Today, the Supreme Court of Queensland handed down an important interlocutory decision in Murphy Operator & Ors v Gladstone Ports Corporation & Anor (No.4)  QSC 228. The much-anticipated decision is critical to the operation of the class actions regime in Queensland. It concerns funding agreements between a litigation funder and plaintiffs, and in particular whether such agreements are unenforceable by reason of maintenance and champerty, or by reason of being contrary to public policy. The Court held that the funding agreements were not unenforceable.
The decision was made in the context of representative proceedings brought by fishing and processing businesses in Gladstone (Plaintiffs) against the Gladstone Ports Corporation (GPC) for the collapse of the fishing industry following GPC's controversial Gladstone Port expansion project in 2011. The class action is being funded by litigation funder Litigation Capital Management (LCM).
Maintenance & Champerty
The doctrines of maintenance and champerty which were reflected in Imperial statutes as long ago as the 13th century, significantly restricted the circumstances in which third parties could support and share in the proceeds of litigation. They operated variously as crimes, as torts enabling a party to litigation to sue a non-party for costs, and a basis on which a court would decline to enforce contractual rights. Whilst traditionally serving as a mechanism to regulate abuse of the Court's process, the evolving powers and jurisdiction of the Courts has resulted in a very different juridical environment, such that many have questioned their continuing relevance.
Indeed, as crimes and torts maintenance and champerty were abolished by statute in the UK,1 NSW,2 South Australia3 and Victoria.4 However, when Queensland introduced its representative proceedings regime in 2016 by way of Part 13A of the Civil Proceedings Act 2011 (Qld) ('CPA'), it did not implement a similar legislative repeal of the torts by way of statute.
As a result, for the first time the continued operation of maintenance and champerty in the context of the representative proceedings legislation has been brought in to question before the Queensland Supreme Court.
The Plaintiffs applied for declarations that the funding agreements in this case were not unenforceable by reason of maintenance or champerty, or by reason of being otherwise contrary to public policy. LCM was joined as a respondent for the purposes of the application.
Counsel for LCM advanced perhaps the most radical position, namely, that maintenance and champerty were effectively obsolete, and the Court should expressly find that to be the case. Counsel for LCM invited the Court to grant the torts 'a decent common law burial'. The argument was underpinned by the idea that the function and purpose of those doctrines was now achieved by the Court's developing powers to make third party costs orders, its broad powers to prevent abuse of its own processes, and ability to decline to enforce a contract on broad and flexible public policy grounds.
Counsel for the Plaintiffs endorsed LCM's approach, but also advanced a less radical position, namely, that even if maintenance and champerty continue to exist as a part of the common law in Queensland, they can have no part to play in assessing the enforceability of the kinds of funding arrangements common in representative proceedings. The enactment of a class action regime effectively brought with it tacit acceptance of litigation funding. In the alternative the Plaintiffs also applied for a common fund order.
As to unenforceability by reason of public policy more generally, both LCM and the Plaintiffs contended that the legitimacy of such funding agreements was established and settled by the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386.
In opposition to the application, GPC argued that maintenance and champerty remained applicable as part of the common law in Queensland, including in the context of class actions. It argued that the mischief that the torts were designed to address was an impermissible level of practical control that might be exercised over proceedings by a third-party litigation funder. GPC asserted that, in this case, the funding agreements between the Plaintiffs and LCM granted LCM the impermissible level of control over the proceedings, which was contrary to public policy.
In the course of his decision Justice Crow extensively reviewed English and Australian case law on the question of the historical function and continued existence (or otherwise) of maintenance and champerty. In Queensland, as crimes maintenance and champerty were abolished by reason of the introduction of the Criminal Code Act 1899 (Qld). Although His Honour observed that, as torts, maintenance and champerty had been 'lying in state' since that time, he declined to offer them the 'common law burial' as invited, because it was not strictly necessary on this application. As His Honour pointed out, neither party relied on maintenance and champerty as torts as a basis for establishing a liability. What was genuinely in issue was whether the public policy concerns which underlay those venerable doctrines gave rise to a basis on which a modern court might find the funding agreements to be unenforceable.
In this respect, His Honour identified the relevant test as being to identify what, precisely, is the corruption of the court process that is feared may result from the performance of the impugned funding arrangement. His Honour looked to statutes of parliament for guidance as to the question of public policy.
Significant in His Honour's reasoning was the structure and effect of the representative proceedings provisions contained in Part 13A of the CPA. A detailed consideration of the legislative history of its introduction, and close consideration of its precise terms lead His Honour to conclude that the regime 'permits class action proceedings to be funded by a commercial litigation funder'.
His Honour rejected the GPC's argument that the particular terms of the funding agreements in this case granted LCM any level of unlawful or improper control. On the contrary, His Honour found that those agreements granted primacy to the representative plaintiffs on all important aspects of the conduct of the class action, notwithstanding that much of the day-to-day decisions and instructions come from the Funder. Importantly, His Honour identified s.103R of the CPA as a key provision, which reposes in the Court the power to determine what proportion of a settlement sum is paid to a litigation funder. That power prevails over any contractual provisions with respect to remuneration of the litigation funder.
On this basis His Honour found that the funding agreements did not involve unlawful conduct or purpose, and were not prejudicial to the administration of justice. On the contrary, the funding agreements accorded with the public policy of part 13A of the CPA. Accordingly His Honour made the declarations sought, to the effect that the funding agreements were not unenforceable by reason of maintenance, champerty or public policy.
The decision is of great significance for class actions regimes across Australia, and consolidates the legitimacy of properly structured and administered litigation funding agreements in support of representative proceedings.
1. Criminal Law Act 1967 (UK)
2. Maintenance, Champerty and Barratry Abolition Act 1993 (NSW)
3. Criminal Law Consolidation Act 1935 (SA)
4. Wrongs Act 1958 (Vic)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.