Debt Collectors Licensing Act 1964

Security and Related Activities (Control) Act 1996

Legal Practitioners Act 1893, s 59

Sixth Defendant : Mr J T Gleeson SC & Mr S M Davies

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

Alexander v Ajax Insurance Co Ltd [1956] VicLawRp 70; [1956] VLR 436

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

Australian Health Insurance Association Ltd v Esso Australia Pty Ltd [1993] FCA 376; (1993) 116 ALR 253

Baxter v Obacelo Pty Ltd [2001] HCA 66; 184 ALR 616

Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 20 ACSR 357

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

Carob Industries Pty Ltd (in liq) v Simto Pty Ltd, unreported; FCt SCt of WA; Library No 970692; 11 December 1997

Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd [1986] HCA 72; (1986) 162 CLR 395

Cayne v Global Natural Resources plc [1984] 1 All ER 225

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

Commonwealth v Temwood Holdings Pty Ltd [2001] WASC 282

Commonwealth v Temwood Holdings Pty Ltd [2002] WASC 107

Condliffe v Hislop [1996] 1 WLR 753

Egerton­Warburton v Deputy Federal Commissioner of Taxation [1934] HCA 40; (1934) 51 CLR 568

Elfic Ltd v Macks [2001] QCA 291; (2001) 162 FLR 41

Federal Commissioner of Taxation v Australian and New Zealand Savings Bank Ltd [1998] HCA 53; (1998) 194 CLR 328

Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630

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

Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 163 ALR 744

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

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

Harman v Home Department State Secretary sub nom Home Office [1983] 1 AC 280

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

Hunters Beach Investments Pty Ltd v Braams [2001] NSWSC 577 (2001) 38 ACSR 701

In re Oasis Merchandising Services Ltd [1998] Ch 170

Jermyn v Spargos Mining NL [2001] WASCA 149

Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 1363 (1999) 166 ALR 731

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

Margetts v Timmer (1999) ABCA 268

Martell v Consett Iron Co Ltd [1955] Ch 363

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

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

Newswander v Giegerich (1907) 39 SCR 354

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

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) 181 ALR 337

Port Kennedy Resorts Pty Ltd v Huat [200] WASCA 328

Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186

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

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

Roberts v Roberts (1994) 12 WAR 505

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

Salomon v A Salomon & Co Limited [1897] AC 22

Spargos Mining NL v Fuller [2001] WASC 226

Spincode Pty Ltd v Look Software Pty Ltd [2001] VSCA 248

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

Temwood Holdings Pty Ltd v Oliver [1999] WASC 212

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

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

Torkington v Magee [1902] 2 KB 427

Trendtex Trading Corporation v Credit Suisse [1982] AC 679

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

Woodings v Stevenson [2001] WASC 174; (2001) 24 WAR 221

1 SCOTT J: By a chamber summons of 31 January 2002 the sixth defendant in these proceedings seeks orders that:

1. The plaintiffs' action against the sixth defendant be stayed;

2. The plaintiffs do pay the sixth defendant's costs of the action on an indemnity basis.

2 In the application the grounds are said to be that the action as against the sixth defendant is an abuse of the processes of the Court, being champertous and otherwise unlawfully maintained.

3 The plaintiffs in the action are mortgagees of properties owned by the first defendant. The mortgage funds loaned to the first defendant were contributed in various parts by the plaintiffs in what has become known as a "pooled mortgage".

4 The mortgages were arranged by the third defendant which then traded as a mortgage broker under the name of First Charter.

5 There are a number of properties subject to the mortgages. The evidence indicates that one of the properties has been sold and that others are for sale but that it is unlikely the mortgageswill be satisfied from the proceeds of the sale of all of the properties.

6 I am told by counsel that the first defendant was placed into voluntary liquidation in April 2002. I am also told that judgment in the action has been granted against the first defendant and also the second defendants who were guarantors under the mortgages. In addition, I have been told by counsel that a default judgment has been entered against the third defendant which formerly traded as First Charter.

7 The fourth and fifth defendants are the directors of the third defendant. The sixth defendant is a firm of solicitors who prepared and registered the mortgages concerned and the seventh defendant is a valuer.

8 The application is made on behalf of the sixth defendant and I am told the application is made through its insurers. That aspect of the matter will be discussed later in these reasons.

9 The factual background to the application arises from the fact that the action by the plaintiffs is being financed by a litigation lending company known as Insolvency Litigation Fund Pty Ltd ("ILF"). That company is a subsidiary of a publicly listed company, Insolvency Management Fund Ltd ("IMF"). The evidence establishes that IMF funds ILF so as to enable ILF to fund actions, including this action on behalf of the plaintiffs.

10 Before dealing with the factual background of this application it is important to note that this is an interlocutory application based upon affidavit material which has not been tested by cross-examination. The issues that arise in this application may be the subject of controversy in subsequent litigation. Any conclusions of fact upon which these reasons are based are necessarily based upon affidavit evidence which has not been tested by cross-examination.

11 The evidence indicates that the plaintiffs were each applicants who applied to IMF for funding to finance this action. The contractual chain surrounding the funding by IMF in each case was commenced by the plaintiffs filing an IMF application form setting out their particulars, details of the mortgage broker, details of the mortgagor and the amount of the investment. It is not necessary for the purpose of these reasons to detail the loans made by each of the plaintiffs. For the purpose of this application, it would appear that the mortgaged security will not realise sufficient funds to discharge the mortgage debt. As a consequence, the action has been commenced against all of the defendants, as I have outlined.

