Litigation funding: security for costs & disclosure

Murphy & Ors v Gladstone Ports Corporation Ltd [2019] QSC 12

Crow J


[1] – [2] The three plaintiffs brought an action against the defendant in 2017 as the representative claimants in a representative action. The action alleges negligence in the design and construction of the bund wall for the Fisherman’s Landing Port Expansion and Western Basin Dredging and Disposal Project which occurred in Gladstone Harbour during 2010 and 2011. The wall’s failure allegedly allowed contaminants which materially decreased the quality of the water causing the members to suffer economic loss.

[3] The decision in question is in relation to the defendant’s application for security for costs and further discovery of documents.

[4] – [13] The plaintiffs agreed to provide security for the defendant’s costs up to $400,000, but the parties disagree as to the form in which the security should be provided. The plaintiff’s entered into representative proceeding funding agreements with LCM Operations Pty Ltd, a litigation funder with offices in Sydney. LCM procured a deed of indemnity in favour of the defendant from AmTrust Europe Limited, a foreign corporation with no assets in Australia. However, AmTrust is proven to have assets of almost two billion Pounds. The plaintiffs propose this be accompanied by $30,000 as security for costs for enforcing the deed of indemnity in London.

Issues, Court’s Decisions and Reasoning

Security for Costs

[13] Quoting Hargrave J in DIF III Global Co-Investment Fund, L.P. & Anor v BBLP LLC & Ors [2016] VSC 401, the question is whether “a successful defendant can readily enforce an order for costs against the plaintiff”.

[15] Whether a deed of indemnity provides a fund or asset against which a defendant can readily enforce is a question of fact determined by reference to the deed provided and the evidence in the application.

Deed of Indemnity

[17] The first issue is the ability if the deed of indemnity is a valid and enforceable indemnity, of the defendant to realise the proceeds of the indemnity.

[18] – [19] Considering this question practically, the Court determined that, given AmTrust’s extensive assets (£2 billion), equity (£382 million) and annual profits (£69 million), “there is no reason to think … there is much, if any, risk in the defendant being unable to access the $400,000 security for costs”.

Maintenance and Champerty

[20] The second issue is that the deed may form part of a champertous funding arrangement (still a tort in Queensland) and, as such, be unenforceable if AmTrust receives a share of the proceeds of a successful judgement or settlement.

[21] To this end, the defendants have requested disclosure of all documents relating to the consideration sought by AmTrust for entering into the deed of indemnity.

[23] The defendant argues that if the funding agreement between LCM and the plaintiffs is void and unenforceable, then the agreement between AmTrust and LCM may also be void and unenforceable and, if so, then the deed of indemnity itself is also void and unenforceable.

[28] After a consideration of the relevant case law, the Court noted that in order for there to be a finding of champerty, there must be not only a provision of funds in return for a percentage interest in any proceeds of the litigation but also an entitlement to become involved in the conduct of the litigation in the sense of having a degree of control.

Deed of Indemnity tainted or infected by champerty?

[39] – [41] Assuming the arrangement with LCM is champertous, the question of whether the deed can be readily enforced depends on the prospects of whether it would be found to be unenforceable as being affected by champertous representative proceeding funding agreements.

[59] – [60] It would be logical for a court to potentially strike down contracts between A&B and perhaps B&C. However, it would be illogical, and against the policy reasons for the development of the torts of maintenance and champerty, for a court to decline to enforce a deed of indemnity between C and D when, if such an agreement is tainted by maintenance and champerty, a court would allow D to sue C under the tort of maintenance and champerty.

[61] Therefore, the risk is low that the deed together with the $30,000 is not a readily enforceable security and [63] the security proposed by the plaintiff is “adequate and does not impose an unacceptable disadvantage on the defendant”.

Discovery of Documents

Expert Reports

[65] – [105]

The defendant argued that they are entitled to disclosure of “any expert reports, including drafts, directly relevant to the issue of dispute on the pleadings”

Under r212 UCPR, an expert report or statement is not privileged from disclosure, but the plaintiffs argue that this exclusion applies only to expert evidence “deployed” by a party. The plaintiffs argue a number of factors to this end, but the Court concluded that “the abrogation of privilege provided for by r212 ought to be confined to its ordinary meaning, namely, whether the particular document can be said to be a statement or report of an expert”. Therefore, the Court ruled that any expert report including drafts ought to be disclosed.

Legal Opinions to Litigation Funders

[106] – [111]

The defendant argued they are entitled to “any documents or briefs including legal opinions, provided to LCM or to AmTrust which are directly relevant to the issue in dispute on the pleadings”.

The Court stated that these documents are, by definition, privileged documents. Rule 211 UCPR requires a party to disclose only documents “directly relevant to an allegation in issue in the proceedings”. Legal advice provided to third parties is not directly relevant to an issue in these proceedings, but if it were it would still be clearly privileged. Therefore, these documents should be excluded from disclosure.

David Cormack – Brisbane Barrister & Mediator

Madeleine Bowater – research assistant


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