Appointor wishes to appoint IMF to collect the Debt, to investigate the facts and circumstances surrounding the Debt, and the Transaction and to receive any moneys agreed or adjudged to be due to the Appointor in relation to the Debt and/or the Transaction.

IMF has agreed with the Real Estate Consumer Association Inc to retain the services of the Association to assist IMF with the work set out herein upon the basis that IMF will pay the Association $30 per hour and one-seventh of any amount received under cl 9 hereof.

The Appointor has been provided with the Explanatory Material."

86 The explanatory material is a short document dated 30 July 2001 prepared by IMF and entitled "Explanatory Material for West Australian Finance Broking Victims" (AB 323).

87 The explanatory material refers to an agreement between IMF and the Real Estate Consumer Association Inc ("RECA") to provide funding for victims of West Australian finance brokers, to enable them to recover their debts and losses from loans and other investments made through such brokers. RECA is said to be providing support and assistance to IMF.

88 The document goes on to refer to the fact that recovery would be pursued "from all available and worthwhile sources, including the Finance Brokers Supervisory Board". The nature of the recovery action would depend on the circumstances applicable to the particular debt or loss recovery claim.

89 Under the heading "How to join the IMF plan", the document summarises the effect of the funding agreement, including the remuneration of IMF and RECA. It is said that IMF would assess, and where appropriate, investigate the remedies available for recovering the debt or the consequential losses. If IMF considered there was no worthwhile remedy, it would advise the client (ie the plaintiff) and terminate the appointment: "If that occurs, the client will owe IMF nothing".

90 If, however, IMF considered the pursuit of a remedy to be worthwhile, it would notify the client and take appropriate steps. These steps included "engaging Solomon Brothers as solicitors for the client".

91 IMF agrees to pay all legal and other expenses of investigation and funding recovery, including remuneration to RECA for its services, at the rate of $30 per hour. IMF agrees also to pay all legal costs awarded to a successful defendant.

92 Under the heading "Remuneration of IMF and RECA", the document states:

"If the client recovers any money, IMF will be owed by the client:-

a) the amount spent in funding and investigation costs; and

b) 35% of the amount recovered (from which 5% of the total amount recovered will be paid by IMF to RECA)

and those amounts will be paid to IMF and the balance to the client. The result is there is nothing for the client to pay, except out of money which is recovered."

93 The document then sets out the provisions relating to settlement. In summary, they are as follows:

• A client who wished to settle would be obliged to notify IMF in writing. If IMF agreed with the proposal, it would be accepted. If not, the matter would be referred to a Queen's Counsel for independent review. If counsel's opinion was that the settlement proposal was inadequate, the client could nevertheless accept it: but the 35% commission would be increased to 45%.

• If IMF decided to withdraw, it would pay all costs up to the date or termination. If the client later recovered any money, he or she would be obliged to pay IMF's expenses down to termination, but not the 35% commission.

94 It will be convenient at this point, to dispose of a submission made by the applicants and several submissions made by the plaintiffs. The applicants contend that the involvement of RECA constitutes a third-line forcing in breach of s 47(6) of the Trade Practices Act 1974 (Cth). I do not accept that to be so. That is because RECA has agreed to provide its services, not to the plaintiff client, but to IMF, which pays for them. It is true that by entering into an agreement with IMF, each plaintiff will involve RECA to the extent referred to in the explanatory material. However, no plaintiff is forced to contract with IMF.

95 The plaintiffs contend that IMF had a pre-existing interest in the litigation by reason of its appointment as an investigator and debt collector. I do not accept that submission. Those appointments were made a part of the funding arrangements.

96 Nor do I accept the proposition, set out in the Notice of Contention, that because IMF is licensed as a debt collector, pursuant to the Debt Collectors Licensing Act 1964, and is therefore entitled to charge a fee calculated as a percentage of the amount recovered, its funding arrangements in the present case cannot be classified as champertous.

97 I respectfully adopt the reasoning of Murray J in Choules v Siglin [2002] WASC 230. That was an interlocutory stay application which arose in an action funded by IMF on the same terms as the present action. The application was based on the proposition that the funding arrangements were tortiously champertous.

98 Murray J observed (at par 42) that a debt in this context, "must mean a debt which is claimed; not simply one which is established to be owing by a court order". His Honour went on to hold that there is nothing in the above Act or the regulations made under it, to suggest that a debt collector has a statutory authority to enter into a champertous agreement.

99 I agree also with Murray J that IMF could derive no such statutory authority from the fact that it is a licensed enquiry agent under the Security and Related Activities (Control) Act 1996. As Murray J said (at par 43) of both Acts:

"These pieces of legislation delineate the legitimate business activities of (IMF) for which it may properly charge. They would not extend to improper intermeddling in legal proceedings or their wrongful maintenance for reward in the form of a share of the proceeds."

100 The plaintiffs then contend that RECA had a pre-existing interest in the litigation arising out of its role, as "a not-for-profit incorporated association of persons who had suffered losses in investing through licensed finance brokers or who had suffered losses in entering into other real estate related transaction" (AB 16).

101 I accept the proposition, but I regard it as irrelevant. That is because RECA is not funding the litigation and has no capacity to influence the outcome. I shall refer below to RECA's role in the matter.

102 I return to the operative parts of the funding agreement, which give effect to the explanatory material. Clause 1 is a definition and interpretation provision. By cl 2, the appointor irrevocably appoints IMF as a debt collector to collect the debts, and as an enquiry agent to investigate relevant persons and corporations and to gather and prepare evidence in relation to the mortgage lending transaction which gave rise to the debt. IMF is to provide such evidence to Solomon Brothers and to give viva voce evidence as and when required to do so by those solicitors.

103 Clause 2 also entitles IMF, at its sole discretion, to terminate either or both of its appointments. However should it do so, IMF retains no entitlement to any commission or other payment unless the relevant debt is paid in some way. In that case, the appointor is obliged to pay IMF's out of pocket expenses down to the date of termination.

104 Clause 3 deals with IMF's rights and obligations in relation to the receipt of moneys representing the whole or part of the relevant debt.

105 Clause 4 identifies the services to be provided by IMF. In summary, IMF is to provide assistance to Solomon Brothers as they might reasonably require from time to time, and to supply the services of IMF's licensed investigators to investigate and report to Solomon Brothers on the conduct of persons including those involved in the loan transaction.

106 The agreement therefore assumes, consistently with the explanatory material, that Solomon Brothers will be the appointor's solicitors, they having been appointed by IMF on the appointor's behalf.