12 The applications by the plaintiffs to IMF in each case was successful and resulted in the plaintiffs entering into a written contract with IMF, in each case bearing the same date as the application. The written contracts are in common form. The terms of each contract, however, are of importance in these reasons.

13 The contract recites that IMF is licensed pursuant to the provisions of the Debt Collectors Licensing Act 1964 and pursuant to the provisions of the Security and Related Activities (Control) Act 1996. The contract recites that the plaintiffs' claim is for a debt arising out of a mortgage-lending transaction and that the plaintiffs wished to appoint IMF to collect the debts, to investigate facts and circumstances surrounding the debt and the transaction and to receive any moneys agreed or adjudged to be due to them in relation to the debt and/or the transaction.

14 The agreement also recites that IMF has agreed with the Real Estate Consumers Association Inc ("RECA") to retain the services of that association to assist IMF with the work on the basis that IMF will pay to the association $30 per hour and one-seventh of any amount received under cl 9 of the contract.

15 The contract also recites that the plaintiffs have been provided with the explanatory material. That material will be referred to in more detail later in these reasons.

16 I am told by counsel that over 2000 plaintiffs have entered into similar agreements with IMF and that an avalanche of litigation is expected to follow.

17 As I have said earlier in these reasons, IMF is a licensed debt collector pursuant to the Debt Collectors Licensing Act 1964. Pursuant to that Act "debt collector" is defined as follows:

"'Debt collector' means a person (whether or not he carries on any other business) who on behalf of any other person and for or in expectation of any gain, fee or reward whatever, by whomsoever paid or payable and either on his own account or in conjunction with another, carries on the business of collecting, requesting or demanding payment of debts or who advertises or notifies that he carries on that business."

18 It is to be noted that there is no definition of "debt' in the Debt Collectors Act.

19 There is an issue between the parties as to whether the recovery of the mortgage advances as against the sixth defendant is a debt within the meaning of that legislation and as to whether IMF has lawful authority to recover that money pursuant to its powers under the Debt Collectors Act. Counsel for the plaintiffs maintains that the amount advanced pursuant to the mortgages is a debt within the meaning of the Act and so can be collected by IMF on behalf of the plaintiffs pursuant to its powers under that Act. Senior counsel for the sixth defendant, on the other hand, maintains that as against the sixth defendant the plaintiffs' claim is a claim for damages and not for a debt.

20 By s 13 of the Debt Collectors Act a licensee is entitled to sue for, and recover, any commission, fees, charges, reward or other remuneration for or in respect of any service done by him as a debt collector. There are other provisions of that section relating to the appointment of the debt collector and the requirement for an agreement between the debt collector and the person on whose behalf the service is done in relation to the fees to be charged.

21 In view of the conclusion I have ultimately reached on this application, it is not necessary to determine this issue.

22 As I have also said in these reasons, IMF also holds a licence under the Security and Related Activities (Control) Act 1996 ("the Security Act").

23 Pursuant to s 28 of the Security Act a person licensed under that Act is authorised to conduct investigations into the conduct of individuals or bodies corporate or the character of individuals and is entitled to receive remuneration for that work. However, work carried out by a legal practitioner under the Legal Practitioners Act 1893 is excluded from the Act.

24 By the agreement between the plaintiffs and IMF, the plaintiffs have appointed IMF to conduct investigations into the facts and circumstances surrounding the debts and the transaction. It is not clear from the agreement exactly what work IMF is expected to do by way of investigation.

25 In addition, by the contract, the plaintiffs have agreed to IMF paying RECA for RECA's services in assisting IMF.

26 Importantly, the plaintiffs have agreed to pay commission and fees to IMF, as provided in cl 9 of the contract as follows:

"9. Commission and Fees

9.1 In consideration for IMF providing the services set out in clause 2.2 and 4 hereof and providing the funding set out in clause 5 hereof the appointor shall pay from any moneys 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 per cent 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."

27 It is to be noted that for the purposes of cl 9.1 the plaintiffs are in each case "the appointor" for the purposes of the contract.

28 What is clear from cl 9 of the contract is that from any amount payable to the plaintiffs at the end of the action 35 per cent of that amount will be deducted by IMF (5 per cent of which will be paid to RECA) and the balance to the plaintiffs.

29 As I said earlier in these reasons, accompanying the documentation was a further written document entitled "Explanatory Material for Western Australian Finance Broking Victims". That document is under the heading of IMF. In the explanatory memorandum the plaintiffs are advised that "Recovery will be pursued from all available and worthwhile sources, including the Finance Brokers Supervisory Board (a statutory corporation responsible for licensing and discipline of finance brokers)". I am told by counsel that independent action has been instituted against the Finance Brokers Supervisory Board, but that action need not be referred to further in these reasons except to say that, of course, the plaintiffs can only recover once so that once their claims are settled, they are settled for all purposes.

30 The explanatory memorandum also indicates that IMF is to assist and investigate the available remedies to recovery of each debt and the losses flowing from each debt. IMF is then required to report its assessment to the client. At that stage IMF has the right, if it chooses to do so, to terminate its appointment with respect to the debt. If that happens, the client (that is, the plaintiffs) will owe IMF nothing.

31 The explanatory memorandum also provides that if IMF on completion of the assessment considers that there is a worthwhile remedy to pursue to recover any debt or associated losses, then IMF is to notify the plaintiffs and take steps to pursue recovery, including engaging solicitors, Solomon Bros, as solicitors for the client.

