FEDERAL COURT OF AUSTRALIA

Dorajay Pty Limited v Aristocrat Leisure Limited

[2005] FCA 1483

PRACTICE AND PROCEDURE – stay of proceedings – abuse of the Court’s process – maintenance and champerty – whether litigation funder has control of the proceeding – relationship between the applicant, its solicitors and the litigation funder – distinction between whether an allegedly champertous agreement is enforceable and whether the proceeding is an abuse of the Court’s process

PRACTICE AND PROCEDURE – representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) – whether the proceeding ought to continue as a representative proceeding – power to order that the proceeding no longer continue as a representative proceeding under s 33N of the Federal Court of Australia Act 1976 (Cth) – whether representative proceeding will not provide an efficient and effective means of dealing with the claims – whether it is inappropriate that the claims be pursued by means of a representative proceeding – whether in the interests of justice to make such an order – role of the opt out procedure under Part IVA – comparison between opt out and opt in procedures

PRACTICE AND PROCEDURE – intervention by a non-party – application by litigation funder to intervene pursuant to O 6 r 17 of the Federal Court Rules – leave to intervene on a limited basis granted

EVIDENCE – admissibility – opinion evidence – whether opinion evidence – whether expert evidence – expert evidence based on experience – evidence ruled admissible pursuant to s 79 of the Evidence Act 1995 (Cth)

Australian Securities and Investments Commission Act 2001 (Cth), s 12BB, 12DA

Corporations Act 2001 (Cth), ss 674, 769C, 1041H,

Evidence Act 1995 (Cth), ss 76, 79, 80

Federal Court of Australia Act 1976 (Cth), ss 23, 33C, 33D, 33E, 33H, 33J, 33L, 33M, 33N, 33V, 33W, 33X, 33Z, 33ZB, 33ZE, 33ZF, 33ZG, 33ZJ, 43

Federal Court of Australia (Amendment) Act 1991 (Cth)

Supreme Court Act 1986 (Vic)

Trade Practices Act (Cth), s 51A, 52

Federal Court Rules, O 6 r 17, O 11 r 16, O 20 r 2, O 21 and O 46 r 7A

Supreme Court Rules (NSW), Pt 8 r 13

Abraham v Thompson [1997] 4 All ER 362 referred to

Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504 referred to

Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 cited

BHP Billiton Ltd v Schultz (2004) 211 ALR 523 referred to

Bright v Femcare Ltd (2002) 195 ALR 574 discussed

Clairs Keeley (a Firm) v Treacy (2003) 28 WAR 139 discussed

Clairs Keeley (a Firm) v Treacy [2004] WASCA 277 discussed

Clairs Keeley (a Firm) v Treacy [2005] WASCA 86 discussed

Courtney v Medtel Pty Ltd (2000) 122 FCR 168 referred to

Elfic Ltd v Macks [2003] 2 Qd R 125 referred to

Faryab v Smyth [1998] EWCA Civ 1416 discussed

Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd [2005] NSWCA 83 discussed

Giles v Thompson [1993] 3 All ER 321 distinguished

Giles v Thompson [1994] 1 AC 142 discussed

Hunter Valley Community Investments Pty Ltd v Bell (2001) 37 ACSR 326 cited

In re Trepca Mines Ltd (No 2) [1963] Ch 199 referred to

Jango v Northern Territory of Australia (No. 4) (2004) 214 ALR 608 referred to

King v AG Australia Holdings Pty Ltd [2003] FCA 980 discussed

Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 discussed

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 distinguished

Milfull v Terranora Lakes Country Club Ltd (1998) ATPR 41-642 referred to

Neowarra v Western Australia (No 1) (2003) 134 FCR 208 applied

QPSX Ltd v Ericsson Australia Pty Ltd (No 3) (2005) 219 ALR 1 referred to

R v GK (2001) 53 NSWLR 317 cited

Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 referred to

Sampi v State of Western Australia [2005] FCA 777 referred to

Seven Network (Operations) Ltd v Media Entertainment and Arts Alliance [2003] FCA 1366 referred to

Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455 referred to

Stocznia Gdanska SA v Latreefers Inc [2000] EWCA 36 discussed

Stocznia Gdanska SA v Latvian Shipping Co (No 2) [1999] 3 All ER 822 referred to

Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 applied

Trendtex Trading Corporation v Credit Suisse [1982] AC 796 discussed

Walton v Gardner (1993) 177 CLR 378 cited

Williams v FAI Home Security Pty Ltd (No 3) [2000] FCA 1438 referred to

Williams v FAI Home Security Pty Ltd (No 5) [2001] FCA 399 discussed

Williams v Spautz (1992) 174 CLR 509 cited

Wong v Silkfield Pty Ltd (1999) 199 CLR 255 cited

Australian Law Reform Commission, ‘Grouped Proceedings in the Federal Court’, October 1988

DORAJAY PTY LIMITED v ARISTOCRAT LEISURE LIMITED

NSD 362 OF 2004

STONE J

20 OCTOBER 2005

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 362 OF 2004

BETWEEN:

DORAJAY PTY LIMITED

APPLICANT

AND:

ARISTOCRAT LEISURE LIMITED

RESPONDENT

JUDGE:	STONE J
DATE:	20 OCTOBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 This proceeding, commenced as a group proceeding pursuant to Part 4A of the Supreme Court Act 1986 (Vic), was transferred to this Court by order of the Supreme Court of Victoria made on 3 March 2004. Since then it has continued as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) (‘the Act’).

Background

2 The applicant, the representative party, commenced the proceeding on its own behalf and on behalf of others. The respondent (‘Aristocrat’) is a company that provides gaming software, systems and hardware. It is listed on the Australian Stock Exchange (‘ASX’) and is registered pursuant to the Corporations Act 2001 (Cth) (‘the Corporations Act’).

3 The representative group is defined in clause 2 of the further amended statement of claim which states:

‘This proceeding is commenced by the Applicant on its own behalf and on behalf of the other persons for whom the solicitors for the Applicant have instructions to act at any particular time, who at some time during the period between 20 September 2002 and 26 May 2003 inclusive … acquired an interest in shares in Aristocrat and who suffered loss and damage by or resulting from the conduct of Aristocrat referred to below.’

4 In December 2004, I raised with the parties my concern about the way in which this definition limited the representative group to persons who had retained a certain firm of solicitors and whether, having regard to this aspect of the group definition, the proceeding should continue as a representative proceeding. Aristocrat indicated that, in addition to sharing my concerns, it had additional concerns of its own. Those concerns relate to the arrangements for the funding of the proceeding. With the consent of the parties, I therefore ordered that there be a hearing to determine, pursuant to s 33N of the Act, if the proceeding should continue as a representative proceeding. I also ordered that Aristocrat file and serve a statement of issues in relation to the questions arising under s 33N(1) and the additional concerns it had. Before turning to the issues raised however, it may be helpful if I briefly summarise some aspects of the present proceeding.

The nature of the proceeding

The further amended statement of claim

5 In its further amended statement of claim, the applicant alleges that between 20 September 2002 and 27 May 2003 Aristocrat by positive statements and by silence, made a series of representations about its profits for the calendar years 2002 and 2003 and certain aspects of its operations (‘the profitability representations’). The applicant claims that each of the profitability representations was misleading or deceptive, or likely to mislead or deceive, and Aristocrat thereby engaged in conduct in contravention of s 1041H(1) of the Corporations Act, s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (‘the ASIC Act’) or s 52 of the Trade Practices Act (Cth) (‘the TP Act’). To the extent that any of the profitability representations were representations as to future matters the applicant alleges that, pursuant to s 769C(1) of the Corporations Act, s 12BB of the ASIC Act or s 51A of the TP Act, Aristocrat had no reasonable basis for making them.

6 The applicant also alleges that Aristocrat had, or ought reasonably to have had, information that a reasonable person would expect to have a material effect on the price or value of Aristocrat’s securities and had contravened ASX Listing Rule 3.1 by failing to provide that information to the ASX . It is further claimed that from the time Aristocrat had, or ought reasonably to have, come into possession of such information it was in contravention of s 674(2) of the Corporations Act.

7 The further amended statement of claim alleges that the applicant, and the group members, acquired or retained interests in shares in Aristocrat by reason of the impugned conduct and during the period in which information should have been disclosed and as a result suffered loss and damage. The loss and damage is said to be the difference between the price at which the group members acquired their interests in the shares and:

(i) for those who sold their interest in the shares before the date of judgment in the proceeding, the price at which they sold that interest; or

(ii) for those who have not sold their interest in the shares by the date of judgment, the market value of that interest at that date.

8 It should be noted that Aristocrat denies the allegations made against it however this is not a matter that currently concerns the Court.

The present group members

9 At present, there are 682 group members in this proceeding, each of whom is a client of the applicant’s solicitors, Maurice Blackburn Cashman Pty Ltd (‘MBC’). While MBC have obtained instructions from the applicant in relation to the motion presently before the Court, they have not obtained, and submit it is not practicable for them to obtain, instructions from each of the group members in relation to this motion. The evidence before the Court is that the 682 group members fall into two categories:

(a) 391 group members who claim to have suffered a direct loss of less than $5,000 calculated by reference to the purchase price paid compared to the sale price received on a ‘first-out’ basis (‘the Small Claimants’); and

(b) 291 group members who claim to have suffered a direct loss of greater than $5,000 on the same basis (‘the Large Claimants’). This group is said to include a significant majority of the 20 largest shareholders listed in Aristocrat’s 2002 Annual Report, excluding members of the Ainsworth family and their associated entities.

The retainer and funding agreements

10 As the group definition shows (see [3] above), in order to be a member of the group on whose behalf the present proceeding is brought, a person must instruct the applicant’s solicitors, MBC. I shall refer to this requirement as the ‘MBC criterion’. MBC, however, only accepts instructions on the person entering into a retainer agreement with it. It is a term of the retainer agreement that the person also enter into a funding agreement with Insolvency Litigation Fund Pty Ltd (‘ILF’) which is a wholly owned subsidiary of IMF (Australia) Ltd (‘IMF’). Unless it is necessary to distinguish between the two companies, I will refer to ILF and IMF together as the ‘Funders’.

11 In summary, in order to be a group member for the purposes of this proceeding a person must enter into a tripartite retainer and funding agreement with MBC and ILF. Although the applicant and some group members executed what is termed a ‘Yellow Retainer and Funding Agreement’, the applicant recently executed a new retainer and funding agreement (‘the Green Retainer and Funding Agreement’). The change from the Yellow to the Green Retainer and Funding Agreement was implemented specifically to take account of a group member’s statutory right to opt out of the proceeding. It is accepted by all parties that in due course all the group members will execute a Green Retainer and Funding Agreement. It is this agreement that is of particular relevance to the issues presently before the Court and references in these reasons to the retainer and funding agreement are to this agreement unless otherwise specified.

12 It is also pertinent to note that six of the group members have executed modified Green Retainer and Funding Agreements with MBC and ILF. These modified agreements differ in terms of the percentage of any settlement that the group member must pay to ILF as consideration for funding the proceeding.