107 Clauses 5 to 9 contain provisions relating to funding by IMF and its involvement in the proceedings. They are crucial to this application. Although they reflect the explanatory material, I will set them out in full:

"5. Funding by IMF

5.1 IMF shall bear and pay the cost of investigations referred to above and shall employ, at its own cost, such experts as are required by the Solicitors, to interpret the evidence, documents and statements gathered by IMF ('the Investigation Costs').

5.2 IMF shall bear and pay all solicitor and party costs payable by the Appointor to the Solicitors in relation to any legal work done by the Solicitors in relation to the collection of, payment of or payment in lieu of the Debt from the Debtor; or any other party thought liable by the Solicitors to pay or make payment in lieu of the Debt, or any such work done by the Solicitors in relation to the payment of any settlement debt, or judgment debt arising out of the Debt and/or the Transaction ("the Funding Costs").

5.3 The Solicitors will be retained by the Appointor but will be paid directly by IMF upon invoices being rendered by the Solicitors.

5.4 If any legal proceedings commenced by the Solicitors on behalf of the Appointor are dismissed or discontinued with no recovery in favour of the Appointor then IMF will pay the taxed costs of the successful party to that litigation.

5.5 IMF will provide any security for costs ordered by the Court in which litigation issued by the Solicitors on behalf of the Appointor has been commenced and will provide a guarantee for payment of those costs if so required.

6. IMF's Rights

6.1 IMF shall be entitled:

(a) to receive from the Solicitors a monthly report on the progress of any litigation commenced by the Solicitors on behalf of the Appointor and of any negotiations carried out in relation to the litigation;

(b) to be advised immediately by the Solicitors of any proposal for settlement; and

(c) to have access to the Solicitors' file held in respect of the litigation provided that nothing in this subclause shall entitle IMF or any of its representatives to use any documents obtained on discovery or otherwise than for the purposes of the litigation in question.

7. By execution of this Agreement the Appointor instructs the Solicitors to observe the rights of IMF under this Agreement and acknowledges that production of this Agreement to the solicitors shall constitute sufficient evidence of those instructions.

8. The Appointor shall ensure that IMF's rights under this Agreement are observed but, in exercising such rights or providing services under this Agreement IMF will not interfere with the conduct of legal proceedings or the terms of any settlement thereof which shall remain at the discretion of the Appointor and the Solicitors.

9. Commission and Fees

9.1 In consideration for IMF providing the services set out in clauses 2.2 and 4 hereof and providing the funding set out in clause 5 hereof the Appointor shall pay from any monies collected or received by the Appointor the following to IMF:

(a) actual out of pocket payments in the Investigation Costs;

(b) the Funding Costs; and

(c) 35% of any monies collected or received by IMF as a result of any debt collection services or any settlement or judgment arising out of litigation instituted by the Solicitors in relation to the Debt and/or the Transaction.

9.2 For the removal of doubt no fees, commissions or other payments will become due or owing by the Appointor unless and until such collection or receipt occurs and then only to the extent of that collection or receipt."

108 Clause 10 contains provisions relating to settlement. They are essentially as I have summarised them above, from the explanatory material. There is a provision whereby IMF agrees to assist in any settlement negotiations, if so requested by Solomon Brothers.

Is the funding agreement contrary to public policy?

109 The applicants point to a number of features of the funding agreement which, they submit, illustrates its champertous nature. However, I repeat and emphasise, that the applicants do not base their case in the tort.

110 There was clearly no relationship between IMF and the plaintiffs before they entered into the funding agreement. Despite this, IMF stands to gain 35 per cent (and possibly 45 per cent) of the fruits of any judgment or settlement in favour of a plaintiff, as well as its investigation costs and its funding costs. Those costs include the fees charged by Solomon Brothers which may well be substantial, and greatly in excess of any costs recovered following a taxation. It is to be noted that neither the explanatory material nor the funding agreement itself states the basis on which Solomon Brothers will charge.

111 In an affidavit filed in opposition to the stay application Mr McLernon said that about 1,000 investors had entered into funding agreements with IMF. (This figure seems to have risen to about 2,500, according to correspondence between Mr McLernon and Solomon Brothers following the publication by Scott J of his decision. I shall refer to the correspondence below).

112 The applicant places weight on the fact that so many litigants are ranged against them. In their written submission, counsel for the applicants say:

"This is not a single incident. The third party has gathered together thousands of plaintiffs who are intending to prosecute actions in this Court in the same manner.

...

The scarce resource of the Court is to be subverted on a large scale to the case of a commercial enterprise in the form of the prosecution by third parties of other people's litigation for profit.

...

The conduct of ILF in engaging RECA for a fee of 5% of all recoveries to be paid for no identifiable reason other than as a spotter's fee for introducing potential litigants to ILF emphasises the officious intermeddling in which ILF is engaged."

113 Clearly, there is a profit motive here. IMF is a public company which carries on the business of litigation funding in order to earn profits for its members. However, that cannot be the only criterion. In my view, it is relevant also to consider the circumstances in which IMF became involved.

114 Mr McLernon deposes to the fact that IMF was approached by Ms Denise Brailey, the President of RECA, and by Mr Douglas Solomon on behalf of Solomon Brothers (AB 464).

115 Ms Brailey has sworn an affidavit setting out her involvement in RECA, an association which she formed with twelve others in 1997. It is "a support group for those who had suffered substantial loss as a result of dishonest real estate agents, settlement agents and other persons who held licenses to operate in industries related to real estate" (AB 702).

116 Ms Brailey deposes to the difficulties faced by these victims of dishonest or unlawful practices, including the lack of funds to pursue litigation.

117 In her capacity as president of RECA, Ms Brailey worked with Solomon Brothers, to whom RECA referred many of its members. Ms Brailey says in her affidavit:

"16. In the course of attempting to recover the losses of RECA members, it became apparent to me that litigation to recover loans, whether from borrowers and guarantors or advisers, could prove difficult, expensive, time consuming and involved risks. RECA did not have the facilities to properly assist all of its members. The litigation against the persons involved in the finance broking industry and professionals who provided advice inevitably became particularly expensive. Further, pursuing borrowers and guarantors was often ultimately fruitless. ...

17. It became clear to me that many of RECA's members, many of whom had invested in multiple loans which were in default, could not continue to meet legal fees. Mr Solomon from time to time informed me that his firm had a limited capacity to continue 'carrying' clients who were unable to pay."

