Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Limited (ACN 064 567 040) [2007] FCAFC 52 (16 April 2007)

PRACTICE AND PROCEDURE – application for order of summary dismissal or permanent stay of proceedings – where party conducts litigation on behalf of another following sale of business – relevant factors in consideration of abuse of process – whether proceedings constitute abuse of process – whether proceedings instituted for an illegitimate purpose – appeal dismissed

Federal Court of Australia Act 1976 (Cth) – s 23
Trade Practices Act 1974 (Cth) – s 82

Batistatos v Roads and Traffic Authority of New South Wales (No S530/2005) [2006] HCA 27; (2006) 227 ALR 425 cited
Blair v Curran (1939) 62 CLR 646 referred to
Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 ALR 58 followed
Clairs Keeley (A Firm) v Treacy [2003] WASCA 299; (2003) 28 WAR 139 discussed
Clairs Keeley (A Firm) v Treacy [2004] WASCA 277; (2004) 29 WAR 479 discussed
D’Orta Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 considered
Fischer v Kamala Naiker (1860) 8 Moo Ind App 170 cited
Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd [2005] NSWCA 83; (2005) 63 NSWLR 203 referred to
Georgiadis v Australian and Overseas Telecommunications Corporation [1994] HCA 6; (1994) 179 CLR 297 cited
Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 questioned
Glegg v Bromley [1913] 3 KB 474 cited
Grassby v The Queen [1989] HCA 45; (1989) 168 CLR 1 referred to
Hunter v Chief Constable of the West Midlands Police [1982] AC 529 referred to
Industrial Equity Ltd v Blackburn [1977] HCA 59; (1977) 137 CLR 567 referred to
In re judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257 cited
McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 referred to
North Ganalanja Aboriginal Corporation v Queensland [1996] HCA 2; (1996) 185 CLR 595 cited
Park v Allied Mortgage Corporation Limited (1993) 15 ATPR 46-105 referred to
Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635 referred to
Project 28 Pty Ltd (formerly Narui Gold Coast Pty Ltd) v Barr [2005] NSWCA 240 cited
Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 cited
Re McBain; Ex parte; Australian Catholic Bishops Conference [2002] HCA 16; (2002) 209 CLR 372 cited
Salomon v Salomon & Co [1897] AC 22 referred to
Sprye v Porter (1856) 7 E&B 58 referred to
Stanley v Jones (1831) 7 Bing 369 referred to
Trendtex Trading Corporation v Credit Suisse [1982] AC 679 discussed
Truth about Motorways Pty Ltd v Macquarie Infrastructure Investment Management Limited [2000] HCA 11; (2000) 200 CLR 591 referred to
Walton v Gardiner [1992] HCA 12; (1993) 177 CLR 378 referred to
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 referred to

DELOITTE TOUCHE TOHMATSU, MOXLABIA PTY LTD (ACN 003 564 716), GREENWOOD CHALLONER & CO, ALLAN MARTIN DELANEY AND AM DELANEY NOMINEES PTY LTD (ACN 001 832 015) v JP MORGAN PORTFOLIO SERVICES LIMITED (ACN 064 567 040)
NSD 2292 OF 2005

TAMBERLIN, JACOBSON & RARES JJ
16 APRIL 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2292 OF 2005

BETWEEN:	DELOITTE TOUCHE TOHMATSU FIRST APPELLANT MOXLABIA PTY LTD (ACN 003 564 716) SECOND APPELLANT GREENWOOD CHALLONER & CO THIRD APPELLANT ALLAN MARTIN DELANEY FOURTH APPELLANT AM DELANEY NOMINEES PTY LTD (ACN 001 832 015) FIFTH APPELLANT
AND:	JP MORGAN PORTFOLIO SERVICES LIMITED (ACN 064 567 040) RESPONDENT

JUDGE:	TAMBERLIN, JACOBSON & RARES JJ
DATE OF ORDER:	16 APRIL 2007
WHERE MADE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2292 OF 2005

BETWEEN:	DELOITTE TOUCHE TOHMATSU FIRST APPELLANT MOXLABIA PTY LTD (ACN 003 564 716) SECOND APPELLANT GREENWOOD CHALLONER & CO THIRD APPELLANT ALLAN MARTIN DELANEY FOURTH APPELLANT AM DELANEY NOMINEES PTY LTD (ACN 001 832 015) FIFTH APPELLANT
AND:	JP MORGAN PORTFOLIO SERVICES LTD (ACN 064 567 040) RESPONDENT

JUDGE:	TAMBERLIN, JACOBSON & RARES JJ
DATE:	16 APRIL 2007
PLACE:	SYDNEY

1 The sole issue which arises on this appeal is whether an agreement which gives the entire benefit, and virtually unfettered control, of the conduct of the litigation to a non-party to the proceedings, constitutes an abuse of process.

2 In Project 28 Pty Ltd (formerly Narui Gold Coast Pty Ltd) v Barr [2005] NSWCA 240, Ipp JA (with whom Hodgson JA and Campbell AJA agreed) said at [77] that in appropriate circumstances, the law countenances absolute control of litigation by a person who prosecutes the proceedings in the name of another party. His Honour pointed out at [69] that insurance law, where the insurer brings proceedings under a right of subrogation in the name of the insured, provides a useful example.

3 On this approach, the existence of the agreement is a relevant factor in determining whether the proceedings have a tendency to abuse the process of the Court, but it is necessary to look at all the circumstances before coming to a conclusion. Indeed, that was the approach of a majority of the Justices who considered this question in the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 ALR 58 ("Fostif").

4 Notwithstanding this, the appellants contend that an agreement between JP Morgan Chase Bank NA ("JP Morgan") and Westpac Banking Corporation, which gives the entire benefit and virtual control of the proceedings below to Westpac, constitutes, without more, an abuse of process. JP Morgan Chase Bank NA is the parent company of the applicant in the proceedings below, JP Morgan Portfolio Services Limited ("JP Morgan PSL") and signed the agreement on behalf of both companies.

5 The appellants contend that the agreement between JP Morgan and Westpac is, in substance, an assignment of a bare right of action. They submit that an assignment of a bare right of action is contrary to law and that it is, of itself, an abuse of process.

6 They submit that the views of the majority in Fostif were limited to a consideration of litigation funding arrangements under which a share, rather than the entirety of the proceeds, is assigned to a funder.

7 The appellants submit that their approach to the matter is supported by the reasons of Callinan and Heydon JJ who were in a minority on the issue of abuse of process in Fostif.

8 The primary judge (Wilcox J) found that the agreement between JP Morgan and Westpac did not have a tendency to abuse the process of the Court. His Honour decided the question before the judgment of the High Court in Fostif was handed down. However, he applied the principles stated by Mason P in the New South Wales Court of Appeal in Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd [2005] NSWCA 83; (2005) 63 NSWLR 203 and by Ipp JA in Project 28.

9 The appeal is brought with leave of the Court granted on 24 February 2006 by Madgwick J.

10 In 1998-1999 JP Morgan PSL purchased two share registry businesses from the appellants. It is unnecessary to describe in any further detail the nature of the businesses. For present purposes, it is sufficient to describe the share registry businesses as the "NRS Business".

11 When JP Morgan PSL purchased the NRS Business, it was a member of the Bankers Trust (BT) group of companies and its shares were held by BT Australia Limited.

12 Westpac is now the holding company and ultimate owner of the BT group. That is a critical factor in determining whether the agreement under which Westpac obtains the benefit, and control, of this litigation amounts to an abuse of process.

13 The proceedings arise out of the purchase by JP Morgan PSL of the NRS Business. The causes of action alleged in the Further Amended Statement of Claim are breach of contract and claims for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) and corresponding provisions of the Fair Trading Act 1987 No 68 (NSW), Fair Trading Act 1999 (Vic), Fair Trading Act 1989 (Qld), Fair Trading Act 1987 (WA) and the Australian Securities & Investments Commission Act 1989 (Cth) and Australian Securities & Investments Commission Act 2001 (Cth).

