WA welcomes a new class action scheme

17 NOVEMBER 2022 BY NICOLE BURNS & JASON GEISKER

With the enactment of theCivil Procedure (Representative Proceedings) Act 2022, Western Australians can now look forward to a robust new mechanism for bringing class actions in Western Australia and a relaxation of the historic rules against maintenance and champerty.

Although not widely known or ultilised, there is an existing mechanism by which class actions can be brought in the Western Australian Supreme Court (via Order 18 Rule 12 of the Rules of the Supreme Court 1971 (WA) (RSC)).  However, the Law Reform Commission of Western Australia (Commission) views that mechanism as so outdated, uncertain and unclear as to make Western Australian courts an unattractive forum to conduct and resolve such disputes.¹

It is against this background that the Civil Procedure (Representative Proceedings) Act 2022 (Act) was passed by parliament earlier this year. The Act received Royal Assent on 14 September 2022, with Part 1 of the Act (covering commencement and applicability of the Act) coming into force the same day.  Part 2 of the Act, which contains the Act’s substantive sections, will come into force on a day to be fixed by proclamation. 

In keeping with the recommendations of the Commission,²  the Act introduces a class actions regime for Western Australia, closely modelled on the federal class actions regime in Part IVA of the Federal Court of Australia Act 1976 (Cth), and abolishes the old common law torts of maintenance and champerty.

Background to the Act

In July 2011, the then Attorney General, the Hon. Christian Porter MLA directed the Commission to examine and report upon whether, and in what manner, the principles, practices and procedures pertaining to class actions in Western Australia, require reform.

In June 2015, following extensive analysis and consultation with the broader legal community, the Commission published its final report into representative proceedings,³ concluding that Order 18 Rule 12 of the RSC is inadequate to facilitate litigation of large representative actions on their merits (with sufficient connection to Western Australia) in Western Australia’s state courts. The report concluded that this inadequacy impacts adversely on access to justice and adds to the time, costs and risks associated with seeking redress through Western Australian courts.

Accordingly, the Commission recommended, among other things, that:

(a)  Western Australia enact legislation to create a scheme in relation to the conduct of representative action; and
(b)  the legislative scheme be based on Part IVA of the Federal Court of Australia Act 1976 (Cth).

In its report, the Commission also identified some major shortcomings associated with Order 18 Rule 12 of the RSC, including:

• The absence of detailed procedural provisions in the RSC has created considerable uncertainty as to whether class actions can proceed using the various incarnations of Order 18 Rule 12.  Further, those cases falling outside the scope of Order 18 Rule 12 are likely to be run as ‘group proceedings’.  This means individual writs lodged on behalf of plaintiffs are either case-managed together as a large group, or else sit behind a ‘test case’.  These limitations have the potential to create a large administrative burden on the Western Australian court system.
  
  
• Similar deficiencies in the former rules-based federal regime⁴ exist, namely:
  • where claims arise from multiple wrongdoings, individual litigation is not an efficient use of judicial resources and there is no effective procedure to group claims together so that common issues can be dealt with at one time, thus reducing the cost of litigation to the individual and avoiding a multiplicity of proceedings;
  • alternative, less expensive means of resolving small claims are not available in all cases and require individual action; and
  • there is no procedure enabling proceedings to be brought for individual damages on behalf of a group or class of people who have suffered loss or injury as a result of a mass wrong.
     
• The narrow interpretation of the ‘same interest’ requirement under Order 18 Rule 12 has resulted in a large volume of interlocutory disputes about whether a representative proceeding can be validly brought.
  
  
• In a ‘test case’ scenario, if a class action is struck out, only the named plaintiff (on the originating process as the representative plaintiff) enjoys protection from the expiration of limitation periods.  This can be contrasted with the federal regime, where limitation periods stop for the whole of the representative group (if the rule for the commencement of class actions is properly engaged).⁵

The move away from a court rules-based regime

In addition to pinpointing the shortcomings of the previous regime, the Commission considered whether there is in fact power to make court rules embodying the more detailed procedural provisions found in other comparable statutory regimes. 

This ‘court rules’ approach was attempted in Victoria, with the result being multiple challenges to the validity of the court rules themselves. Examples include the Victoria Supreme Court of Appeal case of Schutt Flying Academy Pty Ltd v Mobil Oil Australia Ltd.⁶ These controversies eventually led to the re-enactment of the amended rules of the Victorian Supreme Court in the form of legislation.

Drawing on these past experiences, the Commission concluded that it is simply not clear whether all of the characteristics of a statutory regime can be created through amendments to the rules of the court alone.  A legislative change was determined to be the more prudent course.  Tellingly, the Commission found support for this approach from all parties who made submissions.⁷  For instance, the Law Society of Western Australia submitted that adoption of such a statutory regime would provide the following advantages:

(a)    increased capacity for, and certainty in, bringing such proceedings in the Supreme Court of Western Australia;
(b)    consistency with an existing structure and body of authority for interpreting such procedures;
(c)    the removal of uncertainty that may result from the adoption of such procedures as rules only, in particular in respect of issues arising from merger or consolidation of actions and the effect on limitation periods; and
(d)    avoidance of inefficiencies and distortions associated with forum-shopping between the Federal Court and the Supreme Court of Western Australia if different regimes were in place.⁸

Key differences to the federal class actions regime

The new regime creates a procedure similar to the federal regime, but with the following key differences:

An end to common law rules preventing third-party funding

In addition to ushering in a new class action regime, the Act (via section 36), abolishes the ancient torts of maintenance and champerty in Western Australia.  However, the Act is careful to preserve the current common law surrounding funding contracts that are to be treated as contrary to public policy or as otherwise illegal.