The retainer agreement

13 Under the retainer agreement MBC is appointed to act for the group member (referred to as the ‘Appointor’) in the proceedings against Aristocrat and is authorised to make ‘day to day decisions’ concerning the conduct of the proceedings. Clause 1 provides that the retainer agreement is entered into in contemplation of ILF agreeing to fund, and continuing to fund, the Appointor. The retainer agreement also provides that:

· MBC will provide initial advice on the Appointor’s claim and on the funding agreement once the Appointor accepts the retainer; cl 5

· ILF has agreed to pay MBC’s costs incurred in the proceedings; cl 8

· MBC is authorised to provide ILF with confidential updates of the progress of the proceedings; cl 11

· the Appointor is required, inter alia, to accept MBC’s ‘reasonable legal advice, including advice as to settlement offers’ and not have any communication with Aristocrat about the claims without MBC’s approval; cl 17

· MBC does not act for ILF ‘in its own capacity’ and does not take instructions or directives from ILF; cl 18

· MBC is authorised to receive any amount for which the claims of the group members are settled or for which judgment is given (not including costs recovered) and to disburse that amount in accordance with the funding agreement; cl 22

· MBC is entitled to terminate the retainer agreement on seven days’ written notice if ILF gives notice under the funding agreement that it is terminating that agreement; cl 25

· the Appointor may terminate the retainer on seven days’ written notice and the receipt of a Notice of Opting Out (under s 33J of the Act) shall constitute such notice; cl 26

The funding agreement

14 Clause 2.1 of the funding agreement provides that ILF will pay ‘all legal costs and disbursements of the Appointor reasonably incurred by the Solicitors … for the sole purpose of the commencement, and prosecution, of the Proceedings’. It adopts the definitions used in the retainer agreement (cl 1.1) and also states that there shall be no variation or amendment to the terms of the funding agreement except in writing signed by both the Appointor and ILF (cl 1.4). The funding agreement also provides that:

· the Appointor may withdraw from the retainer and the funding agreement within 14 days of receiving the initial advice provided by MBC pursuant to cl 5 of the retainer agreement; cl 1.6

· MBC will be retained by and act for the Appointor but will be paid directly by ILF during the proceedings; cl 2.2, cl 2.3

· MBC will act for the Appointor not ILF, and ILF may not control or direct the conduct of the proceedings or the terms of any settlement other than as provided in the funding agreement; cl 2.3, cl 2.4

· as this is a representative proceeding MBC may negotiate a settlement on instructions from the ‘representative party subject to the relevant legislation’; cl 3.1

· the Appointor must not communicate directly with Aristocrat or its agents in respect of their claims; cl 3.6(a)

· any amount (not including costs) obtained in respect of the Appointor’s claims against Aristocrat or in respect of the group claims against Aristocrat, whether by judgment or settlement (the ‘Resolution Sum’) is to be delivered to MBC to be distributed in accordance with the terms of the funding agreement even if the funding agreement is terminated (unless the termination is pursuant to ILF’s ‘serious breach’); cl 3.6(b), cl 4.2, cl 5, cl 9.3

· the Appointor may terminate the funding agreement on seven days’ written notice and the receipt by MBC of a Notice of Opting Out (under s 33J of the Act) shall constitute such notice; cl 9.1

15 Payment to ILF from the Resolution Sum is governed by clause 5.1 which provides that the Appointor shall pay the following:

‘(a) an amount equal to the Appointor’s share of the total monies paid by ILF pursuant to clause 2 of this Funding Agreement and the equivalent clause in the Funding Agreements between ILF and other Clients, such share to be determined by reference to the proportion that the Appointor’s Gross Recovery bears to the total gross recovery of all Clients; plus

(b) an amount equal to a percentage of the Resolution Sum where that percentage is determined by reference to the number of Aristocrat shares purchased by the Appointor in the Relevant Period …

and

(c) if, pursuant to clause 12, ILF funds an appeal, or the defence of an appeal, or any further appeal or defence of any further appeal, a further 5% of the Resolution Sum in respect of each appeal so funded.’

16 Clauses 8 and 9 of the funding agreement concern termination. Clause 8.1 states that ILF is entitled, at its sole discretion, to terminate its obligations under the funding agreement, other than obligations accrued, by giving seven days’ written notice to the Appointor specifying that its obligations are terminated. Clause 8.2 provides that if ILF terminates the funding agreement pursuant to cl 8.1 it will not be entitled to any commission or other payment unless the Appointor receives payment of any costs order or costs agreed in respect of the proceedings, in which case the Appointor is required to pay to ILF that portion of the costs recovered which were paid by ILF pursuant to cl 2 of the funding agreement relating to the period of the funding agreement.

17 Clause 9 deals with termination by the Appointor and the obligations that survive such termination:

‘9.1 The Appointor may terminate this Agreement at any time upon seven days’ written notice to ILF. Without limiting the generality of the foregoing, receipt by the Solicitors of a Notice of Opting Out executed by the Appointor shall constitute such written notice.

9.2 If the Appointor terminates the Retainer or this Funding Agreement other than pursuant to clause 9.3 and there is a resolution of the Claims of the Appointor at that time or a later time, clause 3.6 will continue to apply and the Appointor is liable to pay to ILF from the Resolution Sum the amounts set out in clause 5.1 of this Funding Agreement. The obligations in this clause are continuing and survive any termination of this Agreement other than pursuant to clause 9.3.

9.3 If ILF commits a serious breach of this Agreement and does not remedy this breach with 30 days after written notice from the Appointor, the Representative Party or the Committee as the case may be requiring it to do so, the Appointor may terminate this Agreement forthwith by written notice to ILF. The Appointor will then not be required to make any payment to ILF under clause 5 of this Funding Agreement.’

The issues

18 The following questions, relevant to the application of s 33N of the Act to this proceeding, arise from the statement of issues filed by Aristocrat:

1. Is it in the interests of justice that the proceeding no longer continue as a representative proceeding under Part IVA of the Act on the ground that it will not provide an efficient and effective means of dealing with the claims of the group members pursuant to s 33N(1)(c) of the Act; (the ‘common issue’ question)?

2. Is it in the interests of justice that the proceeding no longer continue as a representative proceeding, pursuant to s 33N(1)(d) of the Act, on one or both of the following grounds:

a. in order to qualify as a group member, a person must instruct and continue to instruct MBC to act on that person’s behalf in connection with the proceeding; (the ‘group definition’ issue) and

b. in order to qualify as group members, persons have been and continue to be required to enter into retainer agreements with MBC and funding agreements with ILF in the same or substantially the same terms as those described above at [10]-[17] (the ‘funding and retainer’ issue)?

3. Should the Court find that, because group members have been required to enter into the retainer and funding agreements, the proceeding is an abuse of process (the ‘abuse of process’ question)?

19 The common issue question is behind Aristocrat’s challenge to the efficiency and effectiveness of the representative proceeding as a means of dealing with the claims of group members. It turns on whether there are any substantial issues of law or fact common to the group members and whether the impact of issues that are not common to group members is such that the advantages of determining the common issues together is outweighed by the difficulty of accommodating the non-common issues.

20 The issues identified in questions 2 and 3 above have much in common. However, Aristocrat’s submissions that the proceeding is an abuse of process are independent of any submissions about the exercise of the statutory termination powers in s 33N. Where a court is satisfied that a proceeding is an abuse of process it is entitled to order that the proceeding be permanently stayed; see below at [47]. In such circumstances, the court would also be satisfied that the proceeding should not continue as a representative proceeding without needing to consider the operation of s 33N. If, however, I do not accept that the proceeding is an abuse of process, it is still open to me to find that it should not continue as a representative proceeding on one or other of the grounds in s 33N.

21 The statement of issues also raises the questions of what consequences should follow should one or more of the questions raised above be answered in the affirmative. I shall deal with that issue later in these reasons.

Intervention by the Funders

22 Pursuant to O 6 r 17 of the Federal Court Rules, the Funders sought leave to intervene in this proceeding. The leave sought was limited to appearing at the interlocutory hearing to make written and oral submissions on issues raised in Aristocrat’s statement of issues and written submissions. They submitted that their contribution would be useful and different from that of the parties in that it would bring a broader perspective. In making this submission they relied on their own and their legal representatives’ experience in litigation funding and litigation concerning the terms on which such funding is provided.

23 The terms of the funding agreement and its links with the retainer agreement underlie many of the respondent’s objections to the present proceeding continuing as a representative proceeding and for this reason I accept that the interlocutory hearing has the potential to affect the Funders’ interests. As they claimed in their written submissions, they are uniquely placed ‘to respond to any criticism of their current funding arrangements’ and ‘to inform the court of the ways in which they are prepared to clarify or modify their existing funding arrangement if and to the extent such modification or clarification that may be necessary to facilitate the interests of justice’. I was satisfied that the Funders’ views would be of assistance to the Court and would not unduly extend the length of the hearing or interfere with the parties’ ability to conduct the interlocutory proceedings. Moreover, the Funders have undertaken to bear their own costs.

24 For all of these reasons, I gave the Funders leave to intervene, in relation to the motion presently before the Court, by appearing and being represented at the hearing and by making written and oral submissions in relation to whether the proceeding should continue as a representative proceeding in respect of the matters raised in Aristocrat’s statement of issues.

evidence

Aristocrat’s evidence

25 The evidence on this interlocutory motion is not extensive. Aristocrat relied on the affidavit of Michael Bruce Rose sworn on 30 March 2005. Mr Rose, a partner of Allens Arthur Robinson gave describes the history of the proceedings, the retainer and funding agreements, communication between the parties and the information obtainable from Aristocrat’s share register. He deposes to the fact that Aristocrat cannot ascertain with certainty the number of persons who may be group members or their identity. There were no objections to Mr Rose’s evidence and he was not required for cross-examination.

Applicant’s evidence

26 The applicant relied on an affidavit of John Francis Walker, sworn on 1 June 2005, who is the managing director of IMF and ILF and two affidavits of Bernard Michael Murphy, sworn on 31 March 2005 and 1 June 2005, who is a principal of MBC and who, together with one other, has responsibility for this representative proceeding.

27 Mr Walker’s evidence related to the nature of the Funders’ business and their role in this proceeding. He described the services they offer and the way in which they investigate requests for funding. The purpose of the detailed description of the Funders’ due diligence is obviously to show that the claims funded are not speculative, a relevant consideration from Aristocrat’s perspective. Mr Walker also referred to the number of group members with small claims (≤ $5,000) and the difficulty in funding such claims individually.

28 Mr Walker also stated that he was unaware of any potential group member who had expressed an interest in becoming a member of the group and who did not want to be funded by IMF and/or to instruct MBC. He stated that IMF would not be prepared to provide funding where only some members of the class obtained funding and others obtained the benefit of that funding but did not agree to pay a share of their recoveries to IMF in consideration for the funding. He further stated:

‘Neither IMF nor ILF are controlling, nor have they at any stage controlled, the proceeding. Neither IMF nor ILF determine the steps to be taken in the proceeding. IMF and ILF leave it to the applicant and MBC to determine the conduct of the proceeding in the applicant’s interest.’