118 Ms Brailey then raised some funds to enable an RECA member to bring an application for discovery against the FBSB, as a potential party, pursuant to O 26A r 4. The application was heard in January 2001. On 7 March 2001, Master Bredmeyer gave a judgment in favour of the applicant, subject to the order being settled. The Master noted that the applicant, who was acting in a representative capacity, had collected $15,000 from other persons affected by the actions of dishonest finance brokers. This sum was to be used as security for costs.

119 Ms Brailey says in her affidavit she formed the opinion that RECA has no real prospects of raising sufficient funds to purse the FBSB: and she was informed by many members that they were unable to provide any further contributions to fund any litigation. The present plaintiffs have all provided affidavit evidence to the effect that they cannot afford to litigate without the assistance of IMF.

120 In about June 2001, Ms Brailey learned that the liquidator of Global Finance was seeking or had obtained funds from IMF to enable him to bring proceedings against its auditor. Ms Brailey then spoke to Mr Solomon about IMF. He advised her to contact IMF: and a meeting was arranged between them and Mr McLernon (AB 705-6).

121 Mr McLernon deposes to the fact that as a result of the meeting, and subsequent discussions with Mr Solomon, he came to the firm conclusion that each of the lenders (ie the RECA members) "was owed a clear unarguable debt both by the borrowers and the guarantors (and) ... that there existed serious grounds to consider actions against other parties" (AB 465).

122 Following negotiations, Mr McLernon, Ms Brailey and Mr Solomon reached a general agreement. Mr McLernon then prepared a draft funding agreement, substantially in the terms he had used throughout his ten years in the litigation funding business (AB 466).

123 The draft was sent to all RECA members. Over 1,000 members accepted it. RECA's executive committee also accepted it. Ms Brailey says that RECA intends to use the funds it receives , "to carry on operations as a community watchdog and support group for persons who suffer loss from dishonest or improper practices" (AB 706).

124 The evidence demonstrates that there are many people in the community who have suffered financial loss as a result of the finance brokers scandal and who have a legitimate wish to seek redress by litigation. If they are unable to avail themselves of the services offered by IMF, many of these people may have no opportunity to seek a remedy in this way.

125 The evidence does not support the applicants' submission that IMF has "gathered together" the litigants - in the sense of seeking them out. However, RECA appears to have done very little beyond introducing investors to IMF.

126 Accepting that IMF's offer of funding meets a community need, it nevertheless seems to me that there is an element of exploitation of the plaintiffs. Mr and Mrs Henning are retired farmers, as are Mr and Mrs Soullier. Ms Treacy describes her occupation as "homemaker". It is clear enough from their affidavits that the plaintiffs have no financial or legal expertise.

127 The plaintiffs have entered into funding agreements with IMF by which they will pay substantial commission and (if successful) legal fees far in excess of those recoverable from the defendants. I shall refer below to the fact that the fee arrangements were agreed between IMF and Solomon Brothers without consulting the plaintiffs, who were never informed about them.

128 Clause 8 of the funding agreement provides expressly that IMF will not interfere with the conduct of the legal proceedings or the terms of any settlement, "which shall remain at the discretion of the Appointor and the Solicitors". And Mr McLernon has deposed to the fact that "all legal work and all legal decisions are made by Solomon Brothers". However, in my view, the Court should not ignore the high probability that this action will be taken out of the plaintiffs' hands and run by IMF. I draw that inference from the agreement itself, and Mr McLernon's evidence.

129 IMF is entitled to a monthly report from the solicitors; it is to be advised "immediately" of any proposal for settlement: it is to have access to the solicitors' files. It will assist in settlement negotiations "if requested" by the solicitors.

130 As to settlement, Mr McLernon says he is informed by those in Solomon Brothers having the conduct of the matter:

"That Solomon Brothers are likely to seek IMF's input into settlement negotiations. Because of my background and training, and because I am in charge of the investigation team, I discuss legal and factual matters with members of Solomon Brothers on a regular basis"

Mr McLernon refers to his background and training earlier in his affidavit. In summary, this includes:

• a Bachelor's degree in Law from the University of Western Australia in 1970

• approximately seven years as a prosecution counsel with the Crown Law Department of Western Australia

• approximately ten years as a barrister at the Independent Bar in Western Australia

• approximately twelve years carrying on business in the litigation funding field.

131 Mr McLernon is undoubtedly very experienced in commercial litigation. Although I do not doubt that the legal work will be carried out by Solomon Brothers and that decisions about such matters as settlement will be made by the plaintiff, those decisions will, I think, be formalities. The plaintiffs will become mere ciphers. Indeed, the plaintiffs all say in their affidavits that they do not have sufficient expertise to deal with the litigation themselves. From their perspective, there is nothing to lose, and everything to gain by accepting the advice given to them by IMF, through Solomon Brothers. And as will be apparent from a consideration of the retainer agreement, to which I shall refer below. Solomon Brothers have a common interest with IMF in the success of the action.

132 In my view, it is probable that, playing for such high stakes as he is, Mr McLernon will exert the greatest possible influence over the litigation. I say "high stakes", having regard to the fact that there are so many potential actions, which will be funded on the same terms. However, it is very likely that if the present action and perhaps a few similar actions are prosecuted to a successful conclusion, many, if not all of the others will settle. Thus IMF would collect 35 per cent commission for very little risk and perhaps a relatively small amount of effort.

133 The funding agreements are presented to the court on the basis that they will enable the plaintiffs to prosecute their action for a fee of about 35 per cent of the amounts recovered. If the documents before the Court, and the affidavit evidence from Mr McLernon are to be accepted at their face value, that must be so. However, as Laddie J said in Microsoft Corporation v Electrowide Ltd [1997] FSR 580, 594:

" ... the mere fact that the defendants support their defence by sworn evidence does not mean that the court is obliged to suspend its critical faculties and accept that evidence as if it was probably accurate."

134 As I have said, I do accept the evidence that, as a matter of form, the legal work will be carried out by Solomon Brothers and the plaintiffs will make the decisions. But if, in substance, the plaintiffs will simply do as they are advised by IMF, the effect will be a de facto assignment of their causes of action. Thus, in reality, IMF will not be funding the plaintiffs' action for a commission of about 35 per cent of the amounts recovered: it will be running the action for its own benefit, in consideration of a payment to the plaintiffs of about 65 per cent of the recovery.

135 Even if this conclusion is regarded as unduly cynical, the fact that the potential exists for IMF to conduct itself in that way is, I think, a sufficient ground for concern. That view accords with the observation made by the Full Court of the Federal Court in Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd & Ors (1997) 72 FCR 261, at 269, that where there may be "the real potential for an abuse of the Court's process" a stay might be justified in some cases.

