By and -

Key decisions

  • LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103
  • Porter v Dyer [2022] FCAFC 116

CORPORATIONS

A typical litigation funding scheme is not a ‘managed investment scheme’ under Corporations Act 2001 (Cth) s 9 – Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd overturned

LCM Funding Pty Ltd v Stanwell Corporation Limited [2022] FCAFC 103 (Middleton, Lee and Anderson JJ)

LCM Funding Pty Ltd (‘LCM’) brought an appeal from Stanwell Corporation Limited v LCM Funding Pty Ltd [2021] FCA 1430 contending that the decision of Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147 (‘Brookfield Case’) was wrong insofar as it found that a litigation funding scheme (‘LFS’), having the characteristics identified in that case, was a managed investment scheme (‘MIS’) within the meaning of s 9 of the Corporations Act 2001 (Cth) (‘Act’).

The action concerned a LFS relating to the class action Stillwater Pastoral Company Pty Ltd v Stanwell Corporation Ltd & Anor (proceeding QUD 19 of 2021) (‘Scheme’). In the proceeding below:

  • Stanwell Corporation Limited (‘Stanwell’) alleged that the Scheme constituted a financial product as defined in s 764A(1)(m) of the Act and was an unregistered MIS. Stanwell sought declarations to that effect, and orders under the Act restraining LCM from operating an unregistered MIS and/or issuing a financial product without a relevant licence.
  • LCM responded by contending that: (1) the Scheme was not a financial product or an MIS by operation of the ‘grandfathering’ provisions in Corporations Regulations 2001 (Cth) (‘Corporations Regulations’) regulation 10.38.01; and (2) in any event, the Scheme was not a MIS and LCM was not operating a MIS. LCM accepted that the Scheme was indistinguishable from that in the Brookfield Case but submitted that the majority decision in the Brookfield Case was wrong.
  • LCM by cross-claim sought declarations: (1) that the Scheme does not have the features of the definition of a MIS set out in ss 9(a)(i) and (ii) of the Act; and (2) that LCM and Stillwater Pastoral Company Pty Ltd (‘Stillwater’) have not operated, and were not operating, a scheme with those features.
  • LCM also sought referral of the proceedings or part of them to the Full Court pursuant to s 25(6) of the Federal Court of Australia Act 1976 (Cth) (‘FCA Act’), to challenge the correctness of the Brookfield Case.

The primary judge:

  • found in favour of LCM on the grandfathering issue and dismissed Stanwell’s application;
  • declined to make a referral to the Full Court; and
  • heard LCM’s argument that the Brookfield Case was wrong. In doing so, the primary judge expressed some doubts about the Brookfield Case but considered himself bound by the decision, and dismissed LCM’s cross-claim with costs.

LCM then appealed on the following grounds:

  1. The primary judge ought to have found that the Scheme does not, on the proper construction of the Act, have the features of the definition of a MIS set out in ss 9(a)(i) and (ii) of the Act, and therefore erred in refusing to make the first declaration sought by LCM.
  2. The primary judge erred in refusing to make the second declaration sought by LCM on the basis that there was not sufficient utility in doing so because:
    1. that decision was necessarily affected by the error in ground 1;
    2. or there was clear utility in the Court conclusively determining whether LCM or Stillwater had engaged in the conduct the subject of the second declaration, namely operation of a MIS.

Considering the text of s 9… its context and the general purpose and policy of the managed investment scheme regime… his Honour was of the view that the Scheme did not have the features set out in the definition of ‘MIS’ in s 9(a)(i) and (ii) of the Act.

In the appeal, the background facts set out in the primary judge’s decision were not in dispute. Those facts included the fact that the Scheme was relevantly identical to the one in the Brookfield Case. Stillwater (Second Respondent) did not appear, and Stanwell (First Respondent) did not seek to disturb the primary judge’s finding on the grandfathering issue, and otherwise submitted to any court order made. Consequently, a contradictor was appointed by the Court to assist.

The Court’s findings

Anderson J

At the outset, Anderson J considered whether the appeal had utility and found that it did. LCM had a legitimate interest in obtaining a declaration that the Scheme was not a MIS, which, but for the grandfathering provisions of the Corporations Regulations, would have required registration and compliance with Chapter 5C of the Act (‘Chapter 5C’). Since the primary judge declined to make the declarations sought by LCM, there was a justiciable controversy in which LCM had standing to seek the declarations and LCM had sufficient or real interest in obtaining them (Hobart International Airport Pty Ltd v Clarence City Council; Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council [2022] HCA 5 at [26]-[41]).

Moreover, the primary judge made adverse costs orders against LCM such that LCM faced a binding decision against it which it sought to reverse on appeal. The fact that Stanwell no longer wished to be heard on LCM’s declarations did not render the appeal inutile. The costs awarded against LCM could not be said to be de minimus and that was sufficient to result in the appeal having utility.