Admissibility of evidence

29 Mr Murphy has considerable experience in representative proceedings and his evidence draws heavily on that experience. Senior counsel for Aristocrat, Mr Bathurst QC, submitted that much of Mr Murphy’s evidence was inadmissible. Both parties were content for the disputed parts of Mr Murphy’s first affidavit to be treated as submissions. This was not so, however, with the second affidavit. Much of that affidavit concerned Mr Murphy’s opinion in relation to the future progress of the proceeding if it continues as a representative proceeding, including an estimate of the likely costs involved. He also canvasses the possible ways in which each of the group members could bring their claims, if at all, if the Court ordered that this proceeding no longer continue as a representative proceeding. This is said to be by way of comparison with the evidence given in respect of his expectations as to the approach if the proceeding did continue in its present form.

30 Mr Bathurst contended first, that Mr Murphy’s expectations of the likely course to be adopted if the proceeding continued as a representative proceeding were irrelevant; secondly, that the opinions expressed in these passages were only admissible on the basis that they were given as expert evidence; and thirdly, that the opinions proffered were not supported by any underlying facts and as such these paragraphs should not be admitted into evidence. Mr Bathurst also objected to Mr Murphy’s evidence as to the options open to group members if the representative proceeding does not continue, on the basis that Mr Murphy clearly states that he would need to take instructions about each group member’s experience: see [9] above. As a result, Mr Bathurst submitted that rather than there being a failure to disclose the basis for the opinions, this evidence demonstrated that there is simply no basis for the opinions.

31 Dr Hanscombe SC, senior counsel for the applicant, submitted that in considering the issues under s 33N of the Act the Court must make a comparison between the costs of a representative proceeding and the costs of comparative proceedings. As such, she argued that this evidence was an attempt to assist the Court in making that comparison. Dr Hanscombe further submitted that this evidence was not expert opinion evidence, but rather the evidence of an experienced solicitor making the best estimates he can in relation to the respective costs of a representative proceeding and other comparative proceedings. I am not sure that I understand this distinction; even if the evidence is accurately described by Dr Hanscombe, I find it difficult to see that it is nonetheless an expression of opinion.

32 Section 76(1) of the Evidence Act 1995 (Cth) (‘the Evidence Act’) provides that evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed. However, s 79 provides:

‘79 Exception: opinions based on specialised knowledge

If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.’

In order to be admissible under s 79, three conditions must be satisfied:

(a) the person must have a specialised knowledge;

(b) that specialised knowledge must be based on their training, study or experience; and

33 In my view, the evidence of Mr Murphy in these paragraphs is opinion evidence. He is seeking to provide evidence as to his expectations, his estimate of costs and possible ways in which the claims of the group members might be litigated, if at all, if the Court ordered that this proceeding no longer continue as a representative proceeding. Consequently, to be admissible it must fall within the exception contained in s 79 of the Evidence Act.

34 Counsel for Aristocrat relied on the well-known statements of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 (‘Makita’). According to his Honour, for expert evidence to be useful it was necessary for it to comply with ‘the prime duty of experts in giving opinion evidence’; that is, to furnish the trier of fact with criteria enabling evaluation of the validity of the expert’s conclusions: see Makita at [59]. After reviewing the common law and statutory requirements, Heydon JA stated at [85]:

‘In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in HG v The Queen (1999) 197 CLR 414, on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise" (at [41]).’

(Emphasis added)

35 His Honour continued at [87]-[88] stating that:

‘There is no doubt about Professor Morton’s authority, experience, qualifications and skill. It is also the case that Professor Morton’s report is quite lengthy and detailed. But, given that the court is not obliged to take the opinion of an expert as conclusive even though no other expert is called to contradict it, can it be said that Professor Morton’s report goes beyond a series of oracular pronouncements? Does it usurp the function of the trier of fact? More vitally, did it furnish the trial judge with the necessary scientific criteria for testing the accuracy of its conclusions? Did it enable him to form his own independent judgment by applying the criteria furnished to the facts proved? Was it intelligible, convincing and tested? Did it go beyond a bar ipse dixit? Did it contain within itself materials which could have convinced the trial judge of its fundamental soundness?

It is significant that the trial judge himself did not identify any scientific criteria within the report for testing the accuracy of its conclusions. The trial judge summarised Professor Morton's evidence ([125]-[134]) and accepted his conclusions ([203]-[204]). But he did not analyse Professor Morton's conclusions. Perhaps he did not feel the need to do so, in view of the fact that no expert was called in opposition to Professor Morton, and in view of the fact that the cross-examination of Professor Morton was not lengthy. However, it remains the case that the trial judge did no more than accept the conclusions as they were stated.’

36 In respect of the statements of Heydon JA quoted above at [34], Branson J in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 (‘Red Bull’) stated at [7] that:

‘The approach of Heydon JA…is, as it seems to me, to be understood as a counsel of perfection. As a reading of his Honour’s reason for judgment as a whole reveals, his Honour recognised that in the context of an actual trial, the issue of the admissibility of evidence tendered as expert opinion evidence may not be able to be addressed in the way outlined…’

37 Her Honour continued at [9] in stating:

‘…[A[ny ruling on the admissibility of evidence is ordinarily required to be made by the trial judge during the course of the trial rather than at its conclusion. In this regard the trial judge does not have the advantage enjoyed by a court of appeal of having before it the whole of the evidence adduced at trial. The trial judge’s ruling will be based on the evidence and other relevant material, which may include assurance given by counsel, which are before the judge at the time that the ruling is required to be made. It is no longer common practice for a witness from whom expert opinion evidence is intended to be adduced to be examined by opposing counsel on the voire dire. This may be because, perhaps regrettably, the practice has come to be regarded as of little practical value where the judge, and not a jury, is the trier of facts. As a result the judge is likely to be asked to rule on the admissibility of the affidavit, report or oral evidence of a witness put forward as an expert before the witness is subject to any questioning by opposing counsel. For this reason, it may prove to be the case that evidence ruled admissible as expert opinion will later be found by the trial judge to be without weight for reasons that, strictly speaking, might be thought to go to the issue of admissibility (eg that the witness's opinion is expressed with respect to a matter outside his or her area of expertise or is not wholly or substantially based on that expertise).’

(Emphasis added)

38 At [16]-[17] her Honour stated:

‘Further, the requirement that an expert opinion be wholly or substantially based on the witness’s specialised knowledge is not, in my view, intended to require a trial judge to give meticulous consideration, before ruling on the admissibility of the evidence of the opinion, to whether the facts on which the opinion is based form a proper (in the sense of logically or scientifically or intellectually proper) base for the opinion. Were the position otherwise the smooth running of trials involving expert evidence could be expected to be interrupted by the need to explore in detail, in the context of admissibility, matters more properly considered at the end of the trial in the context of the weight to be attributed to the evidence. It is sufficient for admissibility, in my view, that the trial judge is satisfied on the balance of probabilities on the evidence and other material then before the judge that the expert has drawn his or her opinion from known or assumed facts by reference wholly or substantially to his or her specialised knowledge. In many cases the relevant evidence and other material that will be before the judge at the time that the judge is required to rule on admissibility will extend little, if at all, beyond the purported expert’s affidavit or report or, where only oral evidence is intended to be adduced, the earlier oral evidence of the witness and the form of the question to which objection has been taken. In the Federal Court, the usual practice of requiring expert evidence to be reduced to writing, together with the Guidelines for Expert Witnesses referred to in [13] above, will generally ensure that there is sufficient material before the judge to enable the judge to form a view, on the balance of probabilities, (albeit, in the context of the trial as a whole, a provisional view) as to whether an opinion is wholly or substantially based on the witness’s specialised knowledge. In most other jurisdictions there are now comparable equivalent rules or guidelines.

Evidence later adduced, most likely in cross‑examination, might reveal that an opinion proffered in an affidavit or report is not wholly or substantially based on the witness’s specialised knowledge, or that the expert made an error (whether of logic, science or otherwise) in the process of reaching his or her opinion. While that evidence might be relevant to admissibility in a hypothetical sense, it would not, of itself, demonstrate error in the earlier ruling that the affidavit or report be received in evidence. The correctness of that ruling is to be judged by reference to the relevant evidence and other material before the judge at the time of the ruling. The evidence might, however, be of crucial importance with respect to the weight to be accorded the opinion at the end of the day.’

(Emphasis added)

39 In Red Bull, Weinberg and Dowsett JJ also discussed the approach advocated by Heydon JA in Makita. Their Honours stated at [87]:

‘The use of the phrase “strictly speaking” in the last sentence should not be overlooked. It may well be correct to say that such evidence is not strictly admissible unless it is shown to have all of the qualities discussed by Heydon JA. However many of those qualities involve questions of degree, requiring the exercise of judgment. For this reason it would be very rare indeed for a court at first instance to reach a decision as to whether tendered expert evidence satisfied all of his Honour’s requirements before receiving it as evidence in the proceedings. More commonly, once the witness’s claim to expertise is made out and the relevance and admissibility of opinion evidence demonstrated, such evidence is received. The various qualities described by Heydon JA are then assessed in the course of determining the weight to be given to the evidence. There will be cases in which it would be technically correct to rule, at the end of the trial, that the evidence in question was not admissible because it lacked one or other of those qualities, but there would be little utility in so doing. It would probably lead to further difficulties in the appellate process.’

(Emphasis added)

40 In Neowarra v Western Australia (No 1) (2003) 134 FCR 208 (‘Neowarra’), Sundberg J stated at [22]-[23] that:

‘The “basis rule” does not feature in s 79. The Australian Law Reform Commission explained why. That the legislation does not include any common law “basis” requirement is now established by the cases. See Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 373‑374 and Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157 at [10]. See also Guide Dog Owners’ & Friends’ Association Inc v Guide Dog Association of New South Wales (1998) 154 ALR 527 at 531. Cf Makita…

While the legislation does not incorporate a “basis rule”, an expert should nevertheless differentiate between the facts on which the opinion is based and the opinion in question, so that it is possible for the court to determine whether the opinion is wholly or substantially based on the expert’s specialised knowledge which in turn is based on training, study or experience. See HG v The Queen at [39] per Gleeson CJ. In Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 at [23] the Full Court said that a report on which an opinion is recorded should express the reasoning of its author in a way that shows that the opinion is based on particular specialised knowledge.’

41 After discussing the emphasised portion of the statement of Heydon JA quoted at [34] above, his Honour stated at [24]-[25]:

‘That seems to me, with respect, to be restoring the basis rule. The reason his Honour gave for requiring this and the other presently immaterial requirements is that “if all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert’s specialised knowledge”. While that may be so with respect to other requirements, the expert’s exposure of the facts upon which the opinion is based is sufficient to enable the relevant enquiry to be carried out. That enquiry is not dependent on proof of the existence of those facts.

HG v The Queen does not support the supposed requirement. After stating that an expert should differentiate between the assumed facts upon which the opinion is based and the opinion itself, Gleeson CJ said at [39]:

“Argument in this Court proceeded upon the basis that it was possible to identify from Mr McCombie’s written report some facts which he either observed or accepted, and which could be distinguished from his expressions of expert opinion. Even so, the provisions of s 79 will often have the practical effect of emphasising the need for attention to requirements of form. By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, the section requires that the opinion is presented in a form which makes it possible to answer that question.”

His Honour does not thereby require, as a condition of admissibility, that the assumed facts on which the opinion is based are established by the evidence. If at the end of the evidence they are not established, the weight to be accorded the opinion will be reduced, perhaps to nil. But that is not a matter of admissibility.’