14 At the time when JP Morgan PSL purchased the NRS Business, it was known as BT Portfolio Services Limited ("BTPS"). That name of course reflected its status as a member of the BT group.

15 The other critical factor in determining whether the agreement between JP Morgan PSL and Westpac constitutes an abuse is that in late 2000 the BT group sold its shareholding in BTPS, but excluded from the terms of sale the BT group’s interest in the NRS Business and the causes of action arising from its purchase.

16 The Share Sale Agreement under which BT Australia sold its shareholding was made on 7 September 2000 and varied on 19 December 2000. The purchaser of the shares in BTPS was the Chase Manhattan Bank which is now apparently known as JP Morgan Chase Bank NA. Thus, after the Share Sale Agreement was completed, BTPS changed its name to JP Morgan PSL.

17 With a view to preserving the benefit of the present causes of action for the BT group, the Share Sale Agreement provided that the Chase Manhattan Bank assigned to the BT group its entire right, title and interest in claims or causes of action against the vendors of the NRS Business.

18 We will set out below the whole of the relevant clause, which is clause 6.4 of the Share Sale Agreement because that clause is also a critical factor in determining whether the proceedings constitute an abuse.

19 It is common ground between the parties to these proceedings that the purported assignment of the causes of action in Clause 6.4(a) of the Share Sale Agreement failed. Indeed, this at the heart of the appellants’ argument that the proceedings are an abuse of process. Their argument is that the assignment having failed, the purpose of the agreement between JP Morgan Chase Bank NA and Westpac was to achieve the illegitimate object of giving effect to an invalid assignment.

20 However, clause 6.4(b) of the Share Sale Agreement went on to provide that the BT Companies would be entitled to call upon the Chase Manhattan Bank to take such action as may be required to enforce any rights of action arising out of or in connection with the sale of the NRS Business.

21 Clause 6.4(b) specifically provided that the rights of the BT Companies would include the right to call upon the Chase Manhattan Bank to commence legal proceedings and for the BT Companies to take over responsibility for the conduct of those proceedings.

22 On 14 December 2000, apparently in anticipation of completion of the Share Sale Agreement, BTPS transferred the NRS Business to BT Registries Pty Limited, another member of the BT group. Clearly enough, this was a necessary step in the excision of the NRS Business from the sale of the shares in BTPS to the Chase Manhattan Bank.

23 In August 2001, the BT group sold BT Registries and the NRS Business to another group of companies, the Computershare group. However, it appears that the causes of action arising from the purchase by BTPS of the NRS Business were not dealt with by the terms of the sale to Computershare.

24 It was not until late 2004 that steps were taken to ventilate the causes of action. The proceedings were brought following upon the execution of the agreement between JP Morgan Chase Bank NA and Westpac to which we have referred. The agreement was contained in a letter dated 1 December 2004 and signed by Westpac and JP Morgan Chase Bank NA (on behalf of itself and JP Morgan PSL). It is convenient to refer to the agreement as the Letter Agreement.

25 The Letter Agreement commences by stating that the parties to it have agreed in accordance with clause 6.4 of the Share Sale Agreement that JP Morgan PSL will commence proceedings on behalf of Westpac against the vendors of the NRS Business. The terms of the Letter agreement provide for JP Morgan PSL to conduct the proceedings on Westpac’s behalf and for Westpac to be entitled to the whole of any proceeds of the litigation.

26 The Letter Agreement provides for JP Morgan PSL and Westpac to jointly instruct a nominated firm of solicitors to conduct the proceedings and for Westpac to pay the solicitors’ costs. It goes on to say in express terms that, subject to a provision for the mediation of any disputes between Westpac and the JP Morgan entities, Westpac will "assume control" of the proceedings, with "sole authority" to instruct the solicitors.

27 Provision is made in the Letter Agreement to retain another firm of solicitors to hold a watching brief. Provision is also made for Westpac to indemnify the JP Morgan entities against all costs and liabilities arising out of the proceedings, including any adverse costs order.

28 The Letter Agreement was not intended to be hidden from the scrutiny of the Court. It made express provision for disclosure to the Court and the respondents of Westpac’s interest in the proceeding, as well as the fact of the indemnity granted to JP Morgan PSL.

29 Indeed, on 21 March 2005, about three months after the commencement of the proceedings, the solicitors on the record wrote to the respondent’s solicitors stating that Westpac considered itself bound by the ordinary obligations on litigants, including:

31 It is unnecessary to set out the definitions of the Company Group and the Seller Group. It is sufficient to say that these terms applied to various divisions within the BT group, the object of the assignment being to retain the benefit of the causes of action in house within BT.

33 The primary judge approached the matter upon the basis that the technical rules relating to the assignability of causes of action were not relevant to the question of whether there is an abuse of process. He considered that the central question is not to be determined by reference to the technical rules but rather by asking whether what is being done has a tendency to corrupt the administration of justice; see at [54].

34 His Honour was of the view that this approach was supported by the decisions of the New South Wales Court of Appeal in Fostif and Project 28.

35 The learned primary judge accepted that the Letter Agreement gave Westpac control of the proceedings but he considered that it ensured that the exercise of control was subject to the scrutiny of JP Morgan. He considered that Westpac had a genuine commercial interest in the proceedings, pointing to the "economic reality" that the cause of action came into existence as an asset of the BT group, which is now owned by Westpac; see at [53] and [55].

37 The majority Justices in Fostif approved, either expressly or impliedly, the views stated by Mason P in the Court of Appeal; per Gleeson CJ at [1], Gummow, Hayne and
Crennan JJ at [63], [65]; Kirby J at [147].

38 Mason P observed at [132] that the Court’s "basal enquiry" is whether the role of the funder has corrupted, or is likely to corrupt, the processes of the Court to a degree that attracts the extraordinary jurisdiction to dismiss or stay the proceedings as an abuse of process; see also at [114].

39 This approach is reflected in the reasons of Gummow, Hayne and Crennan JJ at [91], [93] and [95]. Those reasons may be summarised as follows:

• There is no overarching rule of public policy that bars the prosecution of funded litigation by reference to the share of the proceeds or the degree of control over the litigation extended to the funder.

• The relevant question to ask is not whether the agreement, of itself, discloses champerty or maintenance; rather, it is necessary to identify what exactly is feared; in particular, what exactly is the corruption of the Court processes that is feared. By way of example, their Honours referred to such matters as inflaming damages, suppressing evidence or suborning witnesses.

• The question of whether there is an abuse of process is not solved by identifying a general rule of public policy that may be invoked by a defendant; each case must be determined on its own facts.

40 In our view, the approach urged upon us by the appellants is inconsistent with the principles stated by the majority. The appellants did not point to any specific way in which the arrangements were inimical to justice. This is because the appellants sought to characterise the Letter Agreement as an attempt to effect an invalid assignment of a bare right of action. Elsewhere in their submissions the appellants called it a de facto assignment.

41 But the reasons why equity would not permit the assignment of a bare right of action on the ground of public policy was that it savoured of maintenance; Glegg v Bromley [1913] 3 KB 474 at 489-490; Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 702.

42 The entire thrust of the reasons of the majority in Fostif is to reject the notion that a plaintiff can invoke maintenance and champerty as a general ground for the identification of an abuse of process. Yet that is precisely what the appellants seek to do in the present proceeding.

43 It is true, as the appellants submit, that strictly speaking, the reasons of the majority on the abuse of process issue were obiter. This is because the appeal was allowed upon the basis that the proceeding did not satisfy the rules for representative proceedings in the Supreme Court of New South Wales.

44 However, it would be unrealistic and impractical to suggest that the carefully considered views of the majority on the question of abuse of process can be ignored.