136 I recognise that the applicants' professional indemnity insurers are entitled to exercise a similar degree of control in relation to their defence of the action. For example, cl 7.2 of the Certificate of Professional Indemnity Insurance issued to Western Australian legal firms provides that the insurers are entitled at any time:

"(a) at their own cost, to take over the conduct of the Insured's defence of a claim; or

(b) to relinquish conduct of the Insured's defence of a claim; or

(c) to settle a claim, but only with the Insured's consent." (AB 554)"

137 However, that is in the nature of subrogation, the insurer having a legitimate pre-existing interest in the litigation. An insurer is in a different position from a litigation funder, with no interest other than to profit from the dispute. It is the introduction of that extraneous element into the dispute which is regarded as oppressive to the defendant to a champertously maintained action and hence contrary to the public policy.

138 As I noted in Bandwill (supra) at par 36, a court considering an application for a stay in circumstances such as this, must carry out a balancing exercise, between, on the one hand, the risk to the administration of justice posed by the involvement of a litigation funding agreement, and on the other hand, the interests of the plaintiffs.

139 The circumstances of this case make that a difficult exercise. On the one hand, it may fairly be said that if this action proceeds to trial, albeit funded by IMF, the Court's role will be to determine the parties' rights: and it is in the public interest that this should happen.

140 No doubt, the plaintiffs are perfectly content to proceed in this way, although I can see no evidence that they received any independent advice before entering into the funding agreements.

141 On the other hand, if, as I believe, the action will be run as if the plaintiffs had assigned their causes of action to IMF, the Court should bow to the weight of persuasive authority and regard the litigation as an abuse of process. In Trendtex Trading Corporation v Credit Suisse [1992] AC 679 at 703, Lord Roskill expressed the view of the majority of the House of Lords in holding that the prohibition against assigning a bare right to litigation "still remains a fundamental principle of our law". This view was endorsed in Giles v Thompson (supra) in the passage in Lord Mustill's speech, which I have set out above.

142 In all the circumstances, I think it justifiable to describe IMF's activities in substance, as "trafficking in litigation", within the tentative definition adopted by the Court of Appeal in Stocznia Gdanska v Latreefers Inc, unreported; Court of Appeal, UK, 9 February 2000, to which I referred in Bandwill (supra) at par 52:

"unjustified buying and selling of rights of litigation where the purchaser has no proper reason to be concerned with the litigation."

143 One of the indicia of trafficking in the present case is, I think, the agreement between IMF and Solomon Brothers, without reference to the clients, that Solomon Brothers should have a 25 per cent uplift in their fees, by way of a success fee. I shall refer to this in more detail when considering the retainer agreements.

144 I therefore accept the submission made by counsel for the applicants that if the litigation proceeds, "the court's resources will be subverted to a commercial enterprise". I would therefore stay the action at least until some safeguard was put in place to ensure that IMF's role was confined to funding.

145 I appreciate that given the extent of IMF's involvement and the role played by Mr McLernon to date, it might be difficult to formulate arrangements which would be acceptable to the court. But that is not a matter which need be addressed now.

146 Although I have reached this conclusion without regard to the retainer agreements, they give rise to further concern, which, in my view, will also justify the intervention of the court.

147 I therefore turn to consider the retainer agreements.

148 Each retainer agreement is said to be comprised by Solomon Brothers' standard Terms of Engagement read together with a letter dated 31 July 2001 from Mr Solomon on behalf of the firm, to Mr McLernon as executive chairman of IMF. If there is any inconsistency between the letter and the standard terms of engagement, the letter is to override.

149 The overriding terms and conditions include a provision that unless IMF recovers, under its funding agreement with a client, all costs and expenses incurred in achieving that recovery, Solomon Brothers will charge 20 per cent below their standard rates.

150 After that level of recovery has been achieved, Solomon Brothers will adjust their fees from the inception of the relevant matter, to 25 per cent above the standard rates. However, Solomon Brothers agree not to amend their hourly rate, until the claims against the FBSB have been finalised, without the consent of IMF. I emphasise that it is IMF's consent which, is required, not the consent of the client.

151 Despite this, the letter goes on to provide that the agreement between the plaintiff client, IMF and Solomon Brothers is a tri-partite agreement and that although the primary obligation to pay legal costs and disbursements generally rests with the client and not the client's agent, IMF will be liable for payment of Solomon Brothers' costs, rather than the client. Thus, Solomon Brothers do not reserve or maintain any right to recover costs from a client if IMF fails to pay them, except from moneys recovered by or on behalf of the client.

152 The letter then acknowledges that IMF will act only as agent for each client and that the responsibility for giving and the entitlement to give instructions to Solomon Brothers, including instructions for settlement or discontinuance of any claims, will rest solely with each client. As I have noted above, while I accept that those formalities will be observed, I think the advice given by IMF will be determinative.

153 The standard Terms of Engagement utilised by Solomon Brothers state that the firm charges by reference to time spent by their professional staff and in accordance with their standard hourly rates, unless otherwise agreed in writing. Those hourly rates range from $300 for a partner down to $130 for an articled clerk. The rates are now below those prescribed by the Legal Practitioners (Supreme Court) (Contentions Business) Determination 2002, which came into operation on 1 June 2002. However, the scale established by that determination does not allow a solicitor to charge on an hourly basis for all the work he carries out. It is therefore very likely that Solomon Brothers would be charging above the scale.

154 Solomon Brothers' Terms of Engagement would normally be addressed to a potential client. The document uses such expressions as:

• We will ... act in accordance with your lawful instructions at all times ..." (my emphasis)

155 However, in the present case, the Terms of Engagement were not sent to the clients, but to Mr McLernon, on behalf of IMF, which assumed the role of agent for those clients who chose to enter into funding agreements. It will be recalled that in the explanatory material provided to investors, IMF stated that if it considered the pursuit of a remedy to be worthwhile, it would engage Solomon Brothers as solicitors for the client.

156 In my view, as the self-appointed agent, IMF's authority was limited to engaging Solomon Brothers upon terms that they would charge on the scale applicable to the work they undertook. The clients did not authorise IMF to enter into a costs agreement on their behalf. However, the retainer agreement clearly purports to be a costs agreement, within the meaning of s 59 of the Legal Practitioners Act 1893. It provides not only for costs to be charged on a different basis than that prescribed, but for a substantial uplift as a success fee.