His Honour then considered whether the Brookfield Case should be overturned and noted that decision should not be departed from unless plainly wrong (Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v FAK19 [2021] FCAFC 153 (at [2]-[3])) (at [96]).

Anderson J considered the Act’s s 9 definition of ‘MIS’ and adopted the primary judge’s analysis of that definition. His Honour noted that construing the definition commences with considering the text of the provision itself and its context, including the general purpose and policy of the provision (Certain Lloyd’s Underwriters v Cross [2012] HCA 56 at [24]; Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Moorcroft [2021] HCA 19 at [15]), giving preference to ‘the interpretation that would best achieve the purpose or object of the Act’ (s 15AA of the Acts Interpretation Act 1901 (Cth)), such purpose or object being gleaned from the Act’s text and context, and reading the statute as a whole (at [97]-[102]).

Applying these principles, Anderson J noted that a MIS as defined by the Act is subject to a detailed regime in Chapter 5C. That chapter was inserted into the Act by the Managed Investments Act 1998 (Cth) with the aim to ensure there was adequate and effective protection for investors. His Honour also referred to:

  • the second reading speech which noted that a MIS is any type of scheme where an investor purchases an interest from a professional manager and manages the funds received to produce a return. They encompass a wide range of investment products and services;
  • Finkelstein J in Brookfield Multiplex Ltd v International Litigating Funding Pte Ltd (No 3) [2009] FCA 450 (‘Brookfield No 3’) stated ‘with the evident purpose of the legislation in mind, the essence of a [MIS], stripped of all its technicalities, is a scheme in which people invest money (or money’s worth) in a common venture with the expectation of profit that will result from the efforts of others…’ (at [37]); and
  • the dissenting judgment of Jacobson J in the Brookfield Case which stated that ‘the regulatory regime introduced by [Chapter] 5C was intended to govern collective investments where financial contributions are gathered from investors and are pooled or used in a common enterprise’ (at [294]).

Anderson J concluded the purpose or object of the MIS provisions as identified by Finkelstein J and Jacobson J (described above) encapsulated the general purpose and policy of the provisions.

[Lee J] described the characterisation of a [litigation funding scheme] as a [managed investment scheme] as ‘a case of placing a square peg into a round hole’.

His Honour then turned to the Brookfield Case and agreed with the primary judge’s analysis of it, arriving at the conclusion that the Brookfield Case was plainly wrong (Anderson J at [110]-[155]). Further, his Honour identified additional issues which supported this conclusion (in summary):

  • The legislative history of Part IVA of the FCA Act (dealing with representative proceedings) and Chapter 5C supported the proposition that Parliament did not intend that a LFS would fall within the MIS definition under s 9 of the Act. When the Managed Investments Act 1998 (Cth) was enacted, the Federal Court class actions regime was in force and well-known. That regime created a statutory framework for representative proceedings in the present circumstances; and it was unlikely that Parliament intended to overlay upon it an additional regime (being a MIS) absent a clear indication in the statutory text or in extrinsic materials. The Managed Investments Act 1998 (Cth) contained no such clear indication in its text nor did the Explanatory Memorandum to the Managed Investments Bill 1997 (Cth) (at [162]).
  • At the heart of a MIS under Chapter 5C is the ability to identify the responsible entity required to operate it under s 601FB(1) of the Act. In a typical LFS, this cannot be done which suggests that a LFS does not fall within the meaning of a MIS under s 9(a) of the Act (at [163]).
  • The structure of a typical LFS and how it functions is at odds with numerous definitions and provisions of the Act (see [157]–[161], [164]). For example, s 169(6A) (in Chapter 5C) requires a registered scheme’s register to provide, at every point, various details regarding the interests held by each member. Members of a typical LFS do not know at the outset the amount (if any) that will be recovered from the representative proceeding as this is not known until the proceeding’s conclusion. Therefore, it is impossible for a typical LFS to comply with this provision.
  • The existence of numerous provisions under Chapter 5C that are incapable of application or impossible for a typical LFS to comply with, is a strong indicator that Chapter 5C was not intended to apply to a LFS (at [165]).

Considering the text of s 9 of the Act, its context and the general purpose and policy of the MIS regime under Chapter 5C, his Honour was of the view that the Scheme did not have the features set out in the definition of ‘MIS’ in s 9(a)(i) and (ii) of the Act.

Accordingly, Anderson J concluded that the majority in the Brookfield Case was plainly wrong, made orders that the appeal be allowed and set aside the dismissal of LCM’s cross-claim and the costs orders against LCM. LCM’s cross-claim was allowed and the declarations made accordingly. The costs of the contradictor were to be paid by LCM and Stanwell bore its own costs of the appeal.