32 The contract provides that if the client recovers any money, IMF will be owed by the client:

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

(b) 35 per cent of the amount recovered (from which 5 per cent 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. Te contract provides that in the result there is nothing for the client to pay except out of money which is recovered.

33 The contract also provides for a settlement procedure. If the client wishes to settle a claim, the client must notify IMF in writing and IMF will review the proposal. If IMF accepts the proposal, it will be implemented. If IMF disputes the proposal, the matter will be referred to a QC for independent review. If the QC considers the settlement inadequate, the client may still settle, but in that event the 35 per cent commission is increased to 45 per cent.

34 The contract also provides that IMF is entitled to terminate recovery and if it does so, it must pay all costs up to termination, but if the client later recovers any money, the client must pay the expenses incurred by IMF to the date of termination but not the 35 per cent commission.

35 Whilst it was suggested by counsel for the sixth defendant that, in reality, IMF was charging legal fees for investigation work, having reviewed the evidence, in my view, there is nothing in the documentation which supports that submission. That, of course, does not preclude the plaintiffs, on completion of the action, from establishing, if they are able to do so, that IMF has carried out legal work on their behalf. There is nothing, however, on the papers before me on this application which would establish as a fact that IMF was doing or intending to do legal work as part of its remuneration.

36 What is clear, however, in my view, from the terms of the contract to which I have referred is that IMF is charging a success fee for its work. The 35 per cent deduction from any successful claim, in my view, could not be characterised in any other way than as a success fee. As counsel for the sixth defendant rightly points out, the question that arises is what is being done for the plaintiffs in exchange for that fee.

37 It is not in dispute that a legal practitioner is not lawfully entitled to charge a success fee, being a percentage of a successful claim: s 63 of the Legal Practitioners Act 1893 ("the Legal Practitioners Act").

38 There are other provisions of the funding agreement which do not call for a detailed analysis, except that Solomon Bros, solicitors, are engaged as the solicitors for the plaintiffs under the funding agreement. The agreement provides that although the solicitors are retained by the plaintiffs, they are to be paid directly by IMF with reimbursement to come from moneys recovered in the event of a successful claim. In addition, pursuant to the retainer agreement between Solomon Bros and IMF, Solomon Bros are entitled to charge IMF fees at a rate 20 per cent below the scale fees in the first instance. If the action is successful, Solomon Bros are entitled to fees fixed at 25 per cent above the scale. That fee structure between Solomon Bros and IMF is contained in a letter from Solomon Bros to IMF of 31 July 2001 which contains an acceptance by IMF to the terms and conditions proposed.

39 As senior counsel for the sixth defendant points out, there is no evidence to suggest that this arrangement for legal fees has been made known to any of the plaintiffs. That, of course, gives rise to a number of difficulties, one of which is that it may entitle the plaintiffs to challenge the deduction of costs from any amount recovered and, further, may entitle the plaintiffs to seek to set aside the legal fee structure between IMF and Solomon Bros. That, however, does not need to be determined at this stage of this application, nor is it a matter upon which it would be appropriate for this Court to rule at this stage of the proceedings.

40 As I understand the sixth defendant's position, it is concerned that if it is held liable for the plaintiffs' damages and an order for costs made against it, then it could be held liable for indemnity costs which would make it liable for costs which would be above, and well above, the appropriate scale of costs. As I understand the proposition advanced by senior counsel for the sixth defendant, that is a further reason why it is said that a stay should be granted at this stage of the proceedings so that the sixth defendant is not placed in jeopardy in relation to such a potential costs order. That submission does not stand alone, but in conjunction with the sixth defendant's other submissions is a reason why it is said that the action should be stayed in its entirety as against the sixth defendant at this stage.

41 Senior counsel for the sixth defendant did not contend that a client could not agree with a solicitor to pay fees above the scale. The submission was that the agreement here was between IMF and Solomon Bros, without the plaintiffs being a party to the agreement. In the end result it would be the plaintiffs, who would have deducted from any settlement, a fee which would be above scale costs without the plaintiffs ever having been a party to such an arrangement. A costs agreement under s 59 of the Legal Practitioners Act would be a costs agreement between the solicitor and the client. The evidence indicates that the agreement here is between IMF and Solomon Bros and although the agreement is described as a tripartite agreement, I accept the submissions by senior counsel for the sixth defendant that there is no evidence to establish that the plaintiffs are a party to such an agreement.

42 The sixth defendant therefore contends that the agreements to which I have referred are tainted by maintenance and champerty and for that reason the Court should not expressly or tacitly approve such agreements. The legal principles surrounding that proposition will be discussed later in these reasons. In addition, it is said that the Court, in the exercise of its discretion, should grant a stay to the sixth defendant at this stage of the proceedings. Again, the legal principles surrounding such a stay will be discussed later in these reasons.

43 It is common ground that the crimes of champerty and maintenance were not part of the law of Western Australia. That is clear from the Criminal Code Act 1913 (WA) ("the Criminal Code Act") s 4 which provides in part:

"No person shall be liable to be tried or punished in Western Australia as for an indictable offence, except under the express provisions of the code or some other statute law of Western Australia, or under the express provisions of some statute of the Commonwealth of Australia, or of the United Kingdom which is expressly applied to Western Australia ..."

44 Apart from the offence of contempt of court which was preserved by s 7 of the Criminal Code Act no other common law offence was preserved. The common law offences of champerty and maintenance were not included within the Criminal Code enacted as Appendix B to the Criminal Code Act which came into effect on 1 January 1914.