The appellants’ argument is not supported by the views of the minority in Fostif

45 The appellants focus upon [258] of the reasons for judgment of Callinan and Heydon JJ in Fostif; in particular the last sentence of that paragraph.

47 However, it would be wrong to confine attention to the paragraph we have cited above. This is because in [259] their Honours went on to accept that whilst "trafficking" in litigation exists as a residual category of abuse of process, the question remains as to the circumstances in which trafficking will justify the grant of a stay.

48 It is implicit in this that their Honours do not limit the enquiry to that of asking whether the agreement involves maintenance or champerty. This is also apparent from other passages of their Honours’ judgment.

49 On their Honours’ approach, the factors relevant to maintenance and champerty will also be relevant to whether there is an abuse of process; see at [263].

50 But it is then a question of identifying and considering all factors in combination. Their Honours did so, commencing at [267]. The factors which they considered as pointing to an abuse of process included the profit nature of the funder, the encouragement to litigate and the degree of control over the litigation.

51 The minority’s views as to the likelihood of corruption flowing from the profit nature of the degree of control were not shared by the majority; at [89]. However, the difference between them in these respects focuses upon factual considerations and the attitude of the Court to those factors. It is not concerned with the mere characterisation of the agreement by reference to legal labels.

52 It is true that Callinan and Heydon JJ refer at [261] to the characterisation of the transaction in the West Australian authority of Clairs Keeley (A Firm) v Treacy [2003] WASCA 299; (2003) 28 WAR 139 as a de facto assignment. But it was the degree of control over the litigation which the Full Court of the Supreme Court of West Australia considered, in a later decision, to have a tendency to corrupt the Court’s processes; see [2004] WASCA 277; (2004) 29 WAR 479 at [71].

53 What underlies the view of Callinan and Heydon JJ is to the same effect as that which led the West Australian Supreme Court, on two occasions, to find against the funding arrangements. Callinan and Heydon JJ said at [266]:

54 With the exception of the degree of control over the litigation granted to Westpac in the Letter Agreement, the factors identified by the minority Justices in Fostif are not present here. We will deal with this in further detail below.

55 The Letter Agreement must be viewed in its full commercial context. This is not a case of an officious intermeddler "huckstering in litigious discord" without any genuine commercial interest that can be traced to the inception of the cause of action; Fostif at [74], [266].

56 Rather, the surrounding circumstances against which the Letter Agreement must be viewed demonstrate quite plainly the commercial imperatives which explain the transaction.

57 Put shortly, the relevant commercial setting is that the cause of action the subject of these proceedings arose in the hands of JP Morgan PSL at a time when it was a member of the BT group. Westpac is now the ultimate holding company of that group. The benefit of the cause of action was retained within the BT group when it sold its shares in JP Morgan PSL to the Chase Manhattan Bank. Indeed, the NRS Business, to which the cause of action may be thought to be ancillary, was expressly excluded from the sale.

58 The cause of action was again retained for the benefit of the BT Group when the company known as BT Registries was on-sold in 2001.

59 Thus, as the primary judge observed at [53], the cause of action came into existence as an asset of JP Morgan PSL when it was a member of the BT group. That is the economic and commercial reality. It was always intended that the cause of action would remain as an asset of the BT group. Westpac is now the owner of that group of companies.

60 It is not to the point that Westpac has what may, in a practical sense, be characterised as absolute control of the litigation. The losses which are sought to be recovered in the proceedings are losses of the BT group. The benefit of the cause of action may ultimately be reflected upon consolidation of the group’s accounts in the hands of Westpac as the parent. This explains Westpac’s control of the litigation and its entitlement to the whole of the proceeds.

61 Westpac has a genuine commercial interest in the whole of the cause of action. That interest can be traced through the dealings in the shares of JP Morgan PSL, back to the inception of the cause of action.

62 This case contains no factual resemblance to an ordinary litigation funding agreement, although the principles stated in Fostif apply to the determination of whether it amounts to an abuse of process.

63 There is nothing to suggest that the Letter Agreement may give rise to a fear of corruption of the Court’s processes, any more than may be exhibited where a plaintiff brings proceedings in its own name.

64 This may be seen from three factors. First, Westpac has a genuine commercial interest in the enforcement of the claim; Fostif at [258], [266]; Trendtex at 694, 703. This is not a case which has been manufactured by a party for a profit motive.

65 Second, Westpac has expressly acknowledged that it is bound by the ordinary rules and obligations applicable to a party. The factors which troubled the minority in Fostif at [266] as pointing against public confidence in the integrity of the Court’s processes are not present in these proceedings.

66 Third, as the primary judge observed at [56], the litigation is being conducted by a firm of experienced solicitors with fiduciary duties to JP Morgan PSL and Westpac. Moreover, the conduct of the litigation is subject to the scrutiny of another highly experienced firm.

67 The "watching brief" and the provision for mediation of disputes between JP Morgan PSL and Westpac may secure little practical control away from Westpac. Nevertheless, it is a significant step in ensuring the preservation of the integrity of the Court’s processes.

68 It is an abuse of process to institute proceedings for an illegitimate purpose in the sense that the purpose is intended to effect a purpose beyond that which the process offers; Batistatos v Roads and Traffic Authority of New South Wales (No S530/2005) [2006] HCA 27; (2006) 227 ALR 425 at [15]; Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 522-523.

69 As we mentioned at [40], the appellants sought to call in aid this principle by characterising the Letter Agreement as a de facto assignment of the cause of action which was intended to overcome the ineffective assignment contained in clause 6.4(a) of the Sale Agreement.

70 Thus, the appellants submit that to invoke the procedures of the Court through the provisions of the Letter Agreement was to do so for an illegitimate purpose, contrary to the principle stated above.

71 It may be accepted that a bare right of action under the Trade Practices Act cannot be assigned; see for example Park v Allied Mortgage Corporation Limited (1993) 15 ATPR 46-105 at 53,469 per Davies J.

72 But that is not the question which arises in the present case. The Letter Agreement is not an assignment of the cause of action. It is an agreement under which all of the benefits of the cause of action are to be retained by Westpac.

73 The appellant’s proposition appears to be that the assignment in clause 6.4(a) of the Sale Agreement having failed, any agreement which secures the benefit of the cause of action to the purported assignee (or the controlling entity of that party) must of itself be an illegitimate use of the Court’s processes because in substance, it circumvents the inability to assign by achieving an equivalent outcome.

74 However, the fact that the assignment has failed does not prevent the use of the alternative right conferred by cl 6.4(b).

75 Moreover, the invocation of the Court’s processes in the manner specified in the Letter Agreement cannot be said to be the use of the procedures of the Court in a way that is foreign to their objects.

76 It may be true, as the primary judge said, that JP Morgan PSL had no interest in bringing the litigation on its own account. But it does not follow from this that JP Morgan PSL commenced the litigation otherwise than to resolve a controversy that it desires to quell.

77 The short answer to this question is to be found in what we have already said about the need to view the Letter Agreement in its full commercial context. In particular, it is necessary to consider it in light of the commercial objectives expressed in the Share Sale Agreement.

78 The Letter Agreement finds its genesis in the Share Sale Agreement. Under cl 6.4(b) of that agreement, JP Morgan PSL’s parent company bound itself to commence legal proceedings if required to do so by the BT Companies. Westpac as the owner of the BT group required JP Morgan PSL to commence the proceedings in accordance with the obligation undertaken by JP Morgan PSL’s parent in the Share Sale Agreement.

79 The Letter Agreement gives effect to that obligation. It is the "desire" to give effect to this obligation which informs the commencement of these proceedings. The cause of action is that of JP Morgan PSL. The cause of action was preserved for the benefit of the BT group in a bona fide commercial transaction. JP Morgan PSL seeks to quell the controversy between itself and the vendors of the NRS Business.