Lee J

Lee J agreed with Anderson J’s conclusions and provided a separate judgment elaborating on them. In doing so, His Honour described the characterisation of a LFS as a MIS as ‘a case of placing a square peg into a round hole’ (at [7]). His Honour critiqued the attempts of the majority in the Brookfield Case to ‘shoehorn’ a LFS into the statutory definition by characterising ‘promises’ as contributions without paying sufficient attention to the context and purpose of Chapter 5C and s 9 of the Act (at [11]). After detailed analysis, His Honour concluded that with respect to the Scheme, the requirements of s 9(a)(i) and (ii) of the Act (definition of ‘MIS’) and other Chapter 5C provisions were not satisfied (see [9]-[20]).

Middleton J

Middleton J agreed with the findings of Anderson J and the orders made. His Honour also agreed with Lee J’s elaboration of Anderson J’s reasons.

PRACTICE AND PROCEDURE

Appeal from orders made by primary judge restraining barrister from acting for appellant in defamation proceedings – whether real and sensible possibility of misuse of confidential information imparted to barrister in conference with applicant – ‘cab rank’ principle in conduct rules

Porter v Dyer [2022] FCAFC 116

In March 2021, former Attorney-General Christian Porter, sued the ABC and journalist, Louise Milligan, in relation to a Four Corners program entitled ‘Inside the Canberra Bubble’, which addressed the conduct of some federal politicians, including Mr Porter. The program aired excerpts from an interview between Ms Milligan and Ms Joanne Dyer. The program did not air part of the interview where Ms Dyer recounted to Ms Milligan information that a friend of hers who was deceased (‘AB’) had alleged to Ms Dyer that Mr Porter had raped her three decades ago when they were both university students.

Following the airing of the Four Corners program, The Australian newspaper published an article written by Ms Janet Albrechtsen which Ms Dyer was concerned was possibly defamatory as it (in her view) wrongly suggested she had provided comment to Four Corners out of partisan political views. Ms Dyer (aided by her friend Mr Hooke) sought legal advice from a barrister friend of Mr Hooke’s who arranged a conference with high profile defamation barrister, Ms Sue Chrysanthou SC, on 20 November 2020 for Ms Chrysanthou to advise Ms Dyer (on a pro bono basis) and assist with drafting a Notice of Concerns letter to The Australian. Prior to the conference, Ms Chrysanthou was provided with a copy of the draft Notice of Concerns letter as well as AB’s statement regarding the alleged rape (a statement which was subsequently made public).

Mr Porter’s defamation proceedings

On 15 March 2021, Mr Porter commenced defamation proceedings against the ABC and Ms Milligan in the Federal Court. Feeling bound by the cab rank rule, and after satisfying herself (including by consulting two silks) there was no conflict of interest, Ms Chrysanthou accepted a brief to act for Mr Porter in those proceedings.

Ms Dyer, though not a party to those proceedings, successfully applied to the primary judge to have Ms Chrysanthou restrained from acting for Mr Porter (see Dyer v Chrysanthou (No 2) (Injunction) [2021] FCA 641 (‘Injunction Decision’). On 14 July 2022, the Full Federal Court dismissed Mr Porter’s appeal against that decision. The main judgment was delivered by Lee J with whom Besanko and Abraham JJ concurred. Mr Porter also failed in his appeal from other interlocutory orders made by the primary judge concerning (a) the admissibility of affidavit evidence and (b) costs, however this case note is confined to the decisions concerning the injunction to restrain Ms Chrysanthou from acting (see Porter v Dyer [2022] FCAFC 116 (‘Appeal Decision’).

Injunction to restrain barrister from acting

Before the primary judge (Thawley J), Ms Dyer bought an injunction to restrain Ms Chrysanthou SC from acting for Mr Porter on two alternative bases (see Injunction Decision at [2]):

  1. there was a danger of misuse of confidential information received by Ms Chrysanthou in the context of her dealings with Ms Dyer; and
  2. the need to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice.

Thawley J discussed the relevant principles regarding when the Court will restrain a legal practitioner from continuing to act for a party to litigation (at [74]-[77]):

  • An injunction may be granted if there is a ‘real and sensible possibility’ of the misuse of confidential information by a legal practitioner;
  • The applicant must identify with precision the confidential information in the possession of the legal practitioner and the reason why that information may be relevant to the issues in dispute;
  • The applicant bears the onus of identifying the relevant information with sufficient particularity. However, once these matters are sufficiently demonstrated, the evidential onus shifts to the defendant to prove there is no real risk of misuse of the confidential information; and
  • Each case turns on its own particular facts and circumstances.

In practical terms, the Court must address the following sequential questions:

  1. What is the relevant information?
  2. Is that information confidential?
  3. Does the legal practitioner have possession of that information?
  4. Is the legal practitioner proposing to act ‘against’ the former client in the requisite sense?
  5. Is there a real risk that the confidential information will be relevant?
  6. Is there no real risk of misuse of the confidential information? (Injunction Decision at [76] citing Nash v Timbercorp Finance Pty Ltd [2019] FCA 957 at [64]).