42 See also, Sampi v State of Western Australia [2005] FCA 777 per French J at [798]-[802]; Jango v Northern Territory of Australia (No. 4) (2004) 214 ALR 608 per Sackville J at [19]; and Seven Network (Operations) Ltd v Media Entertainment and Arts Alliance [2003] FCA 1366 per Gyles J at [6].

43 To the extent that the decisions of this Court referred to above disclose an approach different to that of Heydon J in Makita, in particular the decision of Sundberg J in Neowarra and comments of the Full Court in Red Bull, I must respectfully adopt those of this Court unless I am of the view that they are plainly wrong. I should note, however, that I have exercised particular caution in examining Mr Murphy’s evidence in this context as, at least in part, it goes to whether or not the proceeding is an effective and efficient way to deal with the claims of the group members. While s 80(a) of the Evidence Act provides that opinion evidence is not inadmissible merely because it is about a fact in issue or an ultimate issue, the Court should ‘exercise particular scrutiny when experts move close to the ultimate issue, lest they arrogate expertise outside their field or express views unsupported by disclose and contestable assumptions’: R v GK (2001) 53 NSWLR 317 per Mason P (with whom Dowd J agreed generally) at 326-327. See also, Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504 per Giles JA (with whom Mason P and Beazley JA agreed) at [622].

44 In my view, Mr Murphy can be said to have a specialised knowledge in respect of class action legal proceedings and representative proceedings in particular. This is based on his experience in this area. I accept Mr Bathurst’s submission that the evidence contained in these paragraphs is at a high level of generality. This is necessarily so because of the nature of the evidence Mr Murphy seeks to give. In my opinion, the basis of the opinions was, for present purposes, sufficiently disclosed for the evidence to be admissible as demonstrating that the opinions are based wholly or substantially on Mr Murphy’s specialised knowledge. The evidence is relevant insofar as it provides an opinion as to a comparison between the relative costs of different types of proceedings, a factor relevant to the exercise of the termination power contained in s 33N of the Act. Whether or not the assumptions and the evidentiary basis disclosed are supportable will ultimately turn on consideration by the Court of whether those are valid assumptions to make in determining the weight to be given to this evidence. However, in my view the evidence was admissible under s 79 of the Evidence Act. As a consequence, I ruled at the hearing that the evidence was admissible and Mr Murphy was subjected to cross-examination.

45 As indicated above, a large part of Mr Murphy’s first affidavit was accepted only as submissions. I shall address those submissions in due course. In so far as his affidavit evidence was admissible, it dealt with the cost to all parties of large and complex commercial litigation and the additional costs that would be incurred if the MBC criterion was not included in the group definition. Mr Murphy also gave evidence of his experience of the effect of ‘opt out’ procedures and the problems arising from the failure of people who had no interest in the proceeding to take the positive step of opting out of the proceeding. He referred to the fact that ILF would only fund the proceeding if all who might benefit from the funding entered into funding agreements.

46 Mr Murphy also deposed that, like Mr Walker, he was not aware of any person who had expressed an interest in joining the group but objected to entering into the retainer and funding agreements. Mr Murphy also included estimates as to the future costs of the proceeding. On cross-examination it became apparent that these estimates were materially flawed in that they greatly overestimated the costs that would be involved in continuing the representative proceeding without the MBC criterion in the group definition and the cost of pursuing the claims other than under Part IVA of the Act. Despite this, however, I am satisfied from Mr Murphy’s evidence that the financial and efficiency advantages of the MBC criterion are significant.

Abuse of process

Introduction

47 Where it appears that a proceeding is an abuse of its process the Court may order that ‘the proceeding be stayed or dismissed, generally or in relation to any claim for relief in the proceeding’; O 20 r 2(1)(c) of the Federal Court Rules and s 23 of the Act. The fact that this is a representative proceeding under Part IVA of the Act does not affect the Court’s powers in this regard; s 33ZG(b). Finding abuse of process involves finding that ‘the processes and procedures of the court, which exist to administer justice with fairness and impartiality may be converted into instruments of injustice or unfairness’; Walton v Gardner (1993) 177 CLR 378 at 393. It is not an order that should be made lightly for many reasons, including that it may be made even if an applicant has a prima facie case; Williams v Spautz (1992) 174 CLR 509 per Mason CJ, Dawson, Toohey and McHugh JJ at 522.

48 Aristocrat contends that the present proceeding is an abuse of process because the retainer and funding agreements involve maintenance and are champertous. Maintenance involves a person who has no antecedent or other justifiable interest in litigation giving assistance, encouragement or support to that litigation. Champerty is an aggravated form of maintenance which involves the person taking a share in the proceeds or subject matter of the action.

49 Aristocrat asserts that, under the retainer and funding agreements, ILF’s control over the litigation and the rights of each group member is so extensive that it amounts, in effect, to the assignment of each group member’s cause of action against Aristocrat to ILF. In its written submissions, Aristocrat states:

‘[T]he fact that, even if a group member (including Dorajay) opts out of this proceeding, it cannot communicate with Aristocrat or Aristocrat’s agents in respect of its claims and can never compromise or prosecute those claims except with ILF’s consent and for ILF’s benefit, inevitably gives ILF the opportunity to exercise substantial control over the proceeding (or any other step a former group member might take in respect of its claims).’

Maintenance and champerty – history and principles

50 The law’s attitude to maintenance and champerty has changed with time, as was briefly explained by Lord Mustill in Giles v Thompson [1994] 1 AC 142 (‘Giles’) at 153:

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

As the centuries passed the courts became stronger, their mechanisms more consistent and their participants more self-reliant. Abuses could be more easily detected and forestalled, and litigation more easily determined in accordance with the demands of justice, without recourse to separate proceedings against those who trafficked in litigation. In the most recent decades of the present century maintenance and champerty have become almost invisible in both their criminal and their tortious manifestations. In practice, they have maintained a living presence in only two respects. First, as the source of the rule, now in the course of attenuation, which forbids a solicitor from accepting payment for professional services on behalf of a plaintiff calculated as a proportion of the sum recovered from the defendant. Secondly, as the ground for denying recognition to the assignment of a "bare right of action." The former survives nowadays, so far as it survives at all, largely as a rule of professional conduct, and the latter is in my opinion best treated as having achieved an independent life of its own.’

See also, In re Trepca Mines Ltd (No 2) [1963] Ch 199 per Lord Denning MR at 219-220 and Giles v Thompson [1993] 3 All ER 321 per Steyn LJ at 328-336.

51 In Trendtex Trading Corporation v Credit Suisse [1982] AC 796 (‘Trendtex’), the House of Lords held that, as a matter of English law, a purported assignment of a cause in action by the appellant was void as being champertous. In affirming the position that a bare right to litigate cannot be assigned, Lord Roskill stated at 703:

‘But it is today true to say that in English law in assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment in falls foul of our law of maintenance.’

52 Similarly, his Lordship stated at 702 that:

‘…[I]t is clear, when one looks at the cases upon maintenance in this century and indeed towards the end of the last, that the courts have adopted an infinitely more liberal attitude towards the supporting of litigation by a third party than had previously been the case.’

53 In part this increasingly liberal attitude stems from recognition of the (often) prohibitive cost of litigation. In Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 (‘Magic Menu’), a Full Court of this Court in discussing the policy considerations that underlie the doctrines of maintenance and champerty commented at 267:

‘It may now be observed, for example, that concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which face the ordinary litigant in funding litigation and gaining access to the Courts.’

54 In the present context, it is important to distinguish between the question whether a champertous agreement is enforceable and whether it results in an abuse of the Court’s process. In Magic Menu, their Honours were conscious of this distinction when they said, at 268:

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

The present application is concerned only with the latter issue and therefore the focus must be on the effect, or likely effect, that the retainer and funding agreements have on the Court’s processes.

55 Chadwick J made the point explicitly in Faryab v Smyth [1998] EWCA Civ 1416 (‘Faryab’):

‘It was accepted by this Court in Abraham v Thompson [[1997] 4 All ER 362] that, although the court retains the power to stay proceedings if satisfied that they constitute an abuse of its process, the mere fact that the proceedings are being financed by a third party with no interest in the outcome - other than in relation to the prospects of repayment - is not of itself sufficient abuse to invoke the jurisdiction of the court. The court is entitled to protect its own procedures … but it should be careful not to use that power so as to deny access to justice to a party who has sought to fund his proceedings in a way which may itself be contrary to public policy, unless that which has been done can be seen to amount to an abuse of the court's own process.’

56 See Abraham v Thompson [1997] 4 All ER 362 at 372-374 and Elfic Ltd v Macks [2003] 2 Qd R 125 per McMurdo P at [66]-[67]. The same point was made by the Court of Appeal in Stocznia Gdanska SA v Latreefers Inc [2000] EWCA 36 (‘Stocznia v Latreefers’), at [59]:

‘[T]he fact that a funding agreement may be against public policy and therefore unenforceable as between the parties to it is by itself no reason for regarding the proceedings to which it relates or their conduct as an abuse.’

57 The Court of Appeal also observed that whether a funding agreement leads to an abuse of the court’s process must be considered in the light of the facts in each case. In holding that the funding arrangement with which it was concerned was not an abuse of the court’s process, the Court of Appeal in Stocznia v Latreeferstook into account the following:

· the funders’ proportion of the potential proceeds of the litigation was disproportionately large;

· the real chance of the applicant receiving the full amount of their claim was slight;

· the funders had undertaken to be responsible for the costs of, what had become, very expensive litigation;

· the funders had an obvious and substantial pre-existing interest;

· the funders had agreed to cover all costs awarded in favour of the respondent; and

· the conduct of all the litigation was in the hands of experienced solicitors.

58 Not surprisingly, this focus on the facts of each case results, from case to case, in different answers to the question whether an action maintained by an allegedly champertous agreement should be stayed. The issue is illustrated by recent cases in the Western Australian Supreme Court and the New South Wales Court of Appeal.

59 In Clairs Keeley (a Firm) v Treacy (2003) 28 WAR 139 (‘Clairs Keeley No. 1’), a Full Court of the Supreme Court of Western Australia considered an application for a stay of proceedings brought by a firm of solicitors, Clairs Keeley, who were defendants in the proceeding. Clairs Keeley claimed that the action was champertous and an abuse of process because of an arrangement between the plaintiffs in the proceeding, their solicitors and the litigation funder. The applicants explicitly based their application for a stay on the claim that champerty is contrary to public policy and poses a risk to the administration of justice and rejected reliance on any tortious character of the conduct.