45 It is, however, common ground that the torts of champerty and maintenance have not been abolished in this State.

46 The history of the common law torts of champerty and maintenance are comprehensively set out in Neville v London Express Newspaper Ltd (1919) AC 368. Lord Shaw, having traced the statutory provisions from the thirteenth century said at 411:

"My Lords, I have seen occasion to point out that these statutes from the thirteenth century onwards do not condemn maintenance of suits as such, but they do condemn and alone condemn such maintenance of suits as is to the delaying or disturbing, the hindrance or denial of justice, and that accordingly to bring within their range a maintenance which is and may be clearly and demonstrably shown to be promotive of justice and in support of right is an erroneous construction.

This last cited Act supplements and confirms and in my view gives plain Parliamentary sanction to what appears to me to be the more reasonable and sensible and sound view. What is aimed at is the just and due administration of the laws. The maintenance which has displeased God and made the King and his subjects discontented is the maintenance which is to the great hindrance and let of justice. And it is this sort of thing, and no other maintenance, which is struck at by section 3; unlawful maintenance, procuring any unlawful maintenance, unlawful retaining for maintenance or getting a false verdict through perjury or similar nefarious means."

47 Lord Shaw went on to trace the history of the torts of maintenance and champerty and said at 415:

"This is a civil suit. I am of opinion, my Lords, that in any civil action in respect of maintenance it is necessary to establish these two things - namely, (1) that the maintenance was unlawful in the sense above described both in statute and in textbooks; that is to say, that it was to the hindrance or disturbance of common right, to the delay or distortion or withholding of justice; and (2) that the plaintiff in an action of maintenance shall have suffered actual injury by reason thereof, for which injury alone and to the extent of it is the maintenance answerable."

"But upon the further point as to whether a suit might lie for merely nominal damages my opinion is in the negative. I entirely agree with the judgment upon that topic of my noble and learned friends, the Lord Chancellor and Lord Phillimore. In my opinion, for the reasons given on the authorities cited, the damages in all cases of maintenance are only such as are answerable to the wrong caused by the maintenance and thereby suffered by the plaintiff. Where accordingly it is ab ante demonstrable that no actual wrong has been caused or suffered an action thus necessarily for only nominal damages for maintenance will not lie. This demonstration is, in my opinion, afforded by the successful result of the suit alleged to have been maintained."

"What is material and what carries the present case a certain length in favour of the plaintiff, Neville, is that they decided that the maintenance and support of a just and successful suit is none the less an officious interference, and unless brought within some of the recognised categories of excuse, unlawful. But the Court did not decide upon the second matter which is a necessary step in the present case - namely, that such an interference is not only unlawful, but gives to the other party in the suit who has lost, and rightly lost, his case an action for damages against the maintainer upon the ground which is somewhat humorous, that but for his interference justice would not have been done."

"So mischievous might maintenance be that the statutes strike against it in general or absolute terms. But the Judges construed them, as they interpreted the common law, as not being so absolute, but as admitting of exceptions and as permitting a subject to maintain another suit or defence when the relations were such that there was a common interest, or the master was helping his servant, or even when the act was done out of charity to a poor man."

51 Lord Phillimore, in discussing the exceptions, said that they arose because, as he expressed it, "all maintenance was not evil ... it is maintenance of an unjust or at least a wrong cause or defence which is unlawful, and even this is excused by the ties of kinship or the promptings of pity".

52 A further more recent analysis of the law in relation to champerty is to be found in In re Trepca Mines Ltd [1963] 1 Ch 199. That case involved a claim in the winding up of a company. The claim was rejected by the liquidator and the claimant applied to the Court for reversal of the liquidator's decision. The application was dismissed. The claimant lacked funds but wished to take the matter on appeal and a third party agreed to assist him on the basis that the third party would recover a quarter of the proceeds if he succeeded. A deed was prepared to reflect the agreement. It was held that the agreement was champertous. The appeal was prosecuted and the Appeal Court remitted the matter to the Companies Court for further adjudication of the claim. The claim was ultimately compromised with the liquidator. The compromise provided for the payment of the claimant's costs by the liquidator. The bill of costs contained items which dealt with the claimant's dealings with the funder. The matter came before Lord Denning MR and Donovan and Pearson LJJ who held that the solicitor was entitled to conduct the litigation to the end and to recover his proper costs for so doing unless he had in some way or other participated in the champertous agreement. There must have been some active participation by the solicitor in the illegal transaction before he was disentitled to his costs.

53 In the reasons for decision of the Court Lord Denning MR discussed the history of maintenance and champerty at 219 and said:

"Maintenance may, I think nowadays be defined as improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse. At one time, the limits of 'just cause or excuse' were very narrowly defined. But the law has broadened them very much of late (see Martell v Consett Iron Co Ltd [1955] Ch 363) and I hope they will never again be placed in a strait waistcoat. But there is one species of maintenance for which the common law rarely admits of any just cause or excuse, and that is champerty. Champerty is derived from campi partitio (division of the field). It occurs when the person maintaining another stipulates for a share of the proceeds: see the definitions collected by Scutton LJ in Haseldine v Hosken [1933] 1 KB 822. The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated; but, be that so or not, the law for centuries has declared champerty to be unlawful, and we cannot do otherwise than enforce the law; and I may observe that it has received statutory support, in the case of solicitors, in section 65 of the Solicitors Act 1957.