80 We reject the submission that there is no controversy to be determined between the parties to the proceedings.

I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin and Jacobson

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2292 OF 2005

BETWEEN:	DELOITTE TOUCHE TOMATSU First Appellant MOXLABIA PTY LTD (ACN 003 564 716) Second Appellant GREENWOOD CHALLONER & CO Third Appellant ALLAN MARTIN DELANEY Fourth Appellant AM DELANEY NOMINEES PTY LTD (ACN 001 832 015) Fifth Appellant
AND:	JP MORGAN PORTFOLIO SERVICES LIMITED (ACN 064 567 040) Respondent

JUDGES:	TAMBERLIN, JACOBSON AND RARES JJ
DATE:	16 APRIL 2007
PLACE:	SYDNEY

82 On 3 December 2004, JP Morgan Portfolio Services Limited commenced proceedings in this Court against the appellant vendors claiming substantial damages. Just beforehand, on 1 December 2004, Portfolio Services and JP Morgan Chase Bank NA entered into a litigation agreement with Westpac Banking Corporation. They agreed that the proceedings would be brought and conducted by Portfolio Services for the sole benefit of Westpac and that Westpac would assume control over the proceedings. So, Portfolio Services had commenced the proceedings to sue on causes of action which it had no interest in litigating on its own account.

83 The question for decision is whether it is an abuse of the process of the Court for Portfolio Services to lend its name and aid to Westpac to bring and maintain the proceedings when Portfolio Services itself has no controversy with the appellant vendors which it seeks to have resolved. The vendors unsuccessfully moved the primary judge for the proceedings to be dismissed or stayed.

84 In December 1998 and April 1999 Portfolio Services, then called BT Portfolio Services Limited, purchased share registry businesses from the vendors and others. It is not necessary to go into the detail of the contracts for sale or the ways in which Portfolio Services’ causes of action against the vendors are said to have arisen. Portfolio Services alleged that the vendors were in breach of warranties in the sale agreements and were liable to pay compensation for loss or damage under s 82 of the Trade Practices Act 1974 (Cth) and its analogues. Portfolio Services alleged that had it been aware of the true state of things, it would not have entered into the purchase agreements at all and consequently would not have suffered over $20 million worth of loss.

85 From at least late 1998, BT Australia Limited owned all the issued shares in Portfolio Services. Sometime in late 2000, after Portfolio Services had purchased the share registry businesses, BT Australia sold its shares to Chase Manhattan Bank. But, just prior to completion of that sale and as a part of it, Portfolio Services transferred all its operating assets and liabilities, including the share registry businesses, to another BT company, BT Registries Pty Limited. The share sale agreement purported to provide that Portfolio Services assigned to other companies in the BT group any cause of action arising under or in connection with the 1998 and 1999 contracts for purchase of the share registry business. It is common ground that this was legally ineffective and no cause of action was assigned. Thus, Portfolio Services retained those causes of action when it became a subsidiary of Chase Manhattan.

86 However, cl 6.4(b) of the share sale agreement provided that the BT companies would be entitled to call upon Chase Manhattan Bank to take such action as might be required to enforce any rights of action arising out of or in connection with the sale of the share registry business. (Clause 6.4 of the share sale agreement is set out at [30] of the reasons of Tamberlin and Jacobson JJ, which I have had the benefit of reading.)

87 In early 2001 Portfolio Services’ name changed to its present one. Then in August 2001, BT Australia sold the whole of the shares in BT Registries to a third party, the Computershare group. In late 2002, Westpac Banking Corporation became the ultimate holding company of BT Australia.

88 The result of the above transactions was that after late 2002, Chase Manhattan owned Portfolio Services, Computershare owned BT Registries and, with it, the share registry businesses and Westpac owned the BT group of companies.

89 Then, as noted earlier, on 1 December 2004, Portfolio Services and JP Morgan Chase Bank NA entered into the litigation agreement with Westpac. The evidence does not reveal the relationship JP Morgan Chase Bank NA had with Chase Manhattan or Portfolio Services but nothing appears to turn on this. The litigation agreement recited the earlier attempt in late 2000 to assign to the BT Australia group the causes of action which Portfolio Services had against the vendors as part of the sale of Portfolio Services and other companies to Chase Manhattan.

92 The trial judge found that Portfolio Services had no interest in bringing the litigation against the vendors on its own account. That finding was not challenged on appeal. The whole of the litigation is thus to be funded, conducted and controlled by Westpac and it alone will receive the benefit of any award of damages and orders for costs made in the proceedings. The litigation agreement makes no provision in respect of any interest of any of the BT Australia group in the proceeds of the proceedings.

93 It is striking that Westpac had nothing to do with Portfolio Services entering into the 1998 and 1999 agreements with the vendors or it suffering the losses claimed. Nor did Westpac have any involvement with Portfolio Services transferring its share registry businesses to BT Registries or BT Australia’s sales of all the shares in Portfolio Services.

94 Portfolio Services submitted that there was a public interest in it being allowed to ventilate the causes of action which it had even though there was no benefit to it in doing so. Portfolio Services also contended that when in late 2002 Westpac acquired BT Australia, it obtained a relationship which is sufficient to justify the latter’s use of Portfolio Services as its vehicle in the litigation to recover damages which will go into Westpac’s coffers.

95 The vendors submitted that the prosecution of the current proceedings is not intended to quell any controversy which Portfolio Services has or wishes to have quelled against them. That is because it has no interest in bringing the proceedings or in any outcome of them.

96 Each side argued that the decision of the High Court (given after the judgment under appeal) in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 ALR 58 supported its position.

97 The reality is that Portfolio Services in this litigation is a simulacrum for Westpac.

98 The vendors’ motion seeking dismissal or a stay of the proceedings invoked the power of this Court to prevent an abuse of its process. That power is at least an implied power which is necessary for the effective exercise of the jurisdiction to hear and determine a matter arising under a law made by the Parliament, in this case the Trade Practices Act 1974 (Cth) (see s 86(1) and see too s 39B(1A)(c) of the Judiciary Act 1903 (Cth): Grassby v The Queen [1989] HCA 45; (1989) 168 CLR 1 at 17 per Dawson J). By s 23 of the Federal Court of Australia Act 1976 (Cth) the Court is given power in relation to matters in which, as here, it has jurisdiction to make orders of such kind as it thinks appropriate. This power extends to prevent misuse of the Court’s procedure in a way which though not inconsistent with the literal application of the Federal Court Rules, would be manifestly unfair to a party to litigation before it or would otherwise bring the administration of justice into disrepute among right-thinking people (Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536 per Lord Diplock; applied by Mason CJ, Deane and Dawson JJ in Walton v Gardiner [1992] HCA 12; (1993) 177 CLR 378 at 392 and Gleeson CJ, Gummow, Hayne and Crennan JJ in Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27; (2006) 227 ALR 425 at 427-428 [67]).

99 The power to prevent an abuse of the process of the Court is distinct from and governed by considerations different to those relevant to the torts of malicious prosecution and collateral abuse of process (Batistatos 227 ALR at 426-427 [3]-[4]). The power enables the Court to bring proceedings to an end without hearing and determining them on their merits at a final hearing. And, because the power is necessary to protect the processes of the Court from abuse, the circumstances in which it may be exercised cannot be stated exhaustively. Its exercise will be justified to safeguard the administration of justice. And, that purpose may transcend the interest of any particular party to the litigation (Batistatos 227 ALR at 429 [12]).

100 As Gleeson CJ, Gummow, Hayne and Crennan JJ said in Batistatos 227 ALR at 228 [9]:

101 Instituting proceedings for an improper purpose is an abuse of the process of the Court (Batistatos 227 ALR at 420 [14]-[15]; Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 526-530, 532-537, 553-556; see also ss 38, 59(1), 92)(k) and (l) of the Federal Court of Australia Act 1976 (Cth) and Federal Court Rules O 11 r 16; O 20 r 2; Batistatos 227 ALR at 429 [12]). If the dominant purpose sought to be effected by the litigant in bringing the proceedings is not within their scope then impropriety is established and the proceedings are an abuse (Spautz 174 CLR at 525, 529 per Mason CJ, Dawson, Toohey and McHugh JJ).