60 In a majority decision the Full Court granted the application. The leading judgment was written by Templeman J, with whom Wheeler, and Parker JJ agreed. Pullin J also agreed with Templeman J but gave additional reasons; Murray J dissented. All members of the Court were of the view that litigation funding agreements were not inherently bad; the question was one to be addressed in each case taking into account the detail of the relevant funding agreements. The majority were of the view that the funding agreement was champertous; that features of the funding and retainer agreements were contrary to public policy; that there had been a de facto assignment of the plaintiffs’ causes of action to the funder, constituting trafficking in litigation; and that the plaintiffs’ solicitors had a conflict of interest in breach of their fiduciary duties to the plaintiffs. The factors relevant to these determinations included:

(a) the lack of a pre-existing relationship between the funder and the plaintiffs and the fact that the funder stood to gain 35% (and possibly 45%) of the fruits of any judgment as well as their investigation and funding costs;

(b) that the basis on which the solicitors for the plaintiffs would charge was not stated in the funding agreements but the funder, as agents for the plaintiffs, had entered into a costs agreement with the plaintiffs’ solicitors without consulting the plaintiffs;

(c) the cost agreements provided, not only ‘for costs to be charged on a different basis than that prescribed, but for a substantial uplift as a success fee’;

(d) the real possibility that the litigation funder would participate in and control the litigation as if it were the client particularly given the lack of experience of many of the plaintiffs;

(e) the fact that the litigation funder had a profit motive, which while not determinative, was a relevant consideration especially in circumstances where the plaintiffs bore no risk apart from the risk that the litigation funder might fail.

61 According to Templeman J, while in form the legal work would be carried out by the solicitors and the plaintiffs would make the decisions, in substance the plaintiffs would simply do as the funder advised. This would, in his Honour’s view, mean that in reality the effect would be de facto assignment of the plaintiffs’ causes of actions. His Honour continued at [135] stating that:

‘Even if this conclusion is regarded as unduly cynical, the fact that the potential exists for IMF [the funders] to conduct itself in that way is, I think, a sufficient ground for concern. That view accords with the observation made by the Full Court of the Federal Court in [Magic Menu] at 269, that where there may be “the real potential for an abuse of the court’s process” a stay might be justified in some cases.’

(Emphasis added)

62 In granting to stay sought by the applicants, Templeman J was acutely aware of the balancing act to be played in this context. His Honour stated at [138]:

‘…[A] court considering an application for a stay in circumstances such as this, must carry out a balancing exercise, between, on the one hand, the risk to the administration of justice posed by the involvement of a litigation funding agreement, and on the other hand, the interests of the plaintiffs.’

Pullin J expressed similar sentiments at [189]. Moreover, the Court made it clear that if the arrangements in question were altered to the satisfaction of the Court, the stay could be lifted.

63 In Clairs Keeley (a Firm) v Treacy [2004] WASCA 277 (‘Clairs Keeley No. 2’), the plaintiffs were unsuccessful in having the stay lifted. Although arrangements had been made to vary the agreements, in particular by providing for the retainer agreements to be made between the solicitors and the plaintiffs directly, the Court found that the funder retained a significant level of control over the litigation. The Court held that it could not be confident that the plaintiffs had made fully informed decisions to proceed in respect of the new agreements, nor that they had been fully informed about their options. In addition, there remained an issue about how the solicitors’ costs would be calculated and apportioned. In Clairs Keeley (a Firm) v Treacy [2005] WASCA 86 the plaintiffs eventually satisfied the Court that they had been fully advised of all relevant matters and were successful in having the stay lifted.

64 The dissenting opinion of Murray J in Clairs Keeley No. 1 warrants brief consideration because it is an example of the importance of the Court’s assessment of the likelihood of the particular arrangements interfering with the proper processes of the court. His Honour did not differ from the majority in his understanding of the relevant principles, however, he could see nothing in the contractual arrangements between the funder and the plaintiffs’ solicitors that could ‘be said to involve any capacity to subvert the legitimate processes of the court arising out of the terms of the funding agreement’ (at [25]). In particular his Honour was not prepared to assume any serious risk that the funder would in some way take over the litigation.

65 The applicant in the present proceeding placed much reliance on the recent decision in Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd [2005] NSWCA 83 (‘Fostif’’) where the New South Wales Court of Appeal came to a different conclusion from that of the Western Australian Supreme Court in Clairs Keeley No. 1. On 6 October 2005, the High Court granted special leave to appeal in Fostif.

66 In Fostif, the Court of Appeal was concerned with a representative proceeding commenced by retailers against licensed wholesalers pursuant to Pt 8 r 13 of the Supreme Court Rules (NSW). The action was commenced in light of the judgments of the High Court in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516. The primary Judge held that the separate proceedings should not continue as representative proceedings and that each proceeding was an abuse of process. On appeal, the Court of Appeal set aside his Honour’s orders and remitted the matter to the primary Judge.

67 In Fostif, Mason P, with whom Sheller and Hodgson JJA agreed, held that the court must be cautious in invoking the jurisdiction of the court to stay a proceeding on the basis that it constitutes an abuse of process. His Honour took issue with the statement of the Full Court in Clairs Keeley No 2 at [71] where their Honours stated:

‘It is acceptable for the litigation to be pursued by plaintiffs who, although funded by a third party, are acting in their own interests in the pursuit of justice in their respective causes, and are so acting on the advice of independent solicitors. It is not acceptable for the litigation to be pursued in such a way that the interests of the plaintiffs are subservient to those of the funder. That would be an abuse of process.’

(Emphasis added)

If Fostif, referring to this comment, Mason P said at [114]-[115]:

‘I respectfully disagree with the categorical thrust of the last two sentences, although I observe that this was a decision in a State where the tort has not been abolished. In my opinion, a conclusion about abuse of process must stem from a finding directed at the actual or likely conduct of the party in whose name the litigation is brought (or its agents). The court is not concerned with balancing the interests of the funder and its clients. Indeed, it is not concerned with the arrangements, fiduciary or otherwise, between the plaintiff and the funder except so far as they have corrupted or have a tendency to corrupt the processes of the court in the particular litigation. It is only when they have that quality that the defendant has standing to complain about them. Even at common law, the aspects of public policy hostile to champerty were concerned with the interests of the opposing party, not the party who had entered into the champertous arrangement (Giles v Thompson [1993] 3 All ER 321 at 336 per Steyn LJ).

Funding may occur in relation to both ordinary and representative proceedings. If the latter, the court has power to enquire into and mould orders and conditions protective of the arrangements with the funder. It appears that matters additional to concerns for the processes of the court may be taken into account in that context (see below). Whether they go beyond concern to ensure that those represented make an informed choice need not be explored. It is however an elision for these matters to intrude into an abuse of process inquiry.’

(Emphasis added)

68 In the emphasised portion of the above passage, Mason P refers to the statement of Steyn LJ in the Court of Appeal in Giles v Thompson [1993] 3 All ER 321 at 336 where his Lordship said:

‘The relevant head of public policy exists to protect public justice and courts have always focused on the protection of the party confronted with maintained litigation… . …that head of public policy does not exist to protect the plaintiffs. It exists to protect the interests of the defendants. The undesirable features which are alleged to operate against the interests of plaintiffs are outside the scope of the exiting head of public policy which condemns champerty.’

With great respect to his Lordship, I doubt that the statement that the policy exists to protect ‘public justice and the courts’ is consistent with an unequivocal assertion that it ‘exists to protect the interests of defendants’. The processes of the courts are not tailored to protect either party; on the contrary they should be even handed in their approach. This is not inconsistent with the experience that subversion of the court’s processes by maintained litigation is more likely to affect the defendant than the plaintiff which is why the focus of the court is likely to be directed to the defendant. That does not imply, however, that the policy is designed to protect the defendant; it is designed to restore the balance. In this regard I note the comment of Lord Mustill in the appeal in Giles at 164:

‘…the law on maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants.’

(Emphasis added)

69 See also, Stocznia Gdanska SA v Latvian Shipping Co (No 2) [1999] 3 All ER 822 per Toulson J at 831 and on appeal in Stocznia v Latreefers at [49] where the Court of Appeal stated in respect of the above statement of Lord Mustill:

‘There is a public interest that impecunious litigants with genuine claims should be able to bring them before the courts; and a public interest that vulnerable litigants are protected from opportunistic exploitation.’

70 It seems to me that the principles that underlie the law of maintenance and champerty necessarily involve both the protection of the judicial process and the interests of litigants. I agree with Mason P that the court is not concerned with ‘balancing the interests of the funder and its clients’ or, in general, with the arrangements between them. However, when those arrangements lead to the plaintiff’s cause of action being pursued for the funder’s commercial interest rather than for the plaintiff’s, so that ‘the interests of the plaintiffs are subservient to those of the funder’, then it might truly be said that the court’s processes are being abused. The court’s processes are designed to allow the vindication of legal rights; third party funding may be of assistance in that process and where this is so there can be no objection. This is necessarily a balancing act but it is not between the rights of the funder and its clients but between that which obstructs and that which assists (or at least does not obstruct) the processes of the court. Striking this balance requires careful consideration of the relevant arrangements. It may be that this is what Mason P had in mind when he objected to the ‘categorical thrust’ of the comments in Clairs Keeley No 2.

71 On this analysis an arrangement which distorts the court’s processes will be objectionable whether the distortion disadvantages the plaintiff or the defendant; both are possible. It is for this reason that Lord Mustill spoke in Giles of ‘vulnerable litigants’ rather than confining his comments to one or other party. This is certainly consistent with the comments of the Court of Appeal in Stocznia v Latreefers. See also, QPSX Ltd v Ericsson Australia Pty Ltd (No 3) (2005) 219 ALR 1 (‘QPSX’) per French J at [55].

72 It may be, as Mason P recognised in Fostif at [115], that where there is third party funding of representative proceedings the court may legitimately concern itself with aspects of the arrangements beyond what is necessary to protect the processes of the court. That is an issue that in this context is considered in relation to the application under s 33N of the Act. Where the issue is whether the funding arrangements have interfered with, or have the potential to interfere with, the processes of the court then I respectfully agree with the following comment made by Mason P in Fostif at [132]:

‘In my opinion, the court’s basal inquiry should be whether the role of the particular 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 permanently for abuse of process. The standard of proof is high where (as here) the plaintiff has a genuine and viable cause of action. The court will lean in favour of moulding its remedy so as to eliminate the abuse, resorting to dismissal only as a last resort where this is impossible (see generally Jago v District Court (NSW) (1989) 168 CLR 23 and Clairs Keeley (No 2)).’

73 That being said, I am not convinced that the difference between the approach in Clairs Keeley No 1 and in Fostif is as great as has been suggested. As Sundberg J commented in Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455 at [28], ‘There is much common ground in Clairs Keeley, Clairs Keeley No 2 and Fostif’. As I understand the approach of the Supreme Court in Clairs Keeley No 1 the central question was that of actual or potential abuse of the court’s processes. Other issues, including the vulnerability of the plaintiffs’ interests were relevant only in so far as they related to this issue. This is certainly the view in Fostif where it was put more forcefully and where the approach was, arguably, more robust. It is not surprising, however, that minds will differ as to the impact of specific funding arrangements.

Is the present proceeding an abuse of process?

