The recent first instance decision of the Victorian
Supreme Court in Melbourne City Investments (MCI) v Leighton
Holdings and MCI v Treasury Wine Estates serves as an apocryphal
warning that some models are not serving the interests of either
justice nor the claimants whom they are supposed to
In April this year the Productivity Commission published a range
of draft recommendations concerning access to justice, including
the funding of Australian civil litigation by third parties and by
Amongst the Commission's recommendations were proposals to
lift the present ban on contingency fees, and to hold third part
litigation funders to modified financial services licences and
associated prudential regulation.
These recommendations have been influenced by the rising tide of
representative proceedings in Federal and State courts. Product and
catastrophic event related actions aside, litigation funding is now
a key driver in securities class actions, targeting the acts or
omissions of publicly listed companies and others.
Courts administering class action regimes are increasingly being
called upon to address the entrepreneurial models that underpin
such actions. The recent first instance decision of the Victorian
Supreme Court in Melbourne City Investments (MCI) v
Leighton Holdings and MCI v Treasury Wine
Estates serves as an apocryphal warning that some models
are not serving the interests of either justice nor the claimants
whom they are supposed to benefit.
The MCI model: An abuse of process?
MCI is a Victorian investment company managed and controlled by
Mark Elliott, a Melbourne-based solicitor. MCI holds a small parcel
of shares in each of Treasury Wine Estates (TWE)
and Leighton Holdings, having acquired each parcel for under
MCI initiated separate securities class actions in the Victorian
Supreme Court against TWE, Leighton and WorleyParsons Limited. Mr
Elliott is the solicitor for MCI in each of the proceedings. The
most that MCI could recover in each action would be less than
TWE and Leighton each sought orders to effectively bring the
actions to a halt. Justice Ferguson was not satisfied that the
proceedings were either an abuse of process or contrary to public
policy. Nevertheless her Honour was satisfied that "unless
Mr Elliott ceases to act for MCI in the proceedings or MCI is
replaced as the representative plaintiff, Mr Elliott should be
restrained from acting as the solicitor for MCI and the proceedings
should not be permitted to continue as group
To test whether this was an instance where the
solicitor/plaintiff ought be restrained, the Court considered the
position of a hypothetical fair minded independent observer. As to
Mr Elliott's position, her Honour was clear:
"...the Observer would consider that Mr
Elliott is compromised in his role as a solicitor such that there
would be a real risk that he could not give detached, independent
and impartial advice taking into account not only the interests of
MCI (and its potential exposure to an adverse costs order), but
also the interests of group members."
Access to justice in a growing capital market
The MCI decision highlights that, in the absence of regulation,
there is a justifiable concern about the proper separation between
claimant, lawyer and funder. The Courts charged with administering
class actions are plainly alive to the challenges that the
entrepreneurial class action industry presents. If that line is
pushed too hard, Courts, both federal and state, will intervene and
may well decide that such issues ought be examined at a very early
stage. Indeed, for defendants it is important that those boundaries
are assessed at the outset rather than allowing class actions to
proceed to trial or a Court approved settlement before the concern
As to reform, the decision offers a mixed message. The need for
such intervention adds to the concerns expressed by the
Productivity Commission warranting the regulation of third party
litigation funding. However, it offers very little, if any, support
for the notion that the time for contingency fees by lawyers has
arrived. A playing field that is not in the interests of justice
nor the parties is not a competitive solution and cannot afford
genuine access to justice.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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