Mr Gerald Gardiner asked us to say that the law of maintenance and champerty was confined to actions or suits, and did not extend to a proof in a liquidation. I cannot see any justification for this limitation. If champerty is an evil, as the common law believes it to be, it is just as much an evil in the one case as in the other. In my opinion, it extends to any contentious proceedings where property is in dispute which becomes the subject of an agreement to share the proceeds."

54 Lord Denning went on to discuss the American practice of contingency fees and said at 220 - 221:

"When a solicitor is retained to conduct litigation on the ordinary and accustomed terms, he is not debarred from acting in that litigation simply because he knows, or gets to know, that his client has made a champertous agreement to share the proceeds with another. He is entitled to conduct the litigation to the end, and to recover his proper costs for so doing, unless he has himself in some way or other participated in the champertous agreement. Pennycuick J held that knowledge by itself was enough to debar him from recovering; but I think this is erroneous. There must be active participation by the solicitor in the illegal transaction before he is disentitled to his costs. If he is himself a party to the champertous agreement by stipulating for a percentage for himself, the answer is clear. He cannot recover anything: see Wild v Simpson [1919] 2 KB 544. But even though he is not himself a party, nevertheless, if he is an active participator in this sense, that he voluntarily does a positive act to assist to implement the unlawful agreement, then he cannot recover; for by rendering positive assistance, he becomes guilty of aiding and abetting the offence and is himself guilty of it. If a solicitor, therefore, does not keep himself to his ordinary work, but goes further and helps his client to draw up the champertous agreement and to secure that the proceeds of the litigation are shared out in accordance with it, then he too has been guilty of an act which is unlawful and he can recover nothing."

55 In the same case Donovan LJ discussed the funding of litigation by a trade union, an insurance company or an association on behalf of a member in circumstances where the funder stipulates for the control of the action and the initial receipt of proceeds. Donovan LJ considered that those cases did not involve champerty. Similarly, a bank lending money at interest to a customer to finance litigation would not commit the offence because, as Lord Donovan said at 224 - 225:

"There is nothing here of 'officious inter-meddling' in someone else's litigation. The bank's advance is made in the course of, and as part of, its ordinary business of lending money at interest. Alternatively, if maintenance were committed, it would be committed when the bank advanced the money; and nothing the solicitor did after that could aid and abet an offence already complete. A similar consideration might apply in the case of an advance by some friend outside the permitted circle of those with common interests or those actuated by charitable motives or by family ties."

56 The final case concerning the general principles surrounding champerty and maintenance is Giles v Thompson [1993] UKHL 2; (1994) 1 AC 142 where Lord Mustill said at 153:

"My Lords, the crimes of maintenance and champerty, are so old that their origins can no longer be traced, but their importance in medieval times is quite clear. The mechanisms of justice lacked the internal strength to resist the oppression of private individuals through suits fomented and sustained by unscrupulous men of power. Champerty was particularly vicious, since the purchase of a share in litigation presented an obvious temptation to the suborning of Justices and witnesses and the exploitation of worthless claims which the defendant lacked the resources and influence to withstand. The fact that such conduct was treated both as criminal and tortious provided an invaluable external discipline to which, as the records show, recourse was often required.

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."

57 Giles v Thompson involved a case where a plaintiff who sustained injury in a motor vehicle accident for which the defendants were to blame, entered into an agreement with a hire car company for the hire of a substituted vehicle whilst the damaged vehicle was being repaired. The plaintiff claimed by way of special damages the hire charges thus incurred. The defendants claimed that the hire agreements were champertous and unlawful. The House of Lords held that there had been nothing officious or wanton in the hire company's intervention in the plaintiff's litigation and that it could not be said that as between the plaintiffs and the company the transaction had been so unbalanced or fraught with risk that they ought to be prohibited. Accordingly, the transactions had been neither champertous nor invasive of any requirement of public policy.

58 The champertous implications of a litigation lending agreement were considered by the Full Court of the Federal Court of Australia in Gore v Justice Corp Pty Ltd [2002] FCA 354; O'Loughlin, Whitlam and Marshall JJ. The respondent in that case, Justice Corp Pty Ltd ("Justice Corp"), was a litigation lender in relation to civil proceedings against a firm of solicitors. The funding agreement provided that Justice Corp was to receive, effectively, 8 per cent of any award of damages that the party funded might obtain. The Full Court of the Federal Court considered the history of the torts of champerty and maintenance in Australia and said at [21]:

"In Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 ("Magic Menu Systems") at 267 - 268, a Full Court of this Court discussed maintenance and champerty. His Honour in the Court below summarised the salient points from that decision when he noted that the Full Court had described maintenance as 'assistance or encouragement of a party to an action in which the maintainor had no interest'. As for champerty the Court said it 'was a species of maintenance, on terms that the maintainor and the plaintiff would share in the outcome of the action'. The Full Court noted that 'public policy considerations shaped the attitude of the Courts towards agreements to maintain litigation', but added at 267:

'... Concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which faced the ordinary litigant in funding litigation and gaining access to the courts.'

The Full Court in Magic Menu Systems (supra) went on to refer to a comment by Danckwerts J in Martell v Consett Iron Co Ltd [1955] 1 Ch 363 that support of legal proceedings based upon a bona fide common interest, financial or philosophical, must be permitted if the law itself is not to operate as oppressive; it added (at 267) that:

'Courts today ... are likely to take an even wider view of what might be acceptable ...'.