74 Aristocrat submits that the present proceeding is an abuse of process because the retainer and funding agreements are champertous and, in particular, because they effectively assign the relevant group member’s cause of action against Aristocrat to ILF. Counsel for Aristocrat recognised that concerns about litigation funding had lessened over time but submitted that the assignment of a bare cause of action to a third party with no genuine commercial interest in it is ‘an area of the law of champerty which has generally been regarded differently’ because it amounts to ‘trafficking in litigation’. That submission is based on the allegation that by means of the retainer and funding agreements ILF has acquired a degree of control over the litigation that is tantamount to it having taken an assignment of the cause of action. In my view a statement that there has been, in effect, an assignment of a cause of action, is a statement of a conclusion that the degree of control obtained by the putative ‘assignee’ is such as to raise a reasonable apprehension of abuse of process. Such a finding requires the same examination of the details of the agreements as would be necessary to find abuse of process without reference to assignment. This much is apparent from the comments of Templeman J in Clairs Keeley No 1 at [134]:

‘As I have said, I accept the evidence that, as a matter of form, the legal work will be carried out by Solomon Brothers and the plaintiffs will make the decisions. But if, in substance, the plaintiffs will simply do as they are advised by IMF, the effect will be a de facto assignment of their causes of action. Thus, in reality, IMF will not be funding the plaintiffs’ action for a commission of about 35% of the amounts recovered: it will be running the action for its own benefit, in consideration of a payment to the plaintiffs of about 65% of the recovery.’

Section 33N of the Act

88 The statement of issues filed by Aristocrat (see [18]-[21] above) raises the question whether the proceeding should no longer continue as a representative proceeding pursuant to ss 33N(1)(c) and 33N(1)(d) of the Act. There has been no complaint that the proceedings do not fall within s 33C. The issue is not whether the proceedings are properly constituted as a representative proceeding but whether they should continue as such. In order to appreciate the issues surrounding the common issue question and the MBC criterion it is necessary to consider the operation of s 33N in the context of Part IVA of the Act.

The legislative scheme

89 Section 33C of the Act lays down a number of prerequisites to the commencement of a representative proceeding. It provides:

‘33C Commencement of proceeding

(1) Subject to this Part, where:

(a) 7 or more persons have claims against the same person; and

(b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and

a proceeding may be commenced by one or more of those persons as representing some or all of them.

(2) A representative proceeding may be commenced:

(a) whether or not the relief sought:

(i) is, or includes, equitable relief; or

(ii) consists of, or includes, damages; or

(iii) includes claims for damages that would require individual assessment; or

(iv) is the same for each person represented; and

(b) whether or not the proceeding:

(i) is concerned with separate contracts or transactions between the respondent in the proceeding and individual group members; or

(ii) involves separate acts or omissions of the respondent done or omitted to be done in relation to individual group members.’

See also, s 33L which deals with the situation where, after the commencement of the representative proceeding, it appears that there are fewer than seven group members.

90 Section 33C is concerned with the commencement of a representative proceeding, not its subsequent conduct: see Wong v Silkfield Pty Ltd (1999) 199 CLR 255 per Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ at [26] and Hunter Valley Community Investments Pty Ltd v Bell (2001) 37 ACSR 326 per Sackville J at [65]. If the requirements of the section are met then representative proceedings may be commenced. Section 33D of the Act provides that a person who has a sufficient interest to commence a proceeding against another on his or her own behalf has sufficient interest to commence a representative proceeding on behalf of the group members. Subject to exceptions not presently relevant, the consent of a person is not required in order for a person to be a group member to a representative proceeding: s 33E(1).

91 Section 33H requires an application commencing a representative proceeding, inter alia, to describe or otherwise identify the group members to whom the proceeding relates but it is not necessary to name, or specify the number of, group members in order to comply with this requirement.

92 Crucial to the present proceeding is that the legislative scheme includes an opt out mechanism. Section 33J of the Act provides:

‘33J Right of group member to opt out

(1) The Court must fix a date before which a group member may opt out of a representative proceeding.

(2) A group member may opt out of the representative proceeding by written notice given under the Rules of Court before the date so fixed.

(3) The Court, on the application of a group member, the representative party or the respondent in the proceeding, may fix another date so as to extend the period during which a group member may opt out of the representative proceeding.

(4) Except with the leave of the Court, the hearing of a representative proceeding must not commence earlier than the date before which a group member may opt out of the proceeding.’

93 Part IVA provides several mechanisms for the Court to order that proceedings no longer continue as representative proceedings under Part IVA. Such an order may be made where the number of group members has dropped below seven; s 33L. Section 33M allows such an order to be made where it is likely that if the action was to succeed, the cost of distributing money to group members would be excessive having regard to those amounts. Section 33N gives the Court the power to order that a proceeding no longer continue as a representative proceeding under Part IVA. It provides:

‘33N Order that proceeding not continue as representative proceeding where costs excessive etc.

(1) The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because:

(a) the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or

(b) all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or

(c) the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or

(d) it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.

(2) If the Court dismisses an application under this section, the Court may order that no further application under this section be made by the respondent except with the leave of the Court.

(3) Leave for the purposes of subsection (2) may be granted subject to such conditions as to costs as the Court considers just.’

94 Where the Court makes an order under ss 33L, M or N, that the proceeding no longer continue as a representative proceeding it may be continued by the representative party on his or her own account and other group members may apply to the Court to be joined as parties; s 33P. Section 33V states that a representative proceeding may not be settled or discontinued without the approval of the Court. Further, s 33W allows a representative party to settle his or her individual claim with the leave of the Court.

95 This Court’s powers in respect of judgment in a representative proceeding are provided for in s 33Z of the Act which states:

‘33Z Judgment—powers of the Court

(1) The Court may, in determining a matter in a representative proceeding, do any one or more of the following:

(a) determine an issue of law;

(b) determine an issue of fact;

(d) grant any equitable relief;

(e) make an award of damages for group members, sub-group members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the Court specifies;

(f) award damages in an aggregate amount without specifying amounts awarded in respect of individual group members;

(g) make such other order as the Court thinks just.

(2) In making an order for an award of damages, the Court must make provision for the payment or distribution of the money to the group members entitled.

(3) Subject to section 33V, the Court is not to make an award of damages under paragraph (1)(f) unless a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment.

(4) Where the Court has made an order for the award of damages, the Court may give such directions (if any) as it thinks just in relation to:

(a) the manner in which a group member is to establish his or her entitlement to share in the damages; and

(b) the manner in which any dispute regarding the entitlement of a group member to share in the damages is to be determined.’

Section 33ZB provides that a judgment given in a representative proceeding must ‘describe or otherwise identify’ the group members and, importantly, that it ‘binds all such persons other than any person who has opted out of the proceeding under s 33J. .

96 Division 6 of Part IVA deals with a range of matters including the suspension of limitation periods (s 33ZE); a general power of the Court to make appropriate or necessary orders to ensure justice is done in the proceeding (s 33ZF); provision that the Court’s power to make orders where no reasonable cause of action is disclosed or the proceeding is oppressive, vexatious, frivolous or an abuse of process (s 33ZG); and for reimbursement of a representative party’s costs (s 33ZJ).

The background to Part IVA

97 Part IVA of the Act was inserted by the Federal Court of Australia (Amendment) Act 1991 (Cth) (‘the Amendment Act’) and commenced operation on 5 March 1992. In describing the general objectives of the Federal Court of Australia Amendment Bill 1991 (Cth) (‘the Bill’), which became the Amendment Act, the then Attorney-General stated:

‘The Federal Court of Australia Amendment Bill 1991 will provide a new representative action procedure in the Federal Court. The new procedure will enhance access to justice, reduce the costs of proceedings and promote efficiency in the use of court resources. …

…The Bill gives the Federal Court an efficient and effective procedure to deal with multiple claims. Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person’s loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action.

The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of person wish to sue the respondent. The new procedure will mean that groups of person, whether they are shareholders or investors, or people pursuing consumer claims, will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions.’

Second Reading Speech by Attorney-General, House of Representatives, 14 November 1991, Hansard, p 3174-3175.

98 In inserting Part IVA of the Act, Parliament was acting, at least in part, on a report of the Australian Law Reform Commission (‘ALRC’) tabled in Parliament in December 1988 entitled ‘Grouped Proceedings in the Federal Court’ (‘ALRC Report’). The ALRC Report resulted from a reference on 1 February 1977 from the then Attorney-General asking the ALRC to report on class actions in Federal and other courts whilst exercising federal jurisdiction or in courts exercising jurisdiction under any law of any Territory. In respect of the role of the ALRC Report, the Attorney-General said in the Second Reading Speech to the Bill at 3175:

‘The procedure contained in the Bill has been developed following the [ALRC Report]… The Government was not able to accept all the Law Reform Commission’s recommendations. In particular, it has not adopted the Commission’s ‘grouped proceedings’ approach or the extension of the Federal Court’s jurisdiction for such proceedings. The Commission’s proposals for contingency fees and a grouped proceedings assistance fund have also not been adopted.’

See also, the Explanatory Memorandum to the Bill at [4].

99 The ALRC Report recommended the introduction of a ‘grouped proceeding model’. This model involved the representative applicant and all group members being formal parties to the proceeding. However, the approach ultimately adopted by Parliament was a ‘representative proceedings model’. This allows a single applicant, the representative party, to commence a single proceeding on behalf a wider group: see s 33D of the Act.

100 It the present context it is appropriate to consider the background to the introduction of the termination provisions contained in Part IVA of the Act, in particular s 33N, and the background to the opt out procedure adopted by Parliament.

101 In dealing with the termination powers contained in Part IVA of the Act and in particular s 33N, the Attorney-General said in the Second Reading Speech to the Bill at 3175:

‘The other main feature of the Bill is comprehensive powers given to the Court to ensure that the proceedings are not abused. The Court will be able to order that a proceeding no longer continue as a representative proceeding where it is satisfied that it is in the interests of justice to do so because, amongst other matters, it would be less expensive to have separate proceedings or that the relief sought could be obtained by means of an individual proceeding.’

The Explanatory Memorandum to the Bill stated in relation to s 33N at [23] that:

‘This section enables the Court to order that a proceeding no longer continue under Part IVA where it is satisfied that it is in the interests of justice to do so because it falls within one of the four criteria set out in subsection 33N(1).’

After setting out the criteria, the Explanatory Memorandum stated at [23] that this provision would ensure that the Court is able to prevent abuse of the new procedure.

102 The ALRC examined the certification or authorisation procedures adopted in the United States and Quebec, Canada: see, respectively, r 23 of the Federal Rules of Civil Procedure (US) and An Act respecting the class action 1978 c 8(Quebec), art 1002. These procedures required the applicant to establish that the formal requirements for a class action have been fulfilled. At [147] the ALRC Report stated:

‘… Class actions, like all litigation, are open to abuse. Because of the potential numbers involved and the fact that many group members may be absent, specific safeguards have been built into the Commission’s recommended procedure to protect the interests of both group members and respondents. In light of the recommended safeguards, the Commission sees no value in imposing an additional costly procedure, with a strong risk of appeal involving further delay and expense, which will not achieve the aims of protecting parties or ensuring efficiency. No certification procedure is recommended.’

103 While rejecting a certification or authorisation procedure, the ALRC recommended that the Court be empowered so as to ensure that the procedure was not open to abuse. At [148], the ALRC stated:

‘There must, however, be adequate provision to ensure that the procedure is not abused or used inappropriately or inefficiently. … Proceedings may be inappropriate, as distinct from vexatious or open to abuse, for a number of reasons. First, it may be more economical for claims involving diverse and complicated individual issues (that is, issues not in common to other proceedings) to be litigated separately. Second, the cost of identifying group members and distributing any monetary relief may be excessive. Finally, the grouped procedure may be inappropriate because the principal applicant has excluded potential group members by defining the group too narrowly.’