102 Thus, in Fostif 229 ALR at 82 [93] Gummow, Hayne and Crennan JJ (with whom on this issue Gleeson CJ agreed at 229 ALR at 59 [1]; see too per Kirby J at 95-97 [143]-[149] and D’Orta Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 at 28 [75]) said:

103 The vendors point to two features of this matter which alone or in combination are said to corrupt the process of the Court, viz:

104 In D’Orta Ekenaike 223 CLR at 16-17 [31]-[33], 20 [43] Gleeson CJ, Gummow, Hayne and Heydon JJ explained the role of the judicial power in the quelling of controversies. They said that:

105 The way in which the Courts quell controversies is, as they noted, ‘... by the ascertainment of the facts and the application of the law’ (223 CLR at [43] applying Fencott v Muller [1983] HCA 12; (1983) 152 CLR 570 at 608 per Mason, Murphy, Brennan and Deane JJ). And, in North Ganalanja Aboriginal Corporation v Queensland [1996] HCA 2; (1996) 185 CLR 595 at 612, Brennan CJ, Dawson, Toohey, Gaudron and Gummow JJ said that the law was not judicially administered by judicial declarations of its content ‘divorced from any attempt to administer that law’. The latter phrase was taken from what Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ said in In re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257 at 266. They had said that there can be no ‘matter’, for the purposes of s 76 of the Constitution, ‘... unless there is some immediate right, duty or liability to be established by the determination of the Court’ (In re Judiciary and Navigation Acts 29 CLR at 265).

106 Here the nominal litigant, Portfolio Services, has no interest in litigating the proceedings against the vendors on its own account. Nor did it have any interest, on its own account, to commence the proceedings. There is no controversy between Portfolio Services and the vendors which existed at the time the proceedings were instituted or now and which those parties wish to have resolved or quelled.

107 Rather, Westpac has sought to exploit the potential causes of action which Portfolio Services could have litigated, but has no interest to litigate, on its own account. Westpac, of course, could not litigate those alleged causes of action against the vendors in its own name in the present circumstances. Westpac needs to use Portfolio Services’ name and its capacity to assert, as a litigant, the causes of action raised in these proceedings. But is that enough to justify a conclusion that a ‘matter’ or controversy in fact exists between the actual parties to proceedings which the Court must resolve or quell exercising the judicial power of government?

108 I am of opinion that there is no controversy which is before the Court. Rather, the proceedings have been brought for the dominant purpose of enabling Westpac, and not Portfolio Services, to take advantage of a potential controversy in order that Westpac will enrich itself to the entire exclusion of any benefit to Portfolio Services.

109 The legislature has power to confer on persons who, at general law, would not be capable of bringing civil proceedings for the recovery of damages in contract tort or under provisions like s 82 of the Trade Practices Act 1974 (Cth), a right to do so under what are known as ‘open standing’ provisions. The legislative power of the Parliament to do this was considered in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Limited [2000] HCA 11; (2000) 200 CLR 591. But, here s 82(1) of the Trade Practices Act 1974 (Cth) is not an ‘open standing’ provision. It gives a right to ‘a person who suffers loss or damage by conduct of another person that was done in contravention of [certain provisions including s 52 (as is relevant here)] ... [to] recover the amount of the loss or damage by action against that other person or any person involved in the contravention’.

110 The abuse of the process of the Court in this proceeding consists in the manufacturing of the litigation by Westpac. It has used Portfolio Services’ name and possible causes of action in circumstances where Portfolio Services has no purpose in its own right or, independent of the litigation agreement, on behalf of Westpac to have the judicial power used to resolve anything.

111 Sometimes an insured who has been indemnified is unwilling to permit its insurer to exercise the right of subrogation to commence proceedings and litigate in the insured’s name. But in such cases there is a real controversy between the nominal parties (including the insured). The payment to the insured by the insurer does not extinguish or affect the controversy between the insured and the wrongdoer. The situation is similar where subrogation entitles a surety on payment to sue the principal debtor using the creditor’s name and securities (cf: Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In Liq) [1978] HCA 45; (1978) 141 CLR 335 at 348 per Gibbs ACJ).

112 Westpac does not suggest that it paid anything to Portfolio Services in respect of any legal or equitable entitlement it had for compensation or indemnification as a consequence of the conduct complained of engaged in by the vendors.

113 The consequence of accepting that these proceedings are not an abuse of process will be that third parties can scour the community at large to investigate whether a person has an extant but unrealised cause of action and then enter into similar arrangements as in the litigation agreement before commencing proceedings in the person’s name. Such litigation is not a use of the process of the Court to resolve a real or live controversy.

114 There are many reasons why persons who have possible and valuable causes of action chose not to sue on them, as Gleeson CJ explained in Re McBain; Ex parte; Australian Catholic Bishops Conference [2002] HCA 16; (2002) 209 CLR 372 at 390 [7]. Suppose A, B’s neighbour, trespassed on one occasion on A’s land by parking his car on it. A asks B not to do it again. B says that he will not and A does not sue. A then sells the land to C and moves far away. No further trespasses occur or are threatened. Can the purchaser, C, sue for that one tort of trespass using A’s name and an arrangement along the lines of Westpac’s litigation agreement? Is the mere fact that A is willing to lend his name, with safeguards as in the litigation agreement, enough to justify the use of the judicial power to resolve a claim which A has no interest in litigating on A’s own account? The action in trespass is complete on wrongful entry on the land and a plaintiff is entitled to some damages. It does not require proof of loss (Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635 at 645). In this example, the litigation is brought for C’s, the purchaser’s, benefit as a means of enabling him to make some money out of A’s relationship with B.

115 In Project 28 Pty Ltd (formerly Narui Gold Coast Pty Ltd) v Tim Barr Pty Ltd [2005] NSWCA 240 at [58] Ipp JA with whom Hodgson JA and Campbell AJA agreed, said:

The purpose of Westpac here has nothing to do with achieving justice between the parties; the party in whose name Westpac has caused the proceedings to be brought has no interest in them, far less is it seeking to achieve justice.

116 I am of opinion that such circumstances as the example and the present case involve no controversy which the Court can quell. They represent the form, but not the substance, of a basis to invoke the exercise of the judicial power. But they are chimerical nonetheless. There is no reality in Westpac’s asserted existence of a controversy between Portfolio Services and the vendors. There is nothing between the nominal parties to the proceedings which requires resolution. Portfolio Services has no interest in ‘access to justice’ because it never wanted to sue and has no present interest in doing so. As Gleeson CJ said in McBain 209 CLR at 390 [7]:

117 Westpac would say that by Portfolio Services agreeing in the litigation agreement to have the proceedings litigated in its name Portfolio Services manifested a ‘desire’ to litigate. But, the terms of the litigation agreement and the unchallenged finding of the trial judge that Portfolio Services had no interest in litigating on its own account, show that these proceedings have not been instituted by Portfolio Services to resolve any controversy it desires to have quelled. It is oppressive on the vendors to subject them to such proceedings.

118 Portfolio Services has not brought the proceedings for a purpose within the scope of the litigation, but rather has allowed its name to be used to give the litigation a technical form which it does not have in substance (cp: Spautz 174 CLR at 522-529). The proceedings are an abuse of the process of the Court.

