Supreme court upholds enforceability of litigation funding agreements in Queensland

A recent decision of the Queensland Supreme Court has confirmed the enforceability of commercial litigation funding agreements in class actions conducted under Part 13A of the Civil Proceedings Act 2011 (Qld).

This decision is important for anyone likely to be involved in third-party funded court actions, as it:

• addresses what has long been an unresolved quirk of Queensland law
• confirms that litigation funding agreements are valid and enforceable under Queensland’s relatively new class actions regime (introduced on 11 November 2016)
• nonetheless makes clear that the Court may still intervene where it considers a litigation funding agreement could be prejudicial to the administration of justice or result in an abuse of process.

Background

Murphy Operation Pty Ltd v Gladstone Ports Corporation & Anor (No 4) [2019] QSC 228 (Murphy), concerned a class action commenced by a number of commercial fishing businesses against the Gladstone Ports Corporation (GPC), seeking compensation for economic loss said to have been caused by water pollution generated by GPC’s 2011 Port of Gladstone expansion project.

In an interlocutory dispute, GPC sought to challenge the enforceability of the plaintiffs’ agreements with litigation funder Litigation Capital Management (LCM) on the grounds of maintenance and champerty or, alternatively, public policy. The lead plaintiffs gave evidence that they would have been unable to fund their proceedings but for the agreements with LCM.

Maintenance, Champerty & Public Policy

Although litigation funding agreements are increasingly common in Australia, they were for a long time illegal under the laws of the Commonwealth. As a result, laws concerning the enforceability of such agreements are continuing to develop in response to legislative changes and the evolving practical realities of modern day litigation.

The doctrines of maintenance and champerty date back to medieval England and, in essence, prevent third parties who have no direct interest in a proceeding from financially supporting, or sharing in the proceeds of, that proceeding. They operated as both crimes and torts, and were intended to guard against “officious intermeddling” by non-party agitators in the context of legal systems which had significantly fewer procedural safeguards than the present.¹  

The doctrines reared their heads again in Murphy as a result of a quirk in Queensland law. While the crimes of maintenance and champerty were abolished by statute in Queensland in 1901,² their tort equivalents had been effectively left “lying in state” for the past 118 years.³ In contrast, New South Wales, Victoria, South Australia and the United Kingdom had each expressly abolished all forms of maintenance and champerty by the mid-1990’s.⁴

In the alternative, GPC also argued that the relevant litigation funding agreements were unenforceable on the grounds of public policy because proceedings supported by commercially motivated funders have a tendency to “distort the curial process”. In particular, GPC alleged that the relevant agreements were likely to result in an improper “inflammation of damages” by encouraging the plaintiffs to widen their claim and, therefore, the quantum of potential recovery.⁵ 

Key takeaways

• Justice Crow declined to outright rule that the torts of maintenance and champerty were now obsolete in Queensland, but held that they did not apply in the present case. His Honour also dismissed GPC’s arguments about public policy, finding that the litigation funding agreements in fact accorded with the policy of Queensland’s class actions regime by promoting access to justice.⁶
• Based on the judgment’s reasoning, it appears likely that most conventional litigation funding agreements would be similarly upheld.
• A major factor in Crow J’s decision was the fact that Courts and litigants now have access to far more direct and efficient means of protecting themselves from abuses of process if and when they arise (e.g. third party costs orders and the Court’s power to dismiss or stay proceedings in particular circumstances).
• Nonetheless, the decision also made clear that questions of illegality and public policy may still arise when considering whether a litigation funding agreement is enforceable. Thus, “it is left open in an appropriate case for a defendant to seek to stay a commercially funded class action as an abuse of process”.⁷

1. See Bradlaugh v Newdegate (1883) 11 QBD 1, 5 and the discussion of the history of maintenance and champerty at Murphy, [72]-[144].
2. Criminal Code Act 1899 (Qld).
3. Murphy, [131].
4. See Maintenance, Champerty and Barratry Abolition Act 1993 (NSW); Wrongs Act 1958 (Vic); Criminal Law Consolidation Act 1935 (SA); Criminal Law Act 1967 (UK).
5. Murphy, [146], [149].
6. See Murphy, [149], [182], [186].
7. Murphy, [136]. See also at [146].

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