Dispute Resolution Senior Associate, Ben Hartley, looks at the decision in Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited; Melbourne City Investments Pty Ltd v Leighton Holdings Limited [2014] VSC 340 in which the Supreme Court made rulings regarding the conduct of class actions where the solicitor for the lead plaintiff in each case was also the sole director and shareholder of this company.

Melbourne City Investments (MCI) was incorporated in late 2012, with a sole director and shareholder. On the day of its incorporation, it purchased small parcels of shares, each worth less than $700, in relevantly, Treasury Wine Estates Limited (Treasury) and Leighton Holdings Limited (Leighton). In early 2014, MCI purchased small volumes of shares in 145 publically listed companies, including additional shares in Treasury and Leighton. In late 2013, MCI issued separate group proceedings in the Supreme Court of Victoria against Treasury and Leighton alleging various breaches of the Corporations Act 2001, including breaches of the continuous disclosure requirements. In each case, MCI was represented by Mark Elliot, a Melbourne based solicitor, who also happened to be the sole director and shareholder of MCI. The group members in both proceedings were ‘open’, requiring the relevant shareholders in the defined group to opt out if they did not wish to be bound by the judgment of the Court. Treasury and Leighton sought orders that:

  • the proceedings were brought by MCI for the collateral purpose of generating legal fees for Mr Elliot and hence should be stayed as an abuse of process
  • alternatively, the Court should, in the exercise of its inherent jurisdiction, restrain Mr Elliot from acting for MCI whilst MCI is the lead plaintiff
  • alternatively, that the proceeding not continue as a group proceeding whilst MCI is the lead plaintiff and Mr Elliot remains as its solicitor.

Before considering the substance of the Defendants’ applications, the Court contemplated the purpose of MCI in bringing the group proceedings. The Defendants each submitted that the Court should infer that MCI was created by Mr Elliot as a vehicle for bringing representative proceedings against publically listed companies, alleging breaches of continuous disclosure requirements, MCI would be the representative plaintiff in each and Mr Elliot would act as MCI’s solicitor and would earn fees from doing so. The Court was prepared to draw those inferences, more so in circumstances where Mr Elliot was present in court instructing Counsel for MGI but elected not to give any evidence where ‘… the facts called out for explanation by him.” Her Honour Justice Ferguson’s finding was based on the initial small purchase of shares in publically listed companies, including the Defendants, on the day of incorporation and the subsequent commencement of group proceedings by MCI with Mr Elliot acting as its solicitor.

The fact that the shares in each defendant were purchased at a cost of less than $700 suggested that it was unlikely that the proceedings were brought for the purposes of recovering compensation.

Having made these findings, her Honour then proceeded to consider the relief sought by the Defendants. The first issue for consideration was whether the proceedings should be stayed as an abuse of process, with her Honour noting that bringing proceedings not for the purpose for which they are designed – in this case to seek compensation for an ‘open’ class of group members – but rather to gain a collateral advantage is an improper purpose. With the collateral advantage in this case being the generation of legal fees, the question for determination was whether this purpose was sufficient to justify a stay on grounds of an abuse of process. After carefully considering the authorities and the facts of the present cases, her Honour declined to categorise the proceedings as an abuse of process. While the ultimate purpose of MCI may have been for Mr Elliott to earn legal fees (he was acting on a ‘no win, no fee’ basis), the immediate purpose – to obtain orders for compensation – if successful would mean the ultimate purpose would occur as a natural consequence if MCI succeeding at trial as the successful party would be entitled to an award of costs.

To the extent there was an issue because of the relationship between MCI and Mr Elliott, this could be addressed through the Court’s powers to deal with representative proceedings or its inherent power to control or regulate officers of the Court.

Turning to the latter of these matters, her Honour noted that the Court has an inherent jurisdiction to make such orders to ensure the administration of justice and to protect the integrity of the judicial process. Two issues were crucial in this context: the likelihood of Mr Elliot giving evidence on behalf of MCI and whether or not there was the possibility of a conflict arising between Mr Elliot’s dutiesas an officer of the Court and his personal or pecuniary interest in the proceedings. Her Honour found that while it is likely that Mr Elliot would have to give evidence in the proceedings, this was not sufficient to warrant an order restraining him from acting for MCI. However, on the second point her Honour considered that Mr Elliot was compromised in his role as solicitor for MCI in so far as there was a real risk he may not be able to give detached, independent advice having regard to not only the interests of MCI but all group members.

In order for justice to be seen to be done, the expectation was that MCI would be represented by a person without the vested interests that Mr Elliot has in the proceedings and hence the Court was prepared to restrain him from acting for MCI.

Likewise, having regard to the powers contained in the Supreme Court Act 1986 (Vic) to regulate group proceedings, her Honour took the view that section 33ZF, which provides the Court with broad discretionary powers, could be utilised such that the proceedings ought not continue as group proceedings for so long as Mr Elliot represents MCI or if Mr Elliot continues to represent MCI, for so long as MCI remains the representative plaintiff. Her Honour did note, however, that there on their face there was nothing irregular about the proceedings and the issues appeared to be amenable to representative  proceedings  with  common questions to be determined. The problem identified was the representative plaintiff and its legal advisor.

The decision of the Supreme Court contained a pragmatic consideration of the conduct of group proceedings, noting that inevitably such proceedings will be lawyer driven without expressing a view on such developments.  However,  in  circumstances where proceedings are lawyer driven and there is no effective distinction between the lead plaintiff and its legal advisor, the Court can use its inherent powers or the powers given to it under the Supreme Court Act to make appropriate orders to ensure that justice is seen to be done. Accordingly, an appropriate degree of independence between the lead plaintiff and the solicitor for not just that plaintiff, but the group, is necessary to ensure that group proceedings are prosecuted having regard to the interests of the group as a whole.