119 Westpac argued that its participation in the conduct of the litigation was not shown to be a corruption of the Court process. Indeed, it pointed to the terms of the litigation agreement as protecting the process against any abuse (Fostif 229 ALR at 82 [93]). Westpac relied on the trial judge’s findings that under the litigation agreement:

120 The trial judge also found that Westpac had a genuine commercial interest in the proceedings. He said ([2005] FCA 1640 at [53]-[54]):

121 The vendors criticised the trial judge’s findings that the solicitors’ firms were ‘experienced’ as justifying his conclusion that there would be no real possibility of litigious misconduct arising from the proceedings being conducted under the conditions contemplated in the litigation agreement. While his Honour did refer to the experience of each firm of solicitors, I am not satisfied that this was a determinative factor. Rather he saw the presence of solicitors generically, as officers of the Court, in the positions contemplated in the litigation agreement as protective of the process of the Court. There was nothing about those particular solicitors in the evidence which suggested that they were acting or would act inappropriately.

122 It would not be appropriate, in the ordinary case, for the experience or otherwise of either the solicitor on the record, or if one were engaged, as here, a solicitor to oversight another solicitor, to be the subject of judicial consideration. The Court could not properly be called on to say that a solicitor was or was not experienced enough to act in either the role of solicitor on the record or overseer. Admission to practice ordinarily gives a legal practitioner a right to appear in courts on behalf of clients. The Court ought not to be called on to engage in a speculative or evaluative process of assessing whether that right is sufficient in cases of litigation funded by third parties.

123 The trial judge preferred the approach of the Court of Appeal of the Supreme Court of New South Wales in Fostif [2005] NSWCA 83; (2005) 63 NSWLR 203 and in Project 28 [2005] NSWCA 240 to that of the Full Court of the Supreme Court of Western Australia in Clairs Keeley (A Firm) v Treacy [2004] WASCA 277; (2004) 29 WAR 479. In the Full Court, Steytler, Templeman and McKechnie JJ said (Clairs Keeley 29 WAR at 502 [125]) that important considerations in balancing the competing interests for the purpose of considering the tendency of the funding arrangements to interfere with the processes of the Court were the degree of control exercised by the funder and whether the funded party would be in a position to benefit from a successful outcome. In contrast, the Court of Appeal decisions recognised that the ‘basal inquiry should be whether the role of the particular funder has corrupted or is likely to corrupt the processes of the Court to the degree that attracts the extraordinary jurisdiction to dismiss or stay permanently for abuse of process’: per Mason P in Fostif 63 NSWLR at 234 [132]. The latter approach conforms with the obiter, but considered, views of Gleeson CJ together with Gummow, Hayne and Crennan JJ, and Kirby J in Fostif [2006] HCA 41; 229 ALR 58.

124 The issue of Westpac’s position in these proceedings is different from those of the funders in Clairs Keeley [2004] WASCA 277; 29 WAR 479, Fostif [2005] NSWCA 83; 63 NSWLR 203 and [2006] HCA 41; 229 ALR 58 and Project 28 [2005] NSWCA 240. It is not only that Westpac controls the litigation; it is that Portfolio Services has no interest in it and has received no benefit from Westpac (in contrast to cases where an insured receives a benefit from an insurer, or an assignor from its assignee or a principal debtor from its surety and in the other examples cited by Ipp JA in Project 28 [2005] NSWCA 240 at [64]- [77]) and had no relationship with Westpac at the time of the alleged wrongs or the incurring of loss.

125 But, in the passage cited above, the trial judge said that Westpac’s interest was sufficient and that the legal rules which had the effect of preventing any assignment by Portfolio Services were irrelevant. Champerty is a particular form of maintenance or financial assistance given to a party to litigation. Champerty consists in the maintainer providing the assistance in consideration of promise by the party maintained to give the maintainer a share in the proceeds or subject matter of the action (Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 694 H per Lord Wilberforce).

126 Thus, in cases where the agreement for a stranger to take a share in the proceeds of an action involved the stranger in providing evidence to support the maintained party’s case, the Courts saw that there was a real danger of perjury, from the procuring of fabricated evidentiary support. Perjury, of course, would be capable of perverting the course of justice and thus abuse the process of the court: Sprye v Porter (1856) 7 E&B 58 at 81 per Lord Campbell CJ, Coleridge, Wightman and Erle JJ; Stanley v Jones (1831) 7 Bing 369 at 379 per Tindal CJ.

127 Such agreements were void and illegal. That status is preserved today despite the abolition of the crimes of maintenance and champerty: s 6 of the Maintenance Champerty and Barratry Abolition Act 1993 (NSW); see Rynell v Sprye (1852) 1 De G M&G 660 at 677 [42 ER 710 at 717] per Knight Bruce LJ; James v Kerr (1889) 40 Ch D 449 at 456-459 per Kay J; Rees v De Bernardy [1896] 2 Ch 437 at 446-447; Halsbury’s Laws of England (2^nd ed) Vol 1 pp 72-73 [89]-[90]. In Fischer v Kamala Naicker (1860) 8 Moo Ind App 170 at 187; [19 ER 495 at 501], Sir John Coleridge speaking for a Judicial Committee including Knight Bruce and Turner LJJ, said that the qualities attributed to champerty or maintenance by English law were as follows:

128 The law relating to champerty and maintenance has continued to develop and narrow away from its ancient origins. That process has been continual and necessary to ensure that, as Gummow, Hayne and Crennan JJ emphasised in Fostif 229 ALR at 82 [93], the principles apply to abuses of the processes of the Court as viewed through contemporary eyes and reflect the requirements of justice in present social conditions. So, in Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 at 208-209 the Privy Council observed that the origins of the English statutes (e.g. the Statutes of Champerty 3 Edw 1, c 25, 28 Edw 1, c 11; 33 Edw 1, st 3) were mainly to prohibit high judicial officers and officers of state from oppressing the King’s subjects by maintaining suits or purchasing rights in litigation. Their Lordships observed that those laws were of a special character directed against abuses which may have been prevalent when they were enacted but had fallen into comparative desuetude. They went on to hold that the law of India was different and that a fair agreement to supply funds to carry on a suit in consideration of a share of the property, if recovered, was not to be regarded, of itself, as opposed to public policy (Coondoo 2 App Cas at 210). But they also identified the potential areas of abuse as including extortionate or unjust agreements which were inequitable to a party (cp: Blomley v Ryan [1954] HCA 79; (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amedio [1983] HCA 14; (1983) 151 CLR 447; Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457): They continued that agreements:

129 And in his speech in Giles v Thompson [1993] UKHL 2; [1994] 1 AC 142 at 153C-G, Lord Mustill argued that the principles in modern times now operated only in two aspects, one to prevent a solicitor bargaining for a share in the proceeds of litigation in which he or she was acting, and the other to reflect a denial of the capacity to assign a ‘bare right of action’. For my part, that classification is too narrow for it omits the categories of abuse identified in the passages I have quoted above from Fisher 8 Moo Ind App at 187 [19 ER at 501] and Coondoo 2 App Cas at 210.

130 Gummow, Hayne and Crennan JJ discussed in Fostif 229 ALR at 80-83 [83]-[95], Gleeson CJ agreeing at 59 [1], the funding and others arrangements which were intended to yield the funder not only a significant profit but control of the litigation. They pointed out that neither of these factors, of itself, warranted a conclusion that there was a likelihood or tendency of abuse of the Court’s processes (229 ALR at 82 [91]-[93]). They referred to Trendtex [1982] AC 679 saying (229 ALR at 79 [81]):

Importantly, however, Gummow, Hayne and Crennan JJ went on to point out that maintenance or champerty has not been held to be a defence to, or reason enough to stay, an action that was maintained (Fostif 229 ALR at 80 [82]).But Callinan and Heydon JJ, in dissent, pointed out that this issue had only ‘received some mention before this Court’ (Fostif 229 ALR at 124 [260]).