In relation to the first of the situations referred to immediately above, the ALRC said at [150]:

‘Grouped proceedings will sometimes be more complex and difficult to manage than other forms of litigation. The Court’s ability to control proceedings through directions hearings and taking a more active role in the management of the case will help ensure that the costs incurred by the parties are less than the cost which would be incurred if the proceedings were all conducted as individual proceedings. However, there may be circumstances where the claims are so divergent or complex that the overall costs to the parties and to the administration of justice may be more than the combined cost of separate proceedings. Where the Court is unable to deal with the claims economically as compared with individual proceedings, the proceedings should be separated. The proceedings would remain on foot but each group member would become responsible for conducting his or her own claim. … There should therefore be an express power for the Court to separate the proceedings if it finds that the costs of conducting the proceedings as one proceeding are likely to exceed the costs that would be incurred if the proceedings were conducted as separate proceedings.’

These recommendations found their way into ss 33N(1)(a) and (c) of the Act.

104 In respect of the second of the situations referred to above, the ALRC recommended that the Court be also given express powers. At [151] of the ALRC Report it stated:

‘… [T]he Court should have a range of options open to it. … Accordingly, there should be provision that where the cost of identifying group members, and distributing any monetary relief (being costs that will borne by the respondent) would be excessive having regard to the total monetary relief likely to be ordered to be paid, the Court should have the option of separating the proceedings, staying individual claims or dismissed such claims while preserving group members’ rights to pursue their claim individually.’

See, cl 17 of the ALRC’s proposed Federal Court (Grouped Proceedings) Bill 1988 and, ultimately, s 33M of the Act.

105 These powers were said by the ALRC to be in addition to the general powers of this Court to strike out proceedings contained in O 11 r 16, O 20 r 2(1), O 21 and O 46 r 7A of the Federal Court Rules, see also, s 33ZG(b) of the Act. However, in dealing with the provision of appropriate powers to ensure that the procedure was not abused or used inappropriately, the ALRC did not recommend a power such as that contained in s 33N(1)(d). Further, the Second Reading Speech and the Explanatory Memorandum to the Bill do not provide any elucidation of the scope and role of s 33N(1)(d).

106 The Attorney-General, in relation to the opt out procedure adopted by Parliament in s 33J of the Act, stated in the Second Reading Speech at 3175:

‘The area of concern to business appears to be whether persons having relevant claims against the respondent should be included in the group covered by the proceedings unless they choose to opt out or whether all such persons should have to take a positive step to be included, that is, to opt in.

The Government believes that an opt out procedure is preferable on grounds both of equity and efficiency. It ensures that people, particularly, those who are poor or less educated, can obtain redress where they may be unable to take the positive step of having themselves included in the proceedings. It also achieves the goals of obtaining a common, binding decision while leaving a person who wishes to do so free to leave the group and pursue his or her claim separately.’

107 The ALRC Report also discussed at length the competing policy interests in adopting opt in or opt out procedures and the issue of whether consent should be required to become a group member: see ALRC Report at [98]-[130]. In particular, the ALRC Report, at [126]-[127], stated:

‘Balance of interests. … A fair balance will be struck between the interests of group members and respondents if proceedings can be commenced without the consent of group members as long as notice is given to group members and they have an opportunity to withdraw from the proceedings or litigate individually. The respondent’s ultimate liability should not, generally speaking, extend beyond those group members who can be identified and prove their claim.

Recommendation. Subject to the provision of appropriate protection, it should be possible to commence a group member’s proceeding without first obtaining the consent of that group member. Provision should be made to ensure that group members are notified of the proceedings and that a group member can discontinue his or her proceeding or continue it independently. The rights of persons should not be prejudiced by the commencement of proceedings without consent.’

(footnotes omitted)

108 In addition, the ALRC Report, after discussing the recommendation set out above, stated at [181]:

‘… Any mechanism for opting out of grouped proceedings needs to be simple and involve little cost. It is also important that, as far as possible, the rights of any group member to commence or continue further proceedings on the same cause of action should be preserved.’

109 While indicating a preference for an opt out procedure, the ALRC accepted that an unfettered right on the part of group members to opt out could pose practical problems for the representative party. At [183] of the ALRC Report it stated:

‘Limits on opting out. If the right of group members to opt out was completely unfettered, there could be problems for the principle applicant and the respondent in dealing with the case as it approached a hearing. Settlement negotiations could be hampered if it was not known how many people were able to exclude themselves. The benefits of economy and of obtaining a uniform decision for all affected might be lost if people could withdraw at any stage. If there was a limited fund from which any settlement or judgment money could be obtained, the proceedings of group members opting out to pursue their claim individually may have to be stayed. To help avoid these problems it would be appropriate to empower the Court to fix a date after which leave would be required to opt out. A group member could discontinue without leave up to the date specified by the Court.’

110 It is thus plain from the clear terms of ss 33E and 33J of the Act, in light of the Second Reading Speech, the Explanatory Memorandum and the ALRC Report, that Parliament made a deliberate policy choice in adopting the opt out procedure. However, the legislature also accepted the recommendation of the ALRC in so far as they advocated that the right to opt out must be limited, albeit in a relatively minor way: see s 33J of the Act. The consequences of Parliament’s choice, in the context of the present representative proceeding, will be addressed below.

The MBC criterion

111 The evidence of Mr Walker and Mr Murphy together with the applicant’s submissions describe clearly the difficulties involved in an ‘opt out’ procedure for representative proceedings. They have referred at length to the time and expense involved in, for example, the GIO litigation (see, for instance, King v AG Australia Holdings [2003] FCA 980) because of the difficulty in identifying and contacting members of the representative group. Much of what they say might be persuasive if it was for the Court to choose between an opt-in and an opt out process. However, Parliament has made a clear choice and it is not for the courts to hold otherwise. Therefore it is necessary to address whether the inclusion of the MBC criterion has the effect of implementing an opt-in procedure or otherwise subverting the process that the legislature has adopted.

112 The opt out procedure finds expression in a number of provisions of the Act including that:

· with exceptions not presently relevant, the consent of a person to be a group member is not required; s 33E

· the group members must be described but do not have to be named; s 33H;

· the Court must fix a date by which a group member must opt out of the proceeding; s 33J;

· group members must be notified of the commencement of the proceeding and of their right to opt out by the date fixed by the Court; s 33X;

· a judgment given in a representative proceeding must describe or otherwise identify the group members who will be affected by it and will bind all those persons other than those who have opted out of the proceeding; s 33ZB;

· that, with limited exceptions, the Court must not make an award of costs against a group member; s 43(1A).

113 Aristocrat submits that an element of the opt out procedure is that a person does not need to take any positive step to become a group member and does not incur any actual or future liability in becoming a group member. Such a person, it is submitted, ‘should have no need to retain a lawyer or to obtain litigation funding’. It is submitted that the MBC criterion subverts this process by requiring persons who want to be group members to opt in to the proceeding by retaining MBC. Moreover, it is submitted, the terms of the retainer and funding agreements prevent group members from effectively opting out of the proceeding because the constraints surviving termination of those agreements do not leave the person free to prosecute or compromise its claim; see [49] and [81] above.

114 In my view, the inclusion of the MBC criterion injects a fatal flaw into the definition of the representative group in this proceeding. Section 33C sets out the elements that are required to commence proceedings under Part IVA. Those elements bear repeating:

· seven or more people having claims against the same person;

· all claims arising out of the same, similar or related circumstances; and

· the claims giving rise to a substantial common issue of law or fact.

115 The applicant submits that the elements identified are the necessary minimum and that not only does s 33C not preclude additional criteria being incorporated in the definition of the group but, by providing that a proceeding may be commenced ‘by one or more of those persons representing some or all of them’ (emphasis added), it authorises the narrowing of the group by additional criteria. I accept that additional criteria may be used to narrow the scope of the representative group as is demonstrated by the following instances to which the applicant referred:

Criterion	Description of criterion	Citation
Time	Persons who purchased a product between particular dates	Bray v F Hoffman-La Roche Ltd [2002] FCA 1405; [2003] FCAFC 153; [2003] FCA 1505.
	Persons who purchased shares between particular dates	King v AG Holdings [2000] FCA 617; [2000] FCA 1543; [2000] FCA 872.
Geography	Persons who purchased a product in Australia	Bray v F Hoffman-La Roche Ltd [2002] FCA 1405; [2003] FCAFC 153; [2003] FCA 1505.
	Persons who had a surgical procedure in Australia	Courtney v Medtel Pty Ltd [2001] FCA 1037; [2001] FCA 1037; [2002] FCA 957.
List	Named persons	Spangaro v CIAFM [2003] FCA 1025; [2003] FCA 1363
	Named persons	Lukey v CIAFM [2003] FCA 1601; [2003] FCA 1602; [2005] FCA 298.
Exclusion	Exclusion of Federal Court and High Court Judges	Bray v F Hoffman-La Roche Ltd [2002] FCA 1405; [2003] FCAFC 153; [2003] FCA 1505.
	Exclusion of persons related to the respondent	King v AG Holdings [2000] FCA 617; [2000] FCA 1543; [2000] FCA 872.
	Exclusion of end use customers	Bray v F Hoffman-La Roche Ltd [2002] FCA 1405; [2003] FCAFC 153; [2003] FCA 1505.
Type of Product	Animal use vitamins but not human-use vitamins	Bray v F Hoffman-La Roche Ltd [2002] FCA 1405; [2003] FCAFC 153; [2003] FCA 1505.
Commercial Consumers		Bray v F Hoffman-La Roche Ltd [2002] FCA 1405; [2003] FCAFC 153; [2003] FCA 1505.

116 The applicant’s proposition, exemplified in the list above, does not address what seems to me to be the key issue here, which is the nature of the MBC criterion.

117 There are at least two valid grounds of objection to the MBC criterion. First, rather than being able to be a member of the group without taking any positive step (as envisaged in the Attorney-General’s comments quoted at [106] above) a person is required to opt in to the group by retaining MBC. The fact that an opt out procedure would still be required is not to the point. The legislature made a clear choice that was consistent with the recommendation of the ALRC on this issue (see [107] above). Whatever advantages, real or apparent, may flow from the ability to identify each member of the class at the outset, a decision to apply an opt in procedure can only be made by the legislature.

118 It is not uncommon for solicitors to decline to accept a retainer unless they have some assurance that their costs can be met. Requiring entry into the funding agreement as a condition of accepting the retainer is one way of obtaining that assurance. As I have already expressed in my reasons for concluding that the funding agreement does not give rise to abuse of the processes of the Court, none of this would be objectionable if a person were not required to become a client of MBC in order to become a member of the representative group. It is notable that none of the instances listed at [115] require the members of the group to opt in. The representative description was narrowed by description; persons either meet the description or they do not.