157 It would be open to a client to ratify and adopt the agreement. However, as Scott J pointed out in his reasons (Treacy & Ors v Rylestone Pty Ltd & Ors [2002] WASC 178 at [39]) there was no evidence that the so-called tripartite agreement had ever been disclosed to the clients.

158 In fact, the agreement had not been disclosed. This was clarified in correspondence between Mr McLernon and Solomon Brothers following the publication of Scott J's reasons. The correspondence shows that the term "tri-partite agreement" is something of a misnomer in the present circumstances.

Developments since the hearing before Scott J

159 On 19 July 2002, some two weeks after Scott J published his reasons for dismissing the stay application, Mr McLernon wrote to Mr Solomon about the arrangements regarding the uplift on Solomon Brothers' fees (AB 1115-6). This letter, and Mr Solomon's reply, were put before the Court by consent.

"It seems to me that the only criticism of our position is that the clients were not specifically informed about the arrangement we made (as agent for the clients) with your firm regarding a 25 % uplift of fees on success."

161 Then after expressing the view that the uplift of fees on success is "beyond normal commercial criticism" Mr McLernon went on to note that the effect on the clients of the arrangement would be minimal. Mr McLernon continued:

"We have adjusted our outgoing proposals since His Honour's decision by advising clients in advance that we will negotiate an arrangement such as that which has been arranged with Solomon Brothers in this matter.

I think it would be a cautious move on our part to agree that the whole of the 20% (sic 25%) uplift should come out of the share of IMF.

Our current agreement with each client says that we are entitled to be reimbursed whatever fees are actually paid by us to Solomon Brothers or other solicitors. Our agreement will have to be amended to read that we are entitled to be reimbursed an amount which represents 100% of the fees that are actually charged by the legal practitioners.

In order to protect the position of the clients, I guess we will need to formally amend the 2,500 separate agreements. I would prefer not to have to go to that trouble and expense if at all possible. Could you please let me know whether an agreement with you representing all of the clients would be sufficient?"

162 In my view, Mr McLernon was right to acknowledge the entirely justifiable criticism implicit in the reasons of Scott J. It is an extraordinary thing for an agent to enter into a costs agreement on behalf of his clients, and not tell them. It is equally extraordinary for the solicitors neither to tell the clients nor to request the agent to do so. Indeed, such conduct constitutes a breach of the fiduciary duty owed by the solicitor to his client to advise the client that it is contrary to his interest to pay fees above the scale: see Pryles & Defteros v Green [1999] WASC 34; (1999) 20 WAR 541, at 549, per Parker J, citing Clare v Joseph [1907] 2 KB 369, at 378.

163 As I have noted, Mr McLernon is no longer a legal practitioner. He was entitled, and indeed, obliged, as executive chairman of IMF, to deal with the criticisms in the most cost-effective way. His question to Solomon Brothers was therefore understandable. However, the proper answer to the question was clearly "no". Even if the clients had themselves entered into the costs agreement, or ratified it (which they had not) it was not open to the solicitors to vary it unilaterally.

164 That was not, however, the response. In Mr Solomon's reply to Mr McLernon's letter he agreed to the proposed amendment to the retainer "so that IMF, and not our mutual clients, pay the 25% uplift above Solomon Brothers' usual charges".

165 Mr Solomon agreed also that the agreement between IMF and each client be amended to the effect that each client agree to reimburse IMF for an amount equal to Solomon Brothers' usual charges, without the 25 per cent uplift.

"As the proposed amendment clearly provides a benefit to our mutual clients, with no detriment to them, in my opinion the amendment need not be made by way of a more formal contract. Instead, in ILF's next report to clients, that report should, in brief but clear terms, set out the amendments made by IMF as agent for all clients with us, and the effect of the amendment on the clients. The report should state that, on success, due to the amendment, our mutual clients will be liable to reimburse ILF of 100% of Solomon Brothers' usual fees and that ILF will be solely liable for the 25% uplift. The report should also explain that the sole effect of the amendment is to reduce the amount of legal fees payable by our mutual clients on recovery." (AB 1117)

167 It is not clear whether IMF has reported to the plaintiffs in the way proposed by Mr Solomon. If so, it may have surprised them to learn that a cost agreement of which they had no knowledge had been varied by an agent to whom they had given no authority to conclude any such agreement, and by their solicitor, who had never advised them about the implications of such an agreement.

168 In my view, there are two fundamental problems in the present circumstances. First, despite the agreement by IMF to pay the uplift in Solomon Brothers' fees, Solomon Brothers will still be charging above, or at least on a different basis from, the scale. And as I have noted, to the extent that their fees exceed those recovered from an unsuccessful defendant, the clients will be paying, in the sense that they will recover less in damages than would otherwise be the case. This arrangement still has the hallmark of a costs agreement, but the clients have not received proper advice in relation to it.

169 Secondly, by agreeing that IMF will pay the uplifted portion of their fees out of its commission, Solomon Brothers have placed themselves in a position of conflict, or potential conflict with their client. That is because IMF's commercial interest in pursuing or settling the action, as it proceeds to a conclusion, may not coincide with the client's interest. And yet Solomon Brothers' fiduciary duty is owed to the client.

170 There is a potential for such a situation to arise in any funded action, but if the client is advised by a solicitor who has no interest other than the payment of his proper professional fees, the solicitor can be relied upon to have regard only to the interests of his client. As Marks J said in Commissioner for Corporate Affairs v Harvey [1980] VicRp 64; [1980] VR 669, at 76:

"It is the purity of interest in the adversaries before the court that gives what fundamental utility and credence there is in the system."

But where, as in this case, the solicitor has a personal interest in the outcome of the action that "purity of interest" is absent.

171 Furthermore, if IMF distances itself from the litigation, the solicitor would not have the incentive to advise the clients about the commercial risks inherent in the litigation. That is because neither the client nor the solicitor would be at risk if the matter proceeded to an unsuccessful conclusion. A client with a weak case could press on, in the hope of success. Such success would produce a consequential uplift in the solicitor's fees. In my view, it is undesirable that a solicitor should be placed in such a position.

172 I have referred above to the difficulty experienced by the courts in identifying and articulating public policy. However, in dealing with legal practitioners and the conduct of litigation, the courts can speak with authority in saying that it is "incontestably and on any view inimical to the public interest" to permit a solicitor to act in any case in which his interest conflicts with his client's interest. That proposition, I think, provides the foundation for the following passage in the joint judgment of the High Court in Clyne v New South Wales Bar Association [1960] HCA 40; (1960) 104 CLR 186 at 203:

" ... a solicitor may with perfect propriety act for a client who has no means, and expend his own money in payment of counsel's fees and other outgoings, although he has no prospect of being paid either fees or outgoings except by virtue of a judgment or order against the other party to the proceedings. This, however, is subject to two conditions. One is that he has considered the case and believes that his client has a reasonable cause of action or defence as the case may be. And the other is that he must not in any case bargain with his client for an interest in the subject-matter of litigation, or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding ..."

