Representative proceedings (or class actions) have recently come under increased scrutiny in both the policy and commercial contexts. The High Court yesterday rejected special leave to appeal from the Victorian Court of Appeal’s decision dealing with lawyer driven class actions, adding further fuel to the class actions funding debate. The High Court did not have difficulty in reaching its decision to reject special leave, indeed, Justices Hayne and Keane rejected the application without reserving judgment and did not request submissions from the Respondent.

The special leave application was to appeal from the Victorian Court of Appeal’s decision in Treasury Wine Estates Limited v Melbourne City Investments Pty Ltd [2014] VSCA 351 (Treasury Wine Estates v MCI). Melbourne City Investments (MCI), a company owned and directed by Mark Elliott, purchased a parcel of shares in various Australian listed entities on the date of its incorporation, 1 November 2012.  Since then, MCI has commenced various class action proceedings and Mark Elliott has acted as the solicitor in several of those proceedings.

In Treasury Wine Estates v MCI, Treasury Wine Estates and Leighton Holdings Limited sought to restrain Mr Elliott from acting for MCI in the proceeding. Treasury Wine Estates and Leighton Holdings Limited alleged that Mr Elliott had commenced the proceedings for the purpose of generating legal fees and that his acting for MCI constituted an abuse of process.

At trial, her Honour Justice Ferguson held that MCI’s conduct was not an abuse of process because, although Mr Elliott would generate legal fees, MCI’s immediate aim in commencing proceedings was not generating legal fees, but rather, vindicating the impugned legal rights via the class action. Her Honour also declined to stay the proceedings upon the undertaking by Mr Elliott that he would discontinue acting for MCI and that another solicitor was appointed. Very shortly after her Honour’s decision, MCI commenced fresh proceedings with a different solicitor acting.

On appeal, the Court of Appeal reversed Justice Ferguson’s decision. The Court of Appeal held that MCI’s ‘sole purpose has only ever been to create for itself – in this case, by acquiring for a small parcel of shares – a cause of action of sufficient merit to induce the defendant company to pay Mr Elliott’s fees.’

In its special leave application MCI argued that the class members in the original action would be disadvantaged if the High Court did not allow the proceeding to continue. In particular, it argued that the original proceeding was commenced over one year earlier than the identical proceeding freshly issued with a different solicitor appointed. The Court was not persuaded by this argument, and asked MCI’s lawyers, if the purpose of the proceeding had ‘miraculously transformed?’

This High Court’s decision will not come as a surprise to many in the legal community. It is worth, however, noting that the decision is consistent with the Productivity Commission’s Inquiry Report released late last year. The report recommends regulation of third party litigation funding and preventing legal practitioners from attempting to bypass contingency fee prohibitions. It will be interesting to see what legislative developments will occur in the coming year. Regardless of the form that regulatory development takes, any overhaul in regulation of litigation funding will have a significant impact on the insurance industry and the class actions régime.

Co-authored by graduate Kelsey Ippolito.