131 However, in Trendtex [1982] AC 679, there was no application for a stay on the basis of maintenance or champerty. To the contrary, it was the plaintiff, Trendtex, who had claimed that the whole agreement was void for maintenance or champerty, including the exclusive jurisdiction clause. The House of Lords held that clause which sought to effect the assignmentor contemplated assignment of a cause of action to a third party clause was champertous, contrary to public policy and void. But they found that it was severable from the rest of the agreement, so that the balance of Trendtex’s claims that the agreement should be set aside fell to be determined by Swiss law. At no stage was there an issue in Trendtex [1982] AC 679 that maintenance or champerty was a ‘defence’.

132 Lord Roskill said that the sale of a bare cause of action to a third party who had no genuine commercial interest in the claim in return for a division of the spoils amounted to maintenance and champerty and was void: Trendtex [1982] AC at 704B-C. He said that it was a fundamental principle of English law that a bare right of action to litigate could not be assigned. Lord Roskill said, however, that an assignee who could show that he had a genuine commercial interest in the enforcement of the claim of another and to that extent took an assignment of the claim to himself was entitled to enforce the assignment unless, by its terms, it amounted to champerty (Trendtex [1982] AC at 703D-E). Lord Wilberforce, with whom all of the House agreed (including Lord Roskill), said that a party who had a genuine and substantial interest in the success of the litigation did not offend against the law of maintenance or champerty by taking an assignment of another’s interest in proceedings or contemplated proceedings (Trendtex [1982] AC at 694D-E). He continued that a subsequent agreement which contemplated the possibility and, indeed, likelihood, of a profit being made by the assignee or a third party out of the cause of action ‘... manifestly "savours of champerty", since it involves trafficking in litigation – a type of transaction which, under English law, is contrary to public policy’.

133 In Project 28 [2005] NSWCA 240 at [40]- [41] Ipp JA noted that an interest of the kind described by Lord Roskill (Trendtex [1982] AC at 703F-G) had to be a ‘legitimate interest’ which was distinct from the benefit the person supporting the action sought to derive from the litigation and something beyond a mere personal interest in profiting from the outcome of the proceedings (Project 28 [2005] NSWCA 240 at [41]; see also Shu v Domsom Pty Ltd [2006] NSWCA 232 at [18]- [19] per Spigelman CJ with whom Handley and Santow JJA agreed; Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352; (2006) 70 IPR 146 at 167-169 [91]- [95]).

134 Here, the vendors argued that because, as was common ground, Portfolio Services’ causes of action were not capable of assignment to Westpac, the lack of any interest of Portfolio Services in bringing the proceedings and Westpac’s lack of any sufficient interest to support even an assignment of the proceeds of the causes of action within the test in Trendtex [1982] AC 679 at 694D-E, 703F-G, the proceedings amounted to an abuse of the Court’s process. That was because, neither the actual party, Portfolio Services, nor Westpac had an interest capable of being recognised by the law as supporting the institution and maintenance of the proceedings. This is not a case where a genuine claim for damages will fall into ‘some legal black hole, so that the wrongdoer escaped scot-free’ (see G.U.S. Property Management Ltd v Littlewoods Mail Order Stores Ltd 1982 SLT 533, 538 per Lord Keith of Kinkel; Linden Gardens Ltd v Lenesta Ltd [1993] UKHL 4; [1994] 1 AC 85 at 109G-H per Lord Browne-Wilkinson). Portfolio Services had no interest in suing the wrongdoer and Westpac has suffered no damage from the wrongdoing.

135 Portfolio Services was sold to Chase Manhattan under an agreement in which the parties intended that the vendor, BT Australia, would retain the benefit of Portfolio Services’ causes of action. But it does not appear that either Chase Manhattan or BT Australia has anything directly to do with the litigation agreement. The trial judge found that the right of action was one in which Westpac had a sufficient interest because of its ultimate ownership of the group in which BT Australia is a subsidiary.

136 In balancing where the issues of justice lie in a case such as the present, one consideration may be that BT Australia might have obtained a lesser price for the sale of shares in Portfolio Services on the basis that the parties thought, erroneously, they were capable of assigning the cause of action to BT Australia or BT Registries. But questions of the interests of justice are not one-sided. No doubt BT Australia acted on legal advice in entering into the sale agreement for its shares in Portfolio Services on the terms that it did. For all the Court knows, it may have been told by its solicitors that the proposed assignment would be ineffectual but, for its own commercial purposes, decided to include the clause anyway. Clause 6.4(b) of the share sale agreement indicates that some consideration was given to the question of how recovery on Portfolio Services’ claims might be achieved.

137 Another consideration which is relevant, in my opinion, to an assessment of the legal justification for a maintainer outside the established lawful categories to be permitted to be involved in litigation is whether the maintainer would be responsible if the position of the parties to the litigation were reversed. For example here, if the vendors had sued Portfolio Services in 2004 under s 52 of the Trade Practices Act 1974 (Cth) alleging that it had engaged in misleading or deceptive conduct inducing the vendors’ entry into the purchase agreements, it is inconceivable that Westpac would be found to have any legal liability to pay damages just because, as here, years after the event it became the parent of BT Australia, which had formerly owned BT Registries, the purchaser from Portfolio Services of the share registry businesses. That commercial interest of Westpac would provide no justification for the Court imposing liability on it to meet Portfolio Services’ obligation to pay damages. Yet, it is that very interest which is sufficient, so it is said here, to support Westpac’s use of Portfolio Services’ name as its vehicle to recover damages. The unfairness of such different results is manifest.

138 Here the Court is invited to say Westpac can use Portfolio Services’ name to recover damages solely for itself from the vendors even though, if the tables were turned, Westpac would almost certainly have no legal liability or enforceable responsibility to pay damages to the vendors despite the ‘commercial interest’ on which it relies here to maintain Portfolio Services’ proceedings. Yet Westpac would have it that this is the price of access to justice. It is a price which I consider to be quite beyond any legal principle or concept of fairness.

139 The difficulties of lifting corporate veils are well known. The courts have recognised that in the ordinary case the veils serve an important legal purpose. And they are veils, not one-way filters. Since the signal decision in Salomon v Salomon & Co [1897] AC 22 the law has developed on the basis that a corporation is a legal person distinct from its corporators (see too: Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 232 ALR 232). A consequence of this doctrine is, as Mason J remarked in Industrial Equity Ltd v Blackburn [1977] HCA 59; (1977) 137 CLR 567 at 577, that in the absence of a contract or statute creating some additional right, the creditors of a subsidiary company within a group can look only to that company for payment of their debts. They cannot look to the holding company for payment.

140 The relationship here is of a holding company (Westpac) which acquired its interest in the subsidiary (BT Australia) after the subsidiary had ceased to own either Portfolio Services or the company to which it transferred its share registry businesses (BT Registries). Why is that tenuous reed a sufficient commercial interest to justify Westpac’s use of the Court’s process to recover on Portfolio Services’ causes of action?

141 This principle of separate personality of corporations from their corporators has enabled the commercial community to allocate risk by the use of corporate vehicles in entrepreneurial transactions and to shield the parent company and its shareholders from liability if the venture undertaken does not go well.

142 Westpac did not have any corporate or contractual relationship and paid no money, at the time of Portfolio Services’ entry into its agreements with the vendors, which had anything to do with its alleged loss. Westpac’s position here is unlike relationships such as insurance, or other categories recognised, e.g. in principles of equity, contract or subrogation, where a person seeking to use another’s name to recover from a wrongdoer has made a payment to the nominee or for the nominee’s benefit (see Meagher Gummow & Lehane’s Equity: Doctrines and Remedies (4^th ed) [9-020]; see generally Ch 9). Westpac’s only relationship to Portfolio Services’ claim in this matter derives, first, from the litigation agreement and, secondly, from its acquisition of the BT Australia group, the value of which might have been diminished by its prior sales to third parties at, perhaps, reduced prices of both Portfolio Services and BT Registries. There was no evidence whether Westpac paid less to acquire the BT Australia group at a price which, similarly, reflected a discount for that diminished value. There was, therefore, no evidence that Westpac suffered any loss. Also, there is no reason to presume that Westpac did not protect itself from that economic loss in the purchase transaction; and so it would have no claim in tort directly against the vendors (cp: Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at 533 [31] per Gleeson CJ, Gummow, Hayne and Heydon JJ) and would not have suffered any loss itself indirectly.