The Full Court then went on to note at [267 - 268] that the offences and torts of maintenance and champerty had been abolished by legislation in three Australian States, including relevantly for this litigation New South Wales. Even so, the Full Court held that this did not strip courts of their ability to hold particular maintenance agreements to be contrary to public policy and illegal. However, neither party in the present litigation suggested that the litigation agreement should be struck down for illegality and we refrain from expressing a view on that subject."

"... The courts must be seen to be willing to move with the times. There are ongoing concerns about the high cost of litigation; 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. The cases, particularly the English cases that we have reviewed, have shown for some years now a receding tide in the torts of maintenance and champerty."

60 The final common law case to which I wish to refer on this topic is Stocznia Gdanska SA v Latreefers Inc [2000] EWCA Civ 36 in which Morritt LJ, in delivering a judgment of the Court, comprising himself, May and Wall LJJ, said at [59]:

"Maintenance and champerty are no longer criminal or tortious. In certain circumstances, they remain contrary to public policy. There are many commonplace and unobjectionable circumstances in which modern litigation is funded by those who are not the nominal parties to it. Obvious examples of this are funding by insurers, trade unions or lawyers engaged on legitimate conditional fee agreements. If an agreement of this general kind is held to be contrary to public policy, it may be unenforceable. That may have a variety of consequences. A claim which depends on the assignment of a bare right of action may fail because the assignment is ineffective. A person who has funded an action champertously may fail to enforce recovery of the agreed proportion of the spoils. A person who has secured a champertous agreement to fund his litigation may be unable to enforce payment of the agreed funds. But the fact that a funding agreement may be against public policy and therefore unenforceable as between the parties to it is by itself no reason for regarding the proceedings to which it relates or their conduct as an abuse."

61 Those principles have to be taken into account on this application. However, it is to be remembered that this is an application for stay of proceedings in relation to an action which is in its infancy. There is no evidence as to how this agreement may unfold, nor the extent, if any, to which the litigation lender may be involved in the action in the exercise of its contractual rights. There is, of course, as yet no costs order and it remains to be seen how the legal fees charged to IMF are ultimately calculated in all the circumstances of the case. Whether at the end of the day the plaintiff or any other party has a claim either against Solomon Bros or IMF is a matter which does not arise on this application and cannot be determined at this stage of these proceedings. 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 inter-meddling", nor any unlawful interference with the course of justice, although the potential for that to happen is at least open under the contract. It remains to be seen, however, whether that eventuates. On the other hand, there is evidence from the plaintiffs that without the assistance of the litigation funder they would be unable to pursue the litigation. Counsel for the sixth defendant has referred to the Legal Aid scheme which has been made available to the plaintiffs and to other plaintiffs in similar circumstances as an alternative to litigation funding through IMF. That aspect of the matter will be discussed later in these reasons. There are limitations, however, on the Legal Aid funding and conditions attached to that funding which may be unacceptable to the plaintiffs. The funding by IMF is a basis upon which the plaintiffs are able to pursue their action which otherwise may be financially beyond their reach.

62 In dealing with the historic analysis of the torts of champerty and maintenance, the matter was considered by the Full Court of this Court in Newton v Gapes (1910) 12 WALR 86. That case concerned an application in the Mining Warden's Court by a woman against her husband who claimed a declaration that he was the trustee for her of certain mining shares standing in his name. Her solicitor required the plaintiff to provide money to cover costs and in order to secure the solicitor the plaintiff transferred some shares to a third party at a price below their true value for the purpose of providing funds for the litigation. The third party was aware that the purpose for which the money was being provided was to support the litigation. The funder accepted that if the plaintiff won the case, he received the shares and if she lost, he lost his money. In the end result, the parties settled the case and the funder brought an action against the plaintiff for the transfer of the shares to him. The Court held that the transaction savoured of maintenance and champerty so that the litigation funder could not recover. In his judgment McMillan J, with whom Parker CJ agreed, said at 89:

"It seems to me, therefore, that the plaintiff, Newton (the litigation lender), was finding the money to assist Mrs Gapes in carrying on her litigation and was to share in the proceeds of the action. This to my mind is clearly champerty. It is a species of maintenance, and the species which was most commonly found in modern times. We very seldom hear of a case of maintenance pure and simple; that is for one person to assist another to prosecute his or her suit without intent to have a share of the proceeds. Champerty has been defined as 'maintenance, aggravated by an agreement to have a part of the thing in dispute'. Maintenance and champerty are offences at common law and the common law was declared by certain statutes. At one time the criminal law was applied with great severity. In modern times we only hear of it in civil actions; there is nothing to suggest that the law which is to be applied to civil proceedings has in any way fallen into disuse. It is true that we do hear of cases, such as those referred to during the argument, for instance, on the Tichborne bonds, the Portland bonds, and other support given to people who are attempting to establish claims; but the fact that these bonds have been given in no way goes to show that the law has not been enforced. The time to consider their validity would be when any of those claims were successful, and proceedings taken on them. As I have said, there is nothing to show that in modern cases there is any suggestion to be found that the law is not to be applied in these courts as it always has been. The cases proceed upon the real object and policy of the law, which, in the words of Knight-Bruce LJ in Reynell v Sprye 1 De G, M & G at 686 is to repress 'the traffic of merchandise in quarrels, of huckstering in litigious discord'. Of course, the courts have not only disallowed transactions which would have fallen within the old-fashioned definitions of maintenance and champerty, but even those which, as the phrase runs, savour of maintenance - if the transaction tends to the same kind of mischief which has always been aimed at by the law."