173 With respect, I do not think it can be said that an interest in the subject matter of litigation must necessarily be represented by remuneration proportionate to the amount which may be recovered: although the converse will always be true. Here, Solomon Brothers have an interest in the subject matter of the litigation because they accepted IMF's proposal, contained in Mr McLernon's letter of 19 July 2002, that the uplift be paid "from the judgment proceeds" (TS 1116).

174 In the passage cited above, the High Court was contemplating a situation in which the solicitor had bargained with his client for an impermissible interest. In my view, the case is a fortiori, where, as here, the solicitor has not bargained with the client, but with a third-party litigation funder, without reference to the client.

175 The application was interlocutory only. It is accepted by the applicants that the matters about which they complain may be rectified. I agree. But that is a matter for the respondents. In my view, in the circumstances to which I have referred above, the action should now be stayed.

176 In reaching the conclusion the action should be stayed, I differ from Scott J, who held that there was a prima facie case of champerty, but declined to stay the action. His Honour was of the view that the considerations which had motivated me to decline a stay in Bandwill (supra) were relevant here. However, in Bandwill, on the evidence available for the interlocutory application, the litigation funder had a pre-existing interest in the subject matter of the action sufficient to justify its maintenance of that action. That was not a factor in this case.

177 I therefore respectfully consider that Scott J fell into error in exercising his discretion as his Honour did. The discretion therefore falls to be exercised anew. I think this is required in any event, in the light of the developments since Scott J delivered his decision. I have referred above to these matters, which the Court was invited to take into account. In my view, it would be unrealistic to ignore them.

178 I have reached a different conclusion also from Murray J in Choules v Siglin (supra).

"It seems to me that the funding arrangements in this case are not champertous in the sense in which that term is now understood by the law. Certainly the litigation is funded by ILF, but that alone will not make for improper maintenance of the character described as 'champerty'. There needs to be a wrongful element which would enable what is being done or what is to be done to be characterised as tortious. There needs to be some wrongful intermeddling for a share of the proceeds by the stranger to the litigation. I see nothing of immediate concern in the engagement of ILF in a debt collecting and investigatory role, nor, as I have said, do I see anything to cause concern in the involvement in the manner described of Ms Brailey. The agreements do not entitle ILF to give instructions to affect the course of the litigation. Indeed, in my opinion, the solicitors may not receive instructions from that source, but only from the plaintiffs. That is so even in relation to the issue of achieving settlements in respect of which ILF has a clear involvement."

"I must say that I find the arrangements which have been made to be undesirable. I make no comment on the capacity of the solicitors to recover the fees which may ultimately be charged. I merely conclude that the particular fee structure involving the solicitors, ILF and Ms Brailey does not seem to me to provide a ground upon which the grave step of the grant of a stay should be taken. The litigation is undoubtedly a genuine claim on the

part of the plaintiffs. It would be a grave step indeed to make an order which would substantially interfere with their capacity to pursue their action, at least pending the making of different arrangements to secure their legal representation. From the point of view of both the solicitors and ILF the enterprise is of a frankly commercial character. Although not noticeably altruistic, it does not seem to me to be of a kind which would make the pursuit of the action unjust or unfair from the point of view of the defendants."

181 On the view I take, the Court should look behind the provisions of the agreements and consider the relationship which exists between IMF, Solomon Brothers and the plaintiffs, and hence, the way in which the agreements are likely to be implemented. It is the risk of improper intermeddling in the litigation by IMF, together with the improper conduct of Solomon Brothers in accepting an interest in the proceeds of litigation, which lead me to conclude that the action should be stayed.

182 I would therefore grant the applicants leave to appeal, and allow the appeal to the extent set out above.

183 WHEELER J: I have read, in draft, the reasons for decision to be delivered by Templeman and Pullin JJ. I agree with those reasons and have nothing further to add.

184 PULLIN J: Templeman J in his reasons for decision has set out the facts. I agree with his Honour's reasons for decision and add the following reasons of my own.

185 The respondents have filed detailed submissions which suggest that the action for damages for the tort of maintenance or champerty is an action which will not lie except against a person guilty of the criminal act of maintenance or champerty. They refer to a number of cases to support this proposition. See, for example, Metropolitan Bank Ltd v Pooley (1885) 10 App Cas 210 at 218. The respondents submit that because maintenance and champerty are not crimes in Western Australia, the actions cannot be maintained. It is not necessary to consider this question in this case because the appeal is not concerned with the issue. The appellant relies not on the existence of the tort of maintenance and champerty but on the ground that the champertous arrangement in this case involves a risk to the administration of justice. The courts will scrutinise champertous agreements on public policy grounds. See, for

example, Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 at 209-210, where the Judicial Committee held that although maintenance and champerty were not punishable offences in India, nevertheless champertous agreements were subject to the scrutiny of the court, and that champertous arrangements were, under certain circumstances, to be held invalid as against public policy. Further, it is clear that the court has jurisdiction to stay proceedings which are an abuse of process. See Walton v Gardiner (1993) 177 CLR 378 at 393 - 394; Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150; Elfic Ltd v Macks [2003] 2 Qd R 125 at [66]; Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd & Ors (1997) 72 FCR 261 at 267; Stocznia Gdanska Sa v Latreefers Inc (No 2) [2000] EWCA Civ 36 at [59]- [61].

186 An order staying proceedings to prevent an abuse of process may be made even if the plaintiff has a prima facie case: Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 522.

187 In Grovewood Holdings plc v James Capel & Co Ltd [1995] Ch 80, proceedings funded pursuant to a champertous arrangement were stayed. A similar order was made in In re Oasis Merchandising Services Ltd [1998] Ch 170. See also Einstein J's reasons for decision in Marston v Statewide Independent Wholesalers Ltd [2003] NSWSC 816, who found that litigation funding in relation to opt-in procedures was an abuse of process. In Latreefers' case (supra) at [61], the Court of Appeal said:

"Abuse of the court's process can take many forms and may include a combination of two or more strands of abuse which might not individually result in a stay. Trafficking in litigation is, by the very use of the word 'trafficking', something which is objectionable and may amount to or contribute to an abuse of process. We think that it is undesirable to try to define in different words what would constitute trafficking in litigation. It seems to us to connote unjustified buying and selling of rights to litigation where the purchaser has no proper reason to be concerned with the litigation. 'Wanton and officious intermeddling with the disputes of others in which they [the funders] have no interest and where that assistance is without justification or excuse' may be a form of trafficking in litigation. ... A large mathematical disproportion between any pre-existing financial interest and the potential profit of funders may in particular cases contribute to a finding of abuse but is not bound to do so."