143 The proceeds of a cause of action in tort, or under statute, are conceptually and legally distinct from the cause of action itself. They represent the new right of property which comes into existence once the cause of action has merged in a judgment so that the former no longer has an independent existence (Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, at 532 per Dixon J; see too Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502 at 505 per Brennan J (which is the result of the doctrine of res judicata), 510 per Deane, Toohey and Gaudron JJ, 512 per Dawson J), or has been replaced by an accord and satisfaction as Dixon J explained in McDermott v Black [1940] HCA 4; (1940) 63 CLR 161 at 183-184. Dixon J also showed that in the latter situation an accord is an agreement to accept another right in place of the cause of action which remains alive and unimpaired. But if the agreement (or accord) also provides that the plaintiff receives a new right, in substitution for or satisfaction of its cause of action, the latter is extinguished: Black 63 CLR at 184-185.

144 Parker J said that the real reason why equity would not allow the assignment of a bare right of action, whether legal or equitable, was that it savoured of or was likely to lead to maintenance (Glegg v Bromley [1912] 3 KB 474 at 490). In Cummings v Claremont Petroleum NL (1996) 184 CLR 124 at 145 Dawson and Toohey JJ said that the fruits of litigation, when recovered, may be assigned ‘... provided that the assignee’s purpose is not to engage or participate in the conduct of proceedings’ (Glegg [1912] 3 KB at 484, 490): see too Glegg [1912] 3 KB at 488-489 where Fletcher Moulton LJ noted that the assignment there contained nothing which gave the assignee a right to intervene in the action or which is in any way against public policy.

145 And in Georgiadis v Australian and Overseas Telecommunications Corporation [1994] HCA 6; (1994) 179 CLR 297 at 311 Brennan J said of a cause of action in negligence:

146 So, a bank or financier can lend money at interest to a customer to enable the customer as a litigant to fund its own participation in litigation. Such a simple and commonplace transaction does not involve, in the usual course of events, the bank or financier as an instigator of, or inter-meddler in, the litigation. And a parent company in a group can support a subsidiary in litigation. An insurer, or other person with an entitlement to be subrogated at law or in equity to the position of a litigant in extant or prospective litigation, again in the usual course, acts lawfully by exercising the right of subrogation, including by instigating and continuing the litigation in the name of the insured or nominal party.

147 In essence, Portfolio Services argues that what the vendors need to show is a realisation of the potential for corruption by Westpac in funding and controlling the litigation. This it says cannot be established having regard to the provisions of the litigation agreement including the entitlement of Portfolio Services to have its own independent solicitors maintain a watching brief on its behalf of the conduct of the litigation by Westpac. The vendors assert that this is simply window dressing and that, at the end of the day, the sole authority vested in Westpac under cl 4 of that agreement to instruct Clayton Utz in the conduct of the proceedings will entitle Westpac’s will in the conduct of the litigation to prevail, notwithstanding an unresolved outcome after a mediation between it and Portfolio Services.

148 The litigation agreement imposes on Portfolio Services to make available its relevant information, documents and other records so that Westpac will be able to prosecute the proceedings. Westpac’s obligation to co-operate in that endeavour is contained in cl 7. That simply requires Westpac to render all reasonable assistance to Portfolio Services to ensure that the latter is able to comply with its obligations as litigant in the conduct of the proceedings. But after a failed mediation, other than staying within ethical and legal bounds, the litigation agreement leaves Westpac with an unconfined discretion to conduct the litigation in any way Westpac perceives to be in its own interests.

149 As Gummow, Hayne and Crennan JJ pointed out in Fostif 229 ALR at 82 [92], it is necessary to bear in mind that questions of legality and public policy may arise when considering whether a funding agreement is enforceable. But, as their Honours identified, that is a different question as to whether the non-funded party is entitled to invoke the Court in those proceedings to bring the proceedings to an end either by dismissing them or by imposing a stay. The opposing parties may have independent actions on the case for maintenance or champerty as torts committed by the funder in bringing or maintaining the other litigation against them.

150 The effect of the litigation agreement was to create a piece of litigation in which Portfolio Services played but a nominal role. The sole purpose for which the Court has had its process invoked was to benefit Westpac. Portfolio Services is not being assisted in having access to justice. Nor is this like cases of maintenance and champerty, where a stranger merely sought to take an interest in, but not the entirety of the benefit of, the outcome of the proceedings.

151 What is in issue in these proceedings is not a funding arrangement at all. It is an arrangement in which before the proceedings were begun, Westpac took from Portfolio Services the right to the whole of the subject matter of the proceedings for its own benefit and its own purposes. The mere fact that the pursuit of the litigation by Westpac is subject to legal and ethical duties imposed on its lawyers and those of the nominal party, Portfolio Services, does not alter the fundamental characteristic of the litigation as being engaged in solely for the purposes and benefit of Westpac. There is no benefit whatever to Portfolio Services in the litigation.

152 The litigation agreement seeks to achieve a de facto assignment of the entirety of Portfolio Services’ causes of action. It is quite different from a funding agreement, such as that in Fostif 229 ALR at 82 [91], which enabled plaintiffs to bring their proceedings in the Court, albeit that the funder would obtain some of the proceeds and all of the control of the litigation.

153 These proceedings are not brought to quell a real controversy which Portfolio Services desires be resolved. The purpose of the litigation agreement is to circumvent the public policy identified by Brennan J in Georgiadis 179 CLR at 311 against assignment of the causes of action which Portfolio Services may have had. Westpac is causing Portfolio Services to conduct the litigation for purposes outside their scope, namely for the sole benefit of Westpac.

154 Westpac did not establish any actual commercial interest which supported its involvement other than asserting its position as a subsequent ultimate holding company of the BT Australia group. This left unexplored whether it had suffered any financial detriment in the acquisition of the BT Australia group which could be connected to Portfolio Services’ causes of action against the vendors. Nor was there any explanation why BT Australia or any intended assignee of those rights when the sale to Chase Manhattan occurred had not been an actual party to the litigation agreement. The invalidity of the original assignments was not hard to ascertain for solicitors acting on the transaction. If BT Australia has suffered a loss as a result, it could have recouped it by proceeding against its solicitors if it had not been made aware of the invalidity prior to entering into the sale. Again the evidence is silent on this.

155 Westpac is seeking in this matter to expand the class of persons who can participate in actions to recover damages which common law and equitable principles prevent from being directly assigned. It has not established why it should be allowed to use Portfolio Services’ name in these proceedings to do indirectly what it cannot do directly by assignment.

156 I am of opinion that the proceedings below were an abuse of the process of the Court. Because there was no controversy between the parties, there was no ‘matter’ under ss 75 or 76 of the Constitution which was capable of being resolved by the invocation of the judicial power of the Commonwealth. It follows that the proceedings were foredoomed to fail or their continuance would be manifestly unfair to the vendors (Walton 177 CLR at 393). The proceedings should have been dismissed.

I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares

Counsel for the Applicants:	Mr D J Hammerschlag SC with Mr A P Spencer

Solicitor for the Applicants:	Holding Redlich

Counsel for the Respondent:	Mr J R Sackar QC with Mr J Stoljar

Solicitor for the Respondent:	Clayton Utz

Date of Hearing:	6 November 2006

Date of Judgment:	16 April 2007

Federal Court of Australia - Full Court Decisions

Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Limited (ACN 064 567 040) [2007] FCAFC 52 (16 April 2007)