63 In that case the Full Court held that the litigation lender could not recover the shares.

64 Newton v Gapes is, of course, a very different case to the one under consideration in that the funded action had effectively run its course and been brought to a conclusion. The question in that case was whether the litigation funder should be allowed to profit from his champertous agreement and the Court held that he could not. Whilst that case is instructive in reaching the conclusion that champerty and maintenance still have a place to play in the laws of Western Australia, it is of little assistance in determining whether the sixth defendant should be granted a stay of the proceedings in this case.

65 Similarly, in Movitor Pty Ltd (rec & mgr apptd) (in liq); Ex parte Sims (1996) 136 ALR 643 Drummond J, in the Federal Court, had occasion to consider the survival of the tort of maintenance and the issue of whether a maintainer had a genuine commercial interest in the result of the litigation. His Honour said at 650:

"It is also essential, if an interest in litigation is to be sufficient to justify its maintenance by an outsider, including its maintenance in circumstances that involve champerty, that it be an interest in the litigation separate from the benefit the outsider seeks to derive from his support for the litigation. If the agreement to assist another's litigation could itself provide an interest by the outsider in the litigation sufficient to take the agreement out of the area of maintenance and champerty, the rule against maintenance and champerty could always be easily circumvented: see Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142; Beatty v Brashs Pty Ltd (1995) 13 ACLC 925."

66 In this case it is not suggested that the litigation lender, IMF, had any interest in the litigation outside the funding agreement.

67 Litigation involving the same litigation funder, IMF, has been the subject of two recent decision in this Court. In Freehill Hollingdale and Page v Bandwill Pty Ltd [2000] WASCA 150 the Full Court of this Court, comprising Owen, Steytler and Miller JJ, had occasion to consider a different funding agreement involving the same lender, IMF. IMF, through an associated company Bandwill Pty Ltd ("Bandwill"), commenced an action against a partner of Freehill Hollingdale and Page ("FHP") for the purpose of unlocking certain assets involved in a trust. FHP alleged that pursuant to a litigation funding agreement the action was being unlawfully maintained by the litigation lender. An application was made to a single Judge, Templeman J, for a stay of proceedings on the ground that the action involved maintenance and champerty. Templeman J came to the conclusion that he should not hear the stay application at all because in that case the application was going to involve cross-examination which would in turn involve issues which were substantial issues in the main action. The Full Court concluded that the learned trial Judge should have heard the application and remitted it to him for that purpose. The Full Court concluded that there was no restriction upon the Judge to stay an action if the conclusion was reached that the action was an abuse of process of the Court. The Full Court held at [25]:

"It must, we think, be borne in mind that there is a distinction between a finding that a champertous agreement, or one providing for maintenance of an action, is against public policy and therefore unenforceable as between the parties to it, and a finding that an action which has been funded pursuant to the terms of an agreement of that kind is an abuse of process. A finding of the first kind should by no means automatically result in a finding of the second kind. 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. There is a considerable body of recent authority to support this proposition, although it is enough, we think, to refer to Abraham v Thompson [1997] EWCA Civ 2179; [1997] 4 All ER 362 at 375 - 376; Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 at 268 - 269; Faryab v Smith, unreported; Court of Appeal (UK); 28 August 1998 at 8; Stocznia SA v Latreefers Inc, unreported; Court of Appeal (UK); 9 February 2000 at 17. In Magic Menu the Court said that where there may be 'the real potential for an abuse of the Court's processes ... a stay might, in some cases, be justified'. Indeed, there is Australian authority for the proposition that a stay of proceedings is an inappropriate remedy where the fact of maintenance is relied upon in a context in which an action which had been brought in tort had yet to be determined: see Hodges v New South Wales [1988] HCA 9; (1988) 62 ALJR 190."

68 When the matter was remitted to Templeman J, his Honour refused to grant the stay because he was "not persuaded" that even if Mr McLernon (the manager of IMF) saw an opportunity for profit, it was plain or obvious that he "wantonly or officiously" inter-meddled in the dispute to the extent necessary to constitute trafficking in litigation. Templeman J concluded that that issue was to be resolved at trial (cf Bandwill Pty Ltd v Spencer-Laitt & Ors [2000] WASC 210).

69 In Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd & Ors (1996) 72 FCR 261 the Federal Court in Queensland had occasion to consider a case involving allegations of a champertous agreement. The Court comprising Lockhart, Cooper and Kiefel JJ said at 268 - 269:

"Trendtex (Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629), and the later cases to which we have just referred, were concerned with the question whether the Court ought lend its aid to the enforcement of champertous agreements. Questions will also likely arise for the Courts, where actions are funded by them, as to the integrity of its processes and in particular as to the uses to which they are being put, and as to the conduct of the maintained party and the maintainor with respect to the proceedings. In this connexion it would be necessary to have regard to the provisions of the particular agreement.

The New South Wales Law Reform Commission concluded, in its discussion paper, with the observation that further consideration as to the remedies which might be provided to the other party with respect to interference in litigation, was necessary. These will concern costs but many extend to other aspects of compliance with procedures. Where more is involved, and where there may be the real potential for an abuse of the Court's processes, it seems to us that a stay might, in some cases, be justified. Whilst it has been said in Martell v Consett Iron Co Ltd [1955] 1 Ch 363 at 388 - 389 (referred to in this respect in Hodges v New South Wales [1988] HCA 9; (1988) 62 ALJR 190 at 193) that it would not be right to stay a maintained action, that was with respect to an action brought on the tort and which had not been determined. It could not then have been concluded that there was unlawful conduct and the stay was, for that reason, premature. But that is different from the position where an abuse of process has occurred, or is likely to. The question whether a stay ought then be imposed was left open by Atkin LJ in Wild v Simpson [1919] 2 KB 544 at 564. It is noteworthy, however, that here a stay of the proceedings has never been sought. That approach is consistent with there having been no allegation of an abuse of process pleaded."

