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Cite as: March 2015 89 (3) LIJ, p.62

Abuse of process where proceedingcommenced for predominant purpose of generating fees for respondent’s solicitor

Treasury Wine Estates Limited v Melbourne City Investments Pty Ltd [2014] VSCA 351, unreported 22 December 2014, No S APCI 2014 0101, Maxwell P, Nettle and Kyrou JJA.

The applicant sought leave to appeal a decision of a judge of the Supreme Court. The applicant in a group proceeding, one of a number of group proceedings, had sought a stay of the proceeding as an abuse of process. The identified abuse was said to be the fact that the proceeding had been brought by the respondent for the predominant purpose of enabling its sole director and shareholder (Mr Elliott) to earn legal fees as solicitor for the respondent.

The judge at first instance had refused a stay but had ordered that Mr Elliott be restrained from acting for the respondent.

The relevant facts were not in dispute and nor were the findings of the judge at first instance. In the joint judgment of Maxwell P and Nettle JA, the judge’s findings were noted as follows:

“(a) MCI was created by Mr Elliott as a vehicle for bringing representative proceedings against listed companies alleging breaches of continuous disclosure obligations;

(b) MCI would be the representative plaintiff in such proceedings; and

(c) Mr Elliott would act as its solicitor, and would earn fees from doing so.

“Her Honour concluded that the reason for MCI’s existence was to launch proceedings, such as the present proceedings, to enable its sole director and shareholder [Mr Elliott] to earn legal fees from acting as the solicitor for MCI.

“Most importantly, her Honour inferred that MCI had commenced the respective proceedings against Treasury and Leighton Holdings for the purpose of having Mr Elliott act as its solicitor so that he could earn fees.

“Her Honour noted that the quantum of any damages claim was ‘at best’ less than $700 in each case. It was therefore unlikely that the proceedings had been commenced for the purpose of recovering compensation.

“Her Honour summarised her conclusion in these terms:

I have formed the view that MCI commenced the proceeding for the purpose of generating legal fees for Mr Elliott. I agree with the Defendants that that purpose is not a purpose of earning legal fees as a desired by-product of the litigation. It is the predominant purpose”. [4]-[6] [endnotes omitted]

The leading authority is Williams v Spautz (1992) 174 CLR 509. Drawing on that authority, Maxwell P and Nettle JA stated:

“As the law stands, 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.

“The question for determination, therefore, is whether MCI’s purpose of ‘generating legal fees for Mr Elliott’ is a legitimate purpose. Plainly enough, generating legal fees does not constitute a purpose of vindicating legal rights or immunities. Obtaining payment of legal costs is but a corollary, or an incident, or a by-product, of the successful vindication of rights.

“It is necessary, then, to examine the notion of ‘collateral advantage’. The authorities distinguish between two types of case. On the one hand, a proceeding will not be regarded as an abuse of process by reason only that it is brought for the purpose of taking collateral advantage of any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding. On the other hand, if a proceeding is brought for the predominant purpose of obtaining collateral advantage from the existence of the proceeding as such, as opposed to collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding, it will be an abuse of process and liable to be stayed.

“In our view, the proceeding by MCI against Treasury falls into the second of these categories. What distinguishes the two categories is the use to which the proceeding is put. In the present case, MCI is using the cause of action to create an income-generating vehicle for its solicitor. It has no interest in vindicating its rights, or obtaining a remedy, as such.

“The nature of the cause of action – as a claim based on an alleged breach of disclosure requirements – is immaterial to MCI’s purpose. Its sole purpose has only ever been to create for itself – in this case, by acquiring a small parcel of shares – a cause of action of sufficient merit to induce the defendant company to pay Mr Elliott’s fees”. [9]-[13] [endnotes omitted]

This was a clear example of breach of process (at [14]). The respondent had no wish and no need to prosecute its claim to conclusion unlike the alderman example used by the plurality in Williams v Spautz, that is the alderman who prosecuted another alderman for failure to disclose a relevant interest so as to force a disqualification where prosecution to conclusion was necessary (at [15].

Leave to appeal should be granted and the proceeding stayed.

Kyrou JA disagreed. His Honour referred to a recent decision of the Privy Council in Crawford Adjuster (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd [2014] AC 366 where Lord Wilson JSC approved a statement of Isaacs J in Varawa v Howard Smith Co Ltd (1911) 13 CLR 35 91, that a purpose is improper if it is “entirely outside the ambit of the legal claim upon which the Court is asked to adjudicate” (at [58]).

Significantly, his Honour noted at [67]:

“MCI could not achieve its predominant purpose of earning fees for Mr Elliott unless it pursues this proceeding to a successful conclusion and obtains an order for costs from the Court or negotiates a favourable settlement which is approved by the Court. The outcome of the proceeding, the nature and scope of any costs order, and the question of whether a settlement should be approved are matters to be determined by the Court in accordance with well-established legal principles. A costs order cannot be pursued by MCI separately from the substantive relief sought in the proceeding. Likewise, there would have to be very good reasons for the Court to approve a settlement which merely involves payment of MCI’s costs. In other words, the legal process contains robust safeguards against abuse”.

His Honour was not satisfied that abuse of process had been made out.

The proceeding was stayed by majority.


PROFESSOR GREG REINHARDT is executive director of the Australasian Institute of Judicial Administration and a member of the Faculty of Law at Monash University, ph 9600 1311, email Gregory.Reinhardt@monash.edu. The numbers in square brackets in the text refer to the paragraph numbers in the judgment. The full version of this judgment can be found at www.austlii.edu.au.

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