Background

The common law rule against maintenance and champerty prohibits third parties from funding litigation in which the funder does not have a direct interest and is not a party.  Maintenance is defined as “assistance or encouragement, by a person who has neither an interest in the litigation nor any other motive recognised as justifying the interference, to a party to litigation”.¹⁵  Champerty is a particular form of maintenance in which a person finances litigation undertaken by another party in return for a share of any damages awarded by the court.¹⁶

For centuries, maintenance and champerty have made litigation funding services unlawful.¹⁷ These torts have long been criticised as “impediments which unfairly prevent impecunious litigants from accessing the Court system”¹⁸ and during the twentieth century, courts began to recognise that shifting public considerations and the overriding importance of access to justice meant these doctrines held less and less relevance. 

This is evident from the High Court’s 2006 landmark decision in Campbells Cash and Carry Pty Ltd v Fostif Pty Limited,¹⁹ where the Court held that the mere provision of litigation funding, even involving maintenance and champerty, could not be used as a basis to stay proceedings as an abuse of process.²⁰

The Australian legislative landscape has since evolved in a similar way to the common law, with most Australian states having now legislated to abolish the torts of maintenance and champerty.²¹  Indeed, in its final report on maintenance and champerty in Western Australia,²² the Commission observed that a strong rationale for Western Australia following the approach of the Commonwealth, Victoria, New South Wales and Tasmania and abolishing the torts of maintenance and champerty would be greater certainty, a reduction in the potential for ‘forum-shopping’ and assistance in the further development of an Australian jurisprudence on class actions.²³

To appreciate the impact of the abolition of these two torts on the legal landscape in Western Australia, it is worth reflecting on some notable Western Australian cases dealing with the torts of maintenance and champerty prior to the passing of the Act.  Perhaps surprisingly, Western Australia “[wa]s not faced with a choice between retaining the torts of maintenance and champerty and allowing for litigation funding: funders [could] and d[id] operate in this State, albeit under constraints.²⁴ 

As the Western Australian Court of Appeal observed in Clairs Keeley (No 2):²⁵

“It is acceptable for the litigation to be pursued by plaintiffs who, although funded by a third party, are acting in their own interests in the pursuit of justice in their respective causes, and are so acting on the advice of independent solicitors. It is not acceptable for the litigation to be pursued in such a way that the interests of the plaintiffs are subservient to those of the funder. That would be an abuse of process.”²⁶

The series of legal actions known as Clairs Nos. 1, 2 and 3 aptly demonstrate the issues confronted by those seeking to use third party litigation funding in Western Australia.  These actions involved an underlying proceeding brought by investors to recover money lost as a result of the commonly phrased ‘WA finance brokers scandal’. The plaintiffs (which numbered in the hundreds) entered into a funding agreement with a funder by which they appointed the funder as their agent to collect the debt claimed by the plaintiffs, to investigate the claim and receive the moneys.  The funding agreement also required the plaintiffs to instruct a particular law firm to act for them in their individual actions. The funder had entered into a separate retainer agreement with the law firm, by which the funder agreed (among other things) to the law firm taking a 25% uplift on their legal fees once the plaintiffs achieved a recovery in the proceedings.  The uplift fees were to be paid out of the money successfully recovered by the plaintiffs. Importantly, this fee agreement had not been disclosed to the plaintiffs. One of the defendants sought to stay proceedings on the basis that the funding arrangements were champertous and offensive to public policy, and therefore constituted an abuse of process.

The application for a stay was rejected by the Supreme Court at first instance but upheld on appeal in Clairs Keeley No 1.²⁷  Pullin J (expressing the view of the majority) found as follows:

“the mere fact that proceedings are financed by third parties with no interest in the outcome, other than repayment and profit from the litigation, is not itself sufficient to invoke the jurisdiction of the Courts. The Court must be careful not to use its power to stay proceedings which will deny access to justice to a party who has sought to fund bona fide proceedings in a way which may be contrary to public policy, unless that which has been done amounts to an abuse of the Court’s own process… The question to be answered is whether the Court’s process is affected or threatened by the present arrangement, which provides for the maintenance of the respondents’ litigation and for the division of spoils.”²⁸

Following some changes to the arrangements between the plaintiffs, their lawyers, and the litigation funder, the plaintiffs applied to the Court to lift the stay. In Clairs Keeley No 2,²⁹ the Court declined to do so but emphasised that it would have lifted the stay had it been satisfied that the solicitor for the funded parties was sufficiently independent and alive to the potential conflict of interest between its clients and the funder and that the plaintiffs had made a fully informed decision to proceed with the funder and the law firm.³⁰

Following a further round of changes, the plaintiffs, the funder and the law firm were able to satisfy the Court of Appeal in Clairs Keeley No. 3³¹ that the proceedings no longer constituted an abuse of process and the stay should therefore be lifted.

