Maintenance and champerty make another appearance

Funded class action – Maintenance and champerty – Whether funding agreements are unenforceable where no legislative abolition of maintenance and champerty in Queensland – Application for declaration that funding agreements are not unenforceable – Application granted

This is a class action arising out of the alleged negligent design and construction of a ‘bund wall’ for the Fisherman’s Landing Port Expansion and Western Basin Dredging and Disposal Project which occurred in Gladstone Harbour during 2010 and 2011. It is alleged that the wall failed, leading to contamination of water in the harbour and damage to seafood species in the region, and consequent losses to the plaintiffs and class members (being persons involved in the fishing industry in the region) – there are 168 class members in total.

In an earlier judgment dealing with security for costs (Murphy Operator Pty Ltd v Gladstone Ports Corporation Ltd (No 2) [2019] QSC 12) Crow J expressed some doubt about the validity of the plaintiffs’ and class members’ funding agreements, in circumstances where maintenance and champerty has not been legislatively abolished in Queensland. As a consequence, the plaintiffs applied for:

  • a declaration that the funding agreements were not, by reason of maintenance, champerty or public policy, unenforceable; or
  • alternatively, a common fund order.

The application was, unsurprisingly, supported by the plaintiffs’ funder (LCM), but was opposed by the defendant.

It was not in dispute that the plaintiffs would be unable and/or unwilling to fund the proceeding without the funding provided by LCM; his Honour also accepted that the plaintiffs had obtained independent legal advice prior to entering into the funding agreements.

His Honour reviewed the terms of the funding agreements (which for the most part were in standard form, and did not contain anything unusual). They provided for LCM to receive a commission calculated as the greater of three times the legal costs incurred, or between 15% and 40% of the resolution sum (depending on the amount of legal costs incurred). Although the funding agreements permitted LCM to provide instructions to the plaintiffs’ lawyers, they also provided that the plaintiffs had to be involved in all important decisions affecting the proceeding and that the plaintiffs had primacy in respect of the proceeding, and also provided a dispute resolution mechanism in the event of any dispute between LCM and the plaintiffs.

As a preliminary matter, his Honour had to rule on the admissibility of the plaintiffs’ solicitors’ invoices. The defendant sought to tender those invoices in order to demonstrate, so it asserted, the extent of communications between the plaintiffs’ solicitors and LCM, and therefore the degree of control exercised over the proceeding by LCM, to the exclusion of the plaintiffs. His Honour ruled that the invoices were inadmissible, because the relevant question was the tendency of the funding agreements themselves to corrupt the judicial process, not any subsequent acts of the parties (but in any event, his Honour did not consider that the invoices demonstrated that LCM had control over the proceeding, as opposed to LCM simply providing instructions from time to time and being kept informed of the proceeding in accordance with the terms of the funding agreements).

In relation to the substantive question, the plaintiffs and LCM submitted that “the ancient torts of maintenance and champerty no longer exist in the common law of Australia, and if they do, the torts ought to be offered “a decent common law burial”” (at [72]).

His Honour undertook a detailed review of the authorities on maintenance and champerty dating back to the late 1800s. At [87], his Honour considered that there was now a much simpler way of dealing with the supposed evil of maintenance and champerty, namely, the courts’ ability to make costs orders, in appropriate cases, directly against funders.

His Honour found that, although the crimes of maintenance and champerty were never expressly abolished in Queensland, because Queensland has had, since 1901, a Criminal Code which does not include such offences, they ceased to exist as crimes in Queensland over 100 years ago; he also considered that since that time, the torts of maintenance and champerty have been “lying in state” and ought to be “offered a decent common law burial” (but he did not need to decide that question given that the present case did not involve a claim based on those torts, but rather the question whether, for reasons of public policy, the agreements ought to be considered unenforceable) (at [131]).

His Honour then noted, in reliance on Fostif, that there was nothing per se objectionable about funding agreements in the context of a class action; and nor was there anything objectionable with the funding agreements in this particular case.

His Honour then went on to consider the provisions of Part 13A of the Civil Proceedings Act 2011 (Qld) (CPA) (being the equivalent of Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCAA)). Section 103K(2) of the CPA (which has no counterpart in the FCAA, but does in the New South Wales legislation) expressly permits a class to be defined by reference to those persons who have entered into a funding agreement. His Honour considered that that was a further, clear indication that there was, in Queensland, no public policy against funding agreements in the context of class actions. Further, the extensive powers of the Court under Part 13A of the CPA to control the conduct of class action proceedings reinforced that view. Indeed, his Honour considered that the Court’s powers under s 103R of the CPA (being the equivalent of s 33V of the FCAA) gave the Court power to override the funding agreements, and thus alter the amount of commission otherwise payable to a funder under the funding agreements.

In light of those conclusions, it was unnecessary to consider the plaintiffs’ alternative claim for a common fund order; nevertheless, his Honour indicated that he would have been disposed to make such an order had he found the funding agreements to be unenforceable.

Accordingly, his Honour granted the relief sought by the plaintiffs, namely, a declaration that the funding agreements were not unenforceable by reason of maintenance, champerty or public policy.

Case details

Murphy Operator Pty Ltd v Gladstone Ports Corporation Ltd (No 4) [2019] QSC 228

  • Supreme Court of Queensland, Crow J, 13 September 2019
  • Plaintiffs’ Solicitors: Clyde & Co;
  • Defendant’s Solicitors: King & Wood Mallesons;
  • Plaintiffs’ Funder: LCM Operations Pty Ltd;
  • Funder’s Solicitors: Piper Alderman

Read more about this case on Austlii: Murphy Operator Pty Ltd v Gladstone Ports Corporation Ltd (No 4) [2019] QSC 228

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