At trial, these questions do not replace the central legal test (whether there was a ‘real and sensible possibility’ of the misuse of confidential information) but have utility as an analytical framework. On appeal, they may continue to provide a useful structure for identifying and evaluating any alleged errors by the primary judge (Appeal Decision at [75]).

[T]he relevant conflict arises where the use of the information ‘may be regarded as against the client’s interests, whether legal or otherwise’ … Hence, the question of whether [the barrister] was proposing to act ‘against’ Ms Dyer in the requisite sense did not depend upon Ms Dyer being a party to a dispute or being a witness called in litigation between other parties.

First instance findings on injunction

Whilst Thawley J accepted that some of what was said in the conference on 20 November 2020 was information which had since entered the public domain (such as AB’s statement), he was also in no doubt that there was confidential information disclosed to Ms Chrysanthou during the meeting which had not entered the public domain (Injunction Decision at [96]).

His Honour considered that Ms Chrysanthou was in possession of confidential information, even though she could not recall any confidential information being disclosed (Injunction Decision at [98]-[100]). His Honour also considered there was a risk that the confidential information would be relevant to the defamation proceedings (Injunction Decision at [107]).

As a result, his Honour ordered that Ms Chrysanthou be restrained from acting from Mr Porter in the defamation proceedings.

Full Court’s findings on injunction

Mr Porter appealed. On 14 July 2022, the Full Court dismissed Mr Porter’s appeal.

Was the information confidential?

The Full Court found that although information may lose its character of confidence even where it is not yet in the public domain, the relevant information had been disclosed to Ms Chrysanthou confidentially and no error had been disclosed in the conclusions reached by the primary judge in this regard (at [86]).

Did Ms Chrysanthou propose to act ‘against’ Ms Dwyer in the requisite sense?

Mr Porter submitted that the primary judgment provided ‘no clue’ as to how Ms Chrysanthou was acting against Ms Dyer in circumstances where she was not a party to the Defamation Proceeding, nor was she a likely witness given she was ‘simply named in a verification particular on an unremarkable point’ (Appeal Decision at [87]).

The Full Court endorsed the primary judge’s reasoning that the relevant conflict arises where the use of the information ‘may be regarded as against the client’s interests, whether legal or otherwise’ (at [91]). Hence, the question of whether Ms Chrysanthou was proposing to act ‘against’ Ms Dyer in the requisite sense did not depend upon Ms Dyer being a party to a dispute or being a witness called in litigation between other parties (at [92]). Here, Ms Dyer was not prepared to allow the confidential information imparted to Ms Chrysanthou for Ms Dyer’s purposes, to be used later without Ms Dyer’s consent for any other purpose (at [92]). To do so, absent her consent, was to ‘act against’ Ms Dyer’s interest (at [92]), and no error requiring appellate intervention was established (at [93]).

Was there no real risk of misuse of the confidential information?

The Full Court also dismissed this aspect of the appeal, holding that it was open to the primary judge to conclude that one cannot exclude the real risk that this confidential information, ‘either consciously or subconsciously, may inform actions taken in the performance of the brief to act for Mr Porter’ (at [105]). The Full Court continued ‘it is no answer that Ms Chrysanthou had forgotten things: one cannot exclude the possibility that recollection can be triggered or of subconscious derivative use’ (at [105]).

Cab rank rule

In concluding, Lee J (with whom Besanko and Abraham JJ concurred) noted that no contention of unethical behaviour on the part of Ms Chrysanthou was being asserted by Ms Dyer (at [172]). His Honour noted that as a barrister Ms Chrysanthou was subject to ethical obligations, including the cab rank rule, and the importance of this rule should not be minimised (at [173]). Although Ms Chrysanthou was mistaken in the judgment she formed, no finding was made by the primary judge that her view was not formed in good faith (at [174]). His Honour concluded (at [174]):

‘Although a barrister must not act if there is a real risk of misuse of confidential information, the conclusion that a proposed brief would involve such a misuse involves an evaluative judgment by the barrister. Refusing a brief on this basis is not some matter of preference or convenience and can sometimes require close reflection.’

Summary

Before the Full Court had delivered its judgment on the appeal, on 31 May 2021, Mr Porter dropped his defamation case against the ABC. Mr Porter was ordered to pay costs by the primary judge, following the success of Ms Dyer’s motions, as well as the costs (reportedly $430,000) of his failed appeal to the Full Court (see Dyer v Chrysanthou (No 3) (Costs) [2021] FCA 642).



Vincci Chan
is a barrister at 8 Wentworth Chambers. Theresa Power is a barrister at 12 Wentworth Selbourne Chambers.