By abolishing the torts of maintenance and champerty, section 36 of the Act removes the confusion that previously surrounded a plaintiff’s entitlement to avail themselves of funding to enable them to bring their action, and obviates the possibility of expensive and protracted stay applications of the kind seen in Clairs Nos. 1, 2 and 3.

Timing of the application of the new regime

The new class action regime applies to all class actions commenced on or after 14 September 2022, including those involving a cause of action arising prior to the commencement date.³²

However, in respect of the torts of maintenance and champerty, section 36(2) provides that the Act does not affect any cause of action in tort for maintenance or champerty which accrued before the day on which the Act came into force.  That is, any actions for maintenance or champerty which crystallised prior to 14 September 2022 can be maintained.

Conclusions

The Act gives Western Australia a welcome uniformity with the class action regime operating at the federal level, along with those operating at the state level in New South Wales, Victoria and Queensland. The Act also brings Western Australia into line with all of those states (bar Queensland) in abolishing the historical torts of maintenance and champerty.

If the Western Australian landscape follows the suit of those other jurisdictions, it is likely to see a modest increase in class actions and the use of litigation funding services, both of which will appropriately aid in the broader objective of enhancing access to justice.

_{[1] Law Reform Commission of Western Australia, Representative Proceedings – Final Report, Project No 103 (2015) (‘Representative Proceedings’).
[2] Ibid.
[3] Ibid.
[4] High Court Rules 2004 (Cth) rule 21.09 and Federal Court Rules 2011 (Cth) rule 9.21.
[5] Fostif Pty Ltd v Campbell’s Cash & Carry Pty Ltd (2005) 63 NSWLR 203.
[6] (2000) 1 VR 545, 549, 561.
[7] See ‘Representative Proceedings’ (n 1) at [4.21] to [4.24].
[8] Law Society of Western Australia, Submission (21 May 2013), 1.
[9] Federal Court of Australia Act 1976 (Cth).
[10] Civil Procedure (Representative Proceedings) Act 2022 (Act).
[11] (2000) 170 ALR 487.
[12] Bray v F Hoffmann-La Roche Ltd (2003) 130 FCR 317; Cash Converters International Ltd v Gray (2014) 314 ALR 154 at [32]-[33].
[13] Civil Procedure Act (NSW), section 158(2).
[14] Most notably, on 11 December 2017, the Federal Government announced that the Australian Law Reform Commission would conduct a similar federal review into class action proceedings and litigation funding.  The final report was tabled in Parliament on 24 January 2019, with the current Federal Government expected to provide a comprehensive response to the report.
[15] Halsbury's Laws of Australia, Vol. 6, para. 110-7135 and 110-7140, cited in In the matter of Movitor Pty Ltd (Receiver and Manager Appointed) (in liquidation) (1996) 64 FCR 380 per Drummond J at [11].
[16] Ibid.  The degree of involvement of the maintainer in the litigation is also a consideration.  The Supreme Court of Queensland observed in 2019 that “in order for there to be a consideration of a finding of champerty then it must be not only a provision of funds in return for a percentage interest in the proceeds of the main litigation, but also an entitlement to become ‘involved’ in the conduct of the litigation in the sense of having a degree of control in the litigation”; see Murphy & Ors v Gladstone Ports Corporation Ltd [2019] QSC 12 per Crow J at [28].
[17] Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (March 2018), 16.
[18] Law Reform Commission of Western Australia, Maintenance and Champerty in Western Australia, Project No 110: Discussion Paper (September 2019), 12.
[19] (2006) 229 CLR 386; [2006] HCA 41.
[20] Ibid at [84] to [86].
[21] Civil Law (Wrongs) Act 2002 (ACT) section 221; Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) sections 3–4, 6; Criminal Law Consolidation Act 1935 (SA) Schedule 11 cll 1(3), 3; Wrongs Act 1958 (Vic) section 32 and Crimes Act 1958 (Vic) section 322A; Civil Procedure (Representative Proceedings) Act 2021 (WA) section 36; Civil Liability Act 2002 (Tas) section 28E(ba) and (bb).  The torts have not been abolished in Queensland or the Northern Territory.
[22] Law Reform Commission of Western Australia, Maintenance and Champerty in Western Australia, Project No 110: Final report (February 2020).
[23] Ibid, 16.
[24] See above nn 21, 21.
[25] Clairs Keeley (A Firm) v Treacy & Ors [2004] (No 2) WASCA 277.
[26] Ibid per Steytler, Templeman and McKechnie JJ at [71].
[27] Clairs Keeley (A Firm) v Treacy & Ors (No 1) [2003] WASCA 299.
[28] Ibid per Pullin J at [189].
[29] See above nn 24.
[30] See above nn 24 per Steytler, Templeman and McKechnie JJ at [133].
[31] Clairs Keeley (A Firm) v Treacy & Ors (No 3) [2005] WASCA 86.
[32] Act, section 4.}