The Victorian Supreme Court has dealt a harsh blow to serial class action litigant, Melbourne City Investments (MCI) and its founder Mark Elliott, by ruling that MCI's class action against Myer was an abuse of process and should be stayed permanently.1
In doing so, the Court confirmed that the only legitimate purpose for bringing a proceeding is to vindicate legal rights or immunities by judgment or settlement. Consequently, unless the predominant purpose of bringing a proceeding is a legitimate purpose, the proceeding is an abuse of process and is liable to be stayed.2
MCI instituted the proceeding against Myer last year on behalf of itself and all people who acquired ordinary shares in Myer on or after 11 September 2014, and who remained holders of any of those shares at the commencement of trading on 19 March 2015. In the proceeding, MCI alleged that Myer failed to disclose to the market in a timely fashion price-sensitive information regarding a downgrade to its half year results, which caused a significant fall in the company's share price in March 2015 when that information was released.
The group proceeding against Myer is one in a long series group proceedings commenced by MCI (or otherwise funded by or connected with interests associated with Elliott) against publicly listed companies, including separate group proceedings commenced by MCI against Treasury Wine Estates Ltd (TWE), Leighton Holdings Limited and WorleyParsons Limited alleging, in each case, misleading and deceptive conduct and breaches of continuous disclosure obligations. Elliott and MCI's conduct in instituting and maintaining these group proceedings has been the subject of significant controversy in the courts.
In 2014, Elliott suffered a significant setback when the group proceeding commenced by MCI against TWE was held by the Court of Appeal to be an abuse of process and liable to be stayed. In that case, the Judge was satisfied that, given the small amounts invested by MCI in each of the defendant companies, the proceedings were likely to have been commenced for the predominant purpose of generating legal fees for Elliott, rather than the vindication of legal rights or immunities.3 Leave to appeal this decision to the High Court was refused on the basis that there were insufficient prospects of success.
In order to circumvent these earlier adverse findings, Elliott altered his business model, removing himself as solicitor for the lead plaintiff and appointing an independent solicitor.
Despite the changes to his business model, the Court concluded that the present case against Myer was not capable of being distinguished from the TWE proceeding, which had previously been found to constitute an abuse of process.
The Court was satisfied that the predominant purpose for the proceeding was to enrich Elliott or interests connected with him through the generation of income or revenue, rather than for the vindication of any rights of MCI or group members. This was inferred from the fact that:
- MCI did not have sufficient funds to run the proceeding itself, therefore it was inevitable that some kind of funding arrangement would need to be put in place at some stage; and
- the party from which that funding would be sought was likely to be a funding vehicle associated with Elliott (such as BSL Litigation Partners, in which Elliott has a substantial interest) and through which Elliott seeks to make a substantial profit.
The Court noted that it was irrelevant whether the income generated from the litigation represented legal fees for its solicitor, or income or profit for those behind and inextricably connected to the litigation; the result is the same, as in either case, the predominant purpose was not to vindicate legal rights or immunities.
In reaching this conclusion, the Court relied on evidence from Elliott during cross examination that MCI would clearly not have commenced this proceeding acting as a sole litigant, and that the predominant purpose for commencing the proceeding was so that it (or its associates) would be financially rewarded.
According to the Court, the fact that there may be limited or even extensive court supervision did no more than control the extent of the collateral benefit, and did not alter the fact that the proceeding had been commenced for an illegitimate purpose.
While the Court recognised that the funding of class actions on commercial terms that involve consideration of risks and rewards is critical for facilitating access to justice, this type of litigation funding is underpinned by parties (usually unrelated to the funder) who have the predominant purpose of vindicating their rights.
It remains to be seen whether this failure spells the end for MCI and the Elliott business model. While an appeal is possible, it is difficult to see on what basis it could be successful, given the strong criticisms leveled at the Elliott business model in the Supreme and Appellate Courts.