119 In addition to the cases listed at [115] the applicant also referred to two matters where the Court approved an additional criterion for the purpose of closing the class. In Williams v FAI Home Security Pty Ltd (No 5) [2001] FCA 399, Goldberg J required, as a condition of approving a settlement of a representative proceeding pursuant to s 33V, that notice of the proposed settlement be given to the group members as defined in the application; see s 33X. Following this step his Honour granted the applicants leave to amend the application to limit the group members to the known group members, ie those who had contacted the applicant’s solicitors, MBC, pursuant to the earlier notice, as well as some other categories of persons not presently relevant. His Honour also approved the terms of the settlement. His Honour commented at [16]-[18], referring to an earlier judgment in Williams v FAI Home Security Pty Ltd (No 3) [2000] FCA 1438:

‘What concerned me, in particular, at the time of those earlier reasons for judgment was that no public notice had been published so as to alert persons who might fall into the category of present group members of the existence of the proceeding so that they might, if they wished, contact Morris Blackburn Cashman about the matter. As a result of the publication of the notice, all present group members have been put on public notice as to the existence of the proceeding and the application for settlement of it. I was concerned about the interests of the present group members who were not known group members and who had not contacted the applicant’s solicitors or signed a fee and retainer agreement with them.

…

Although there may be group members who have not contacted Morris Blackburn Cashman as a result of the publication of the notice, all present group members have now been given an opportunity to do so.’

120 The orders made by Goldberg J were in the context of a settlement that his Honour was asked to approve. In my view the orders made were well within the broad powers given to the Court in s 33Z. I do not accept that this case is in any way relevant to the issues presently before me.

121 The respondents also referred to the judgment of Moore J in King v AG Australia Holdings Pty Ltd [2003] FCA 980 (‘King’). In that case his Honour made orders that had the effect of redefining the representative group. The redefinition narrowed the class to those to identified group members, namely those who completed and returned a form they were sent. The Court reserved a right to add or exclude persons from time to time if satisfied that the omission or inclusion of the person was the result of error. In his Honour’s words, at [7]:

‘I did so because a point had been reached where, in my opinion, it was appropriate and fair to attempt to identify with precision the shareholders (ane their identity) on whose behalf the proceeding was being maintained in substance and not merely in form.’

122 I do not propose to describe in detail the notices that were sent and the precautions set in place by his Honour. At the commencement of the proceeding the potential number in the representative group was approximately 67,000. In a series of steps approved by the Court, including persons exercising their right to opt out of the proceeding and others answering questionnaires designed to elicit information in relation to which shareholders did not view themselves as group members and which did not want to participate, the potential group was reduced to 45,000. It was at this stage that his Honour made the orders referred to above.

123 Pursuant to his Honour’s orders a letter containing a form, Form C, was sent to 25,806 people explaining that membership of the group was to be redefined with reference to a list of people who returned Form C. The letter was headed with a warning, in large print, that if the recipient wished to participate in the representative action they must comply with the notice. Moore J described the result at [9]-[10]:

‘Of those who were sent the letter, 1957 returned Form C within the specified time (what occurred is a little more complex but this description is sufficient for present purposes). They became members of the representative group redefined by the orders made on 19 June 2003 (and later varied in minor respects which need not be detailed). On behalf of its clients, MBC completed Form Cs with the result that a further 21,142 people became members of the representative group, redefined by the orders made on 19 June 2003. By this process the representative group totalled 23,099. This was apparent by early August 2003.

I was then acting on the basis that the combined effect of ss 33ZB and 33ZE of Part IVA was as follows. Any judgment ultimately given would not bind people who may have initially been members of the representative group but were not one of the 23,099 who had completed Form C and became, in aggregate, the representative group by the orders made on 19 June 2003. Those who did not become part of the redefined representative group had the benefit of a temporary suspension of limitation periods at least until 7 August 2003. At the hearing on 19 June 2003, no party demurred from these propositions (and in particular the effect of the orders on any limitation periods) when they were discussed.

124 Shortly afterwards the matter settled. It may be that the decisive action that was taken to obtain a more realistic assessment of numbers was a factor in this settlement. In any event, as can be seen from this brief account, the Court, and more particularly the solicitors for the applicant, were faced with a very difficult situation. It has not been suggested that the steps Moore J approved to deal with that situation were outside the powers of the Court or that there was any question of abuse of process. Irrespective of those issues, however, I do not accept that the situation in the present case bears much resemblance to that in King. I do not accept that King supports the inclusion of the MBC criterion.

125 In summary, I find that the requirement that group members opt in to the proceeding to be inconsistent with terms and policy of Part IVA. It is inappropriate that the proceeding continue under Part IVA while the MBC criterion is part of the description of the representative group. I also find that, in the way in which the MBC criterion subverts the opt out process, it is an abuse of the Court’s processes as established by Part IVA.

126 The second, perhaps even more fundamental, objection to the MBC criterion is that it dictates who should represent group members. I find it an extraordinary proposition that the definition of the representative group should be used to confine a representative group to the clients of one solicitor, however narrowly the group is otherwise defined. In my view there is no support in principle or authority for this proposition and it is repugnant to the policy of the Act.

Common issues question

127 Relying on s 33N(1)(c), Aristocrat has submitted that, in this case, the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members and therefore it should not continue under Part IVA. The argument is that although there are substantial common issues of law or fact as required by s 33C, the common issues are overwhelmed by the issues that are not common to the group members so that the findings made in the applicant’s case could not resolve the claims of other group members; Milfull v Terranora Lakes Country Club Ltd (1998) ATPR 41-642; Bright v Femcare Ltd (2002) 195 ALR 574 (‘Bright v Femcare’) at [128]

128 In Bright v Femcare Lindgren J said at [74] that the grounds specified in s 33N(1) ‘raise practical questions which require that the Pt IVA proceeding be compared with other proceedings that are available to the applicant and group members as a means of resolving their claims’; see also Finkelstein J at [156]-[157].

129 A significant element common to each group members claim is that during a specified period Aristocrat’s profitability representations (see [5] above) were misleading or deceptive or likely to mislead or deceive. Another is the claim that Aristocrat failed to make certain required disclosures to the ASX (see [6] above). The test for misleading or deceptive conduct is objective. Similarly, whether disclosures ought to have been made will involve issues that can be determined without considering the circumstances of individual claimants. Those aspects of the claims of each group member can be determined in a representative proceeding even though the question whether a group member suffered loss because of those representations would have to be determined individually.

130 It is not surprising that, as in Bright v Femcare, and in most representative proceedings, there are in the claims made against Aristocrat some questions that are common and others that are specific to each claimant. Aristocrat submits that a comparison of the common and non-common questions shows that the common questions are a relatively small part of each group member’s claims and that:

‘The group member’s characteristics and circumstances will determine whether Aristocrat’s conduct … conveyed particular representations to the relevant group member …, what (if any) effect those representations had on the group member, whether, in turn, this led to the group member suffering any loss or damage and, if so, how much… . In number, complexity and significance it is submitted that the non-common questions relating to these matters ‘swamp’ the common question concerning the features of Aristocrat’s business.’

131 I do not accept this conclusion. Aristocrat’s submission ignores the fact that the issue The advantages of a common determination of the claim that the representations were misleading or deceptive or likely to mislead or deceive can best be appreciated by considering the consequences of a rejection of that claim. If that were so, the case against Aristocrat would collapse and there would be no need for further examination of the individual claims. A determination on this issue has to be made in every case. The parties disagree on the amount of time that the common questions are likely to take. Aristocrat submits that it is ‘unlikely to be substantial’. The applicant says that, for instance,

‘whether or not any particular matter, if disclosed, would have rendered the announcements or the silences not misleading must be the subject of expert evidence as to the probable effect of disclosure of that matter on the share price at the relevant time. Moreover the claims span approximately five months. Shares were bought on every trading day of that five month period. For each of the common questions, the experts will be required to consider the effect through that period of the various items of conduct alleged. Even if the expert considers that effect only once for each week in issue, that is likely to involve days of expert evidence.’

132 Even if Aristocrat’s evidence might support a claim that there is little advantage in determining the common issues (which I do not accept) I cannot be satisfied on the evidence that 682 separate cases would be more efficient and effective than a common determination of those issues.

The interests of justice

133 The Court’s power to order that the proceeding no longer continue under Part IVA of the Act requires that the Court be satisfied that it is in the interests of justice to do so for one of the reasons set out in s 33N(1)(a)-(d). In Bright v Femcare, Finkelstein J stated at [152]:

‘Whether or not it is in the interests of justice to make such an order has to be weighed against the public interest in the administration of justice that favours class actions. That requires one to consider the principal objects of the class action procedure. They are: (1) to promote the efficient use of court time and the parties’ resources by eliminating the need to separately try the same issue; (2) to provide a remedy in favour of persons who may not have the funds to bring a separate action, or who may not bring an action because the cost of litigation is disproportionate to the value of the claim; and (3) to protect defendants from multiple suits and the risk of inconsistent findings.’

134 In the present circumstances I am satisfied that it is inappropriate for the proceeding to continue, at least in its present form, under Part IVA. In addition, in my view it is in the interests of justice that such an order be made. Whether such an order is in the interests of justice depends on the balance of a number of considerations. I accept, on the basis of the evidence of Mr Walker and Mr Murphy, that an order under s 33N(1) may prevent some of the Small Claimants from pursuing their claims in this Court and, perhaps, at all. This is a regrettable result, however, not one that is certain to occur. It is tolerably clear that an order under s 33N(1) would, if the definition of the class was not amended, require each of the group members to institute separate proceedings or, more likely, to join together in a proceeding where each is a party to the action. This would likely result in greater costs to the parties and to the relevant courts in which such claims were brought. However, the interests of justice in this context are not limited to the interests of the applicant or of the group members.

135 While access to justice is an important consideration and there is a public interest in favour of representative proceedings, these are not the sole considerations. See also, in a different context BHP Billiton Ltd v Schultz (2004) 211 ALR 523 per Gleeson CJ, McHugh and Heydon JJ at [15]. In enacting Part IVA, Parliament clearly was intending to improve access to justice and the efficient use of this Court’s resources and prescribed the manner in which these goals were to be achieved. So much is clear from the representative proceeding provisions of the Act and the related extrinsic material. The goals that Part IVA was intended to achieve must be considered, not in the abstract but in the context of the procedures that Parliament expressly adopted. In my opinion, it would be inappropriate and not in the interests of justice to permit a proceeding to continue under Part IVA in circumstances where the clear legislative intention is subverted in the manner described above.

Conclusion

136 For the reasons given above I am of the opinion that the proceeding cannot continue as a representative proceeding while retaining a particular firm of solicitors is a criterion of membership of the representative group. It may be that the definition of the representative group can be amended to meet the concerns expressed in these reasons. Obviously this is a matter for the applicant to consider. I therefore propose to allow a short period for the parties to consider, in the light of these orders, what steps should now be taken.

I certify that the preceding one hundred and thirty-six (136) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate:

Dated: 20 October 2005

Counsel for the Applicant:	KP Hanscombe SC and LWL Armstrong

Solicitor for the Applicant:	Maurice Blackburn Cashman

Counsel for the Respondent:	TF Bathurst QC and MJ Darke

Solicitor for the Respondent:	Allens Arthur Robinson

Counsel for the Interveners:	S Gageler SC and R Dick

Solicitor for the Interveners:	Ebsworth & Ebsworth

Date of Hearing:	15-16 June 2005

Date of Judgment:	20 October 2005

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