188 The question as to whether there is an abuse of process and whether a stay should be granted, will be decided, as Templeman J says, by considering the detailed circumstances of the case at hand. See also Latreefers' case (supra) at [60].

189 I recognise that the mere fact that proceedings are financed by third parties with no interest in the outcome other than repayment and profit from the litigation, is not itself sufficient to invoke the jurisdiction of the courts. The court must be careful not to use its power to stay proceedings which will deny access to justice to a party who has sought to fund bona fide proceedings in a way which may be contrary to public policy, unless that which has been done amounts to an abuse of the court's own process: Elfic Ltd v Macks (supra) [67] per McMurdo P; Marston v Statewide (supra) at [52]. There are many commonplace, and now unobjectionable, circumstances in which modern litigation is funded by those who are not nominal parties to it. The courts have, by increment, created a category of persons who may permissibly maintain litigation. Obvious examples of persons within the category are insurers and trade unions. In my opinion, litigation funders unauthorised by legislation have not yet been admitted to the category. The question to be answered is whether the court's process is affected or threatened by the present arrangement, which provides for the maintenance of the respondents' litigation and for the division of spoils.

190 Recent times have seen the emergence of professional litigation funders like IMF. IMF is a public company which is in the business of providing funds to meet the costs of the litigation in return for a share of the fruits of the litigation. The professional litigation funder has emerged because the scale of litigation has grown to the point where there may often be very large sums of money to be won in litigation by a successful plaintiff or group of plaintiffs. The litigation funder purchases the prospect of an investment return by investing moneys to meet the costs of the litigation.

191 The protagonists in this case both call in aid public policy. The appellant refers to the public policy considerations which are mentioned in many cases and which are, in the main, directed to ensuring that the court is not employed as an agent of oppression. On the other side, counsel for the respondents submits that private litigation of this kind "acts as a bulwark against powerful corporations and other powerful people in our society who think that without litigation funding they're immune from suit by small plaintiffs, because they know they can outfund them". The respondents point to what was said in Gore v Justice Corp Pty Ltd (2002) 119 FCR 429 at 451. There the Full Court of the Federal Court referred to public policy considerations and stated that:

"There are risks that citizens with justifiable causes of action may be kept out of courts because of their inability to pay the costs of litigation or because they fear the financial risks of litigation. If, in such circumstances, a business house, openly and reasonably, wishes to engage in the business of funding litigation and is prepared to meet the costs of the opposing party - should that party be successful, we see no cause for instant alarm."

192 The views expressed in that passage and by counsel refer only to one litigant, namely the plaintiff. They say nothing about the defendant. Lord Atkin, in Wild v Simpson [1919] 2 KB 544 at 563, pointed out that the law of maintenance was "directed primarily, not at the client maintained, but at the other party to the litigation". Atkin LJ said that the other party to the litigation "has the right to be free from litigation conducted by the assistance of persons working for their own interests, and not in order to give lawful professional aid to the opposing litigant".

193 The participants in this case may provide an example of why public policy considerations are not all in favour of allowing litigation funders to operate at will and why litigation funding should not be thought of as only allowing poor plaintiffs to sue rich and powerful defendants. I do not know what the precise circumstances are, but what can be seen on the surface is that a public company has collected together more than 2,000 litigants and is backing them financially. More than 2,000 separate actions have been commenced. A public company has the ability to raise large sums of money. The more than 2,000 funded plaintiffs are not necessarily all poor. Among them there may be persons who advanced and lost their life savings. There may, however, be other investors who placed surplus funds through the mortgage broker and who have resources available to them to conduct litigation. It may be noted that if each of the 2,000 groups of plaintiffs contributed $1,000 to a fund to meet legal expenses, then $2,000,000 would be raised.

194 The appellant, which is a defendant in the action, is a firm of solicitors. Again, I do not know what the circumstances are in this case, but many solicitors are insured to cover only claims of one or two million dollars. If the estimate of the claim by Mr McLernon in his affidavit is correct, then the plaintiffs hope to gain judgments totalling $50,000,000. Many firms of solicitors would not have that amount of insurance cover. A costs order of $2,000,000 might alone be enough to bankrupt some firms of solicitors. I say all of this, not out of any sympathy with the solicitors in the case, or for solicitors generally, but only to emphasise that litigation supported by litigation funders will not, as counsel for the respondents submits, always be about litigation funders helping poor plaintiffs to sue wealthy defendants.

195 I note, as an aside, that the Court was told that legal aid is available to advance test cases against the defendants in this action. The idea seems to be that if some only of the more than 2,000 affected persons bring an action, then the outcome in that action may lead to a settlement of other claims. There is very good sense in that approach. If that occurred, then instead of 2,000 persons issuing writs, each seeking to press their case to trial, issues may be resolved without the great expense and consumption of time in processing the 2,000 actions through to a hearing.

196 A litigation funder left uncontrolled by legislation will look for customers on the best terms it can secure. Losses suffered by some members of the community might be regarded by those persons as a vicissitude of life. Those persons, left to their own devices, may choose not to sue. It is not a failure of the system that some members of the community choose not to sue, even if there has been a breach of duty by some person or another. Persons suffering injury should not be encouraged to commence proceedings if they would, left to their own devices and based on their own assessment of the risks, not have contemplated litigation. However, such persons are likely to be willing to pursue litigation if they bear no risk of an adverse outcome.

197 The assistance given by IMF in this case is not given out of charity, and it is not given with a view that right should be done. Assistance is being given only so that IMF can make a profit, and the assistance is only given on condition that IMF keeps a close eye on the proceedings.

198 The High Court, in Clyne v New South Wales Bar Association [1960] HCA 40; (1960) 104 CLR 186 in a joint judgment, expressed some obiter views about maintenance and champerty and the involvement of solicitors in the maintenance of litigation. The Court said at page 203:

"And it seems to be established that a solicitor may with perfect propriety act for a client who has no means, and expend his own money in payment of counsel's fees and other outgoings, although he has no prospect of being paid either fees or outgoings except by virtue of a judgment or order against the other party to the proceedings. This, however, is subject to two conditions. One is that he has considered the case and believes that his client has a reasonable cause of action or defence as the case may be. And the other is that he must not in any case bargain with his client for an interest in the subject-matter of litigation, or (what is in subtance [sic] the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding ..."