70 The next aspect of the matter which needs to be considered is the contention by the applicant that the plaintiffs have an alternate source of funding through the Legal Aid scheme. Evidence has been placed before this Court in relation to a course of correspondence between Solomon Bros on behalf of the plaintiffs and the Legal Aid Commission, together with certain ministerial statements by the Minister for Consumer and Employment Protection.

71 In a ministerial statement of July 31 2001 the Minister for Consumer and Employment Protection announced to the Western Australian Parliament a scheme for litigation funding for victims of finance broking claims. In that statement the Minister said, inter alia:

• it is likely that the case would be determined in a matter favourable to the investor, and

• there is reasonable likelihood that the investor would be able to recover damages or costs awarded against a potential defendant."

72 The Minister also tabled certain guidelines for the funding which included the fact that the funding is to be administered by Legal Aid WA under the Legal Aid Commission Act 1976. Under that Act a relevant consideration is the means of the applicant. The guidelines included the proposal that there could be a test case or representative action in certain circumstances and an hourly rate of remuneration was fixed in the guideline for payment to practitioners accepting Legal Aid assignments. Importantly, the guidelines provide that funding for an action will be discontinued if and when an applicant institutes an action for recovery against the State of Western Australia. So far as that guideline is concerned, it has the effect of limiting the potential range of defendants available to plaintiffs. In a later letter of 5 September 2001 from the Director of Legal Aid to the plaintiffs' solicitors the rate of remuneration was altered to $185 per hour, plus GST. In addition, the Legal Aid Commission indicated that Legal Aid was able to consider requests from practitioners to accept other payments in respect of legal services from clients with a grant of legal aid for finance broking matters and indicated that the Commission would treat such requests favourably if a practitioner, in topping up the Legal Aid rate of $185, did not charge the client a combined total of more than the current civil scale rates. In addition, the Director indicated that in the event of a successful recovery of a costs order from a defendant, the private practitioner could retain those costs, less any fees payable by the Commission to the private practitioner.

73 Senior counsel for the sixth defendant submits that the plaintiffs in this case were not properly and independently advised of the alternative Legal Aid proposal before entering into the agreement with IMF. It was submitted, and in my view with some merit, that because Solomon Bros have an interest in the litigation in relation to their fees and to the higher rate of fee discussed earlier in these reasons, they would not be in a position to properly and independently advise plaintiffs as to whether their action should be funded through the Legal Aid scheme or through the IMF scheme. That submission has substance, but is not a significant factor bearing upon the issue as to whether or not a stay should be granted. If it be the case that particular plaintiffs believe that they have been disadvantaged by the absence of proper and independent legal advice in making the choice to enter the agreement with IMF, then that issue can be resolved separately. That question would only impact upon the application for a stay to the extent that any costs order in favour of a plaintiff under the Legal Aid scheme would be unlikely to be more than scale costs taxed on a party and party basis. On the other hand, a costs order under the IMF scheme may result in a liable defendant being ordered to pay costs in a considerably greater sum. That, of course, would depend on the costs order made by the trial Judge in due course. It is not possible to anticipate what kind of cost order, if any, may ultimately emerge.

74 In my view, in many respects the considerations that motivated Templeman J in Bandwill Pty Ltd v Spencer-Laitt & Ors (supra) at [96] - [98] are relevant in these proceedings, although the litigation lending agreement in this case was quite different. It follows, in my view, that even although the applicant has established that there is a prima facie case that the litigation lending agreement is tainted with champerty in this case, it is not appropriate, at this stage of the proceedings, to grant a stay in favour of the sixth defendant. It is to be noted that there is no similar application by any of the other defendants and, as I have said, other litigation is pending against other defendants in relation to the same debt. As I understand the arguments advanced by senior counsel for the applicant, the stay which the sixth defendant seeks would involve a stay until such time as the tainted agreement is set aside. That could, of course, result in further litigation at some later time. Procedurally, and in relation to the expeditious disposal of the business of this Court, such a course would be undesirable. It follows, in my view, that in the exercise of my discretion, in any event, I would not grant the sixth defendant a stay of the proceedings in the present circumstances: Faryab v Smyth [1998] EWCA Civ 146 per Brown LJ.

75 These reasons would not preclude the sixth defendant, or any other party, from bringing a further stay application in the course of the action if evidence is available to establish that IMF is interfering in the action in an inappropriate way.

76 Counsel for the plaintiffs made a further submission that the insurance scheme conducted by the Law Society of Western Australia was an unlawful insurance scheme conducted in breach of the Insurance Act 1973 (Cth). That submission involved a detailed analysis of the operation and structure of the insurance scheme run by Law Mutual under the auspices of the Law Society of Western Australia. Counsel for the plaintiffs submitted that the fact that the sixth defendant was being funded through what he contended was an illegal insurance scheme was a significant factor for the Court to take into account in the exercise of its discretion to reject the sixth defendant's stay application. It was contended that this Court should not expressly or implicitly condone the operation of an illegal insurance scheme. In view of the conclusion that I have reached, that a stay is not appropriate in any event, it is unnecessary for me to examine that argument further.

78 This application by the sixth defendant for a stay of the proceedings will be dismissed.