199 Those obiter comments relate quite specifically to a solicitor. IMF, like a solicitor, is in the business of maintaining litigation. However, unlike a solicitor, IMF has no professional obligation to consider the matters mentioned in Clyne's case. IMF has no obligation to form any opinion about the reasonableness of the cause of action. Indeed, IMF would be free, in contractual terms, to enter into the funding arrangement even if it thought there was not a reasonable cause of action. It may proceed in the hope that an offer to settle the litigation might be made by the respondents merely to avoid the costs of a trial.

200 I then turn to the features of this arrangement which lead me to the conclusion that the action should be stayed.

201 First, this litigation funder has no "bona fide community of pecuniary interest or religion or principles or problems" in common with the respondents: Martell v Consett Iron Co Ltd [1955] Ch 363 at 387. In short, it has no "legitimate interest ... distinct from the benefit which he seeks to derive from it": Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 at 163. Notwithstanding this lack of interest, it is maintaining the action.

202 Secondly, the funding agreement involves the aggravated form of maintenance known as champerty. The share of the proceeds to be taken is significant. If the case settles or judgment is entered in favour of the plaintiffs, then the litigation funder will recoup out of pocket expenses and other costs and will take 35 per cent of any judgment or settlement. If the recovery is in the order of $50 million, as Mr McLernon, a director of IMF, deposes in an affidavit, and if costs and expenses were $5 million, then IMF would receive $22.5 million, being its 35 per cent plus the $5 million for costs and expenses. If the plaintiffs settled without the approval of the funder, then the litigation funder will take 45 per cent of the settlement proceeds plus costs and expenses. If the settlement (with approval) was for $20 million and costs were $5 million, then IMF would receive $12 million ($7 million in pocket and $5 million for costs) leaving the plaintiffs with $8 million. A settlement for $7 million (with costs of $5 million) would leave the plaintiffs with nothing. In my opinion, the litigation funder, by taking 35 per cent or 45 per cent of the proceeds, distorts the purpose of the proceedings.

203 Thirdly, the agreement entered into by IMF provides that IMF will pay all legal and other expenses of investigation and recovery, and if the claims fail and legal costs are awarded in favour of a successful defendant, IMF will pay those costs to the defendant. If IMF decides part-way through to abandon the claim, it must meet all costs and expenses up to the time of termination. Solomon Brothers agree that they will not "reserve or have any right" to recover costs from a client if IMF fails to pay Solomon Brothers. These arrangements mean that the plaintiffs bear no risk at all, apart from the risk that IMF might fail financially. In those circumstances, and putting questions of morality aside, why would a person invited to join in the proceedings as a plaintiff, not do so, even if that person formed the view that the claim had no merit? The system which prevails in Australia whereby the successful party to litigation is entitled to recover costs from the unsuccessful party, has the effect that a person involved in litigation must make a proper assessment of the risk. In the circumstances prevailing here, the respondents have no risk assessment to make at all. These respondents have the prospect of a financial return without any outlay or risk of outlay. Counsel for the respondents argued that the respondents still took the risk of the litigation because, if IMF decided to withdraw part-way through the litigation, it could do so after paying solicitor and client costs and party and party costs to that date. It is quite true that if that happened, the respondents would be on their own in the litigation, but until it happens they are not in that situation, and this Court is concerned with the circumstances that prevail at the moment, not hypothetical circumstances.

204 Fourthly, there is the reality and the risk that IMF will participate as though it is the client. Under the arrangement, Solomon Brothers will give IMF access to all documents and information concerning the claims of clients who instruct Solomon Brothers through IMF. IMF is entitled to receive from the solicitors, a monthly report on progress of the litigation. IMF is to be advised immediately of any proposal for settlement, and "if requested to do so by the solicitors" IMF shall assist in any settlement negotiation. IMF was retained as agent to engage Solomon Brothers as solicitors. IMF then decided, without authority, to enter into a costs agreement which provided for legal costs to be charged above scale in certain circumstances. This is an indication of the likely reality - namely, that IMF will drive the litigation and make decisions in relation to it as though it were the plaintiff.

205 All of these factors lead me to the conclusion that this arrangement is one which threatens the integrity of the process. IMF is pursuing, and in practical terms is in a position to control, the litigation with a view to IMF making a profit.

206 This is not to say that there is no room for litigation funders who are willing to provide legal aid to plaintiffs at a price. However, in my opinion, it is for governments to consider the public policy issues and then to legislate to permit the private funding of litigation under controlled circumstances. Legal aid is an example of legislatively approved maintenance of litigation using public funds. There are proper controls in the legal aid system to ensure that the integrity of the legal process is protected.

207 In my opinion, a stay should have been granted for so long as the impugned arrangements remained in place. This does not mean that the respondents cannot continue with the action. The arrangements involving the respondents, IMF and Solomon Brothers may be varied so that it no longer constitutes an abuse of process. The respondents may raise their own funds. They may decide not to take any action pending the trial of some legally aided test cases.

208 I uphold ground of appeal 2(a). In my opinion, the learned Judge at first instance erred in the conclusion he reached in par 61 of his reasons. His Honour said:

"The most that can be said, is that the sixth defendant has established on the material before this Court, that there is an arguable case that the agreement between the plaintiff and the litigation lender is tainted by champerty. That is not, of course, to say that there is any evidence that there has been any 'officious intermeddling', nor any unlawful interference with the course of justice, although the potential for that to happen is at least open under the contract."

209 The expression "officious intermeddling" is no more than a shorthand reference to the gravamen of the definition of maintenance, which is set out in the beginning of Templeman J's reasons. In my opinion, there is "officious intermeddling" because IMF is giving assistance impermissibly; because it has no interest in the litigation other than as a result of its agreement; because it does not fall into the category of persons who are permitted to maintain litigation; and because the maintenance in this case is an aggravated form of maintenance as a result of the agreement which permits IMF to take 35 or 45 per cent of the proceeds in the event of a settlement or judgment. Practical control of the litigation is in the hands of IMF. In my opinion, the arrangement in place, and the way IMF has conducted itself, means that there has already been officious intermeddling and an abuse of process.

210 I would grant leave to appeal and allow the appeal.