New South Wales Supreme Court CITATION : Idoport Pty Limited and Anor v National Australia Bank Limited & Ors, National Australia Bank Limited v OAMPS Limited and Ors [2004] NSWSC 695 HEARING DATE(S) : 2/08/04, 3/08/04, 4/08/04 JUDGMENT DATE : 13 August 2004 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Orders for equitable discovery to be made as sought except qua identification of assets of Efficiency Investment B.V. CATCHWORDS : Practice and procedure - Abuse of process - Discovery - Principles generally - Limits and extent of jurisdiction to order discovery - Equitable discovery in aid of prospective third party costs applications - Supreme Court Rule Part 52A rule 4 (5) (d) - Whether funding as a commercial venture for reward by third parties of litigation who cloak their identity in order to avoid assuming liability for adverse costs orders is capable of amounting to an abuse of process of the court - Whether depending upon particular circumstances the degree of a funder's active participation, involvement or control of litigation is capable of amounting to an abuse of process of the court - Consideration of whether parties who use the courts process and funders who stand behind them should be at risk in relation to costs if the proceedings be successful - Companies - Piercing the corporate veil - Costs of proceedings - Applications for gross sum costs orders Equity Act 1901 (NSW) Legal Profession Act LEGISLATION CITED : Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) Supreme Court Act 1970 (NSW) UK Supreme Court Act 1981 United States Federal Rules of Civil Procedure, introduced in 1938 A v C [1981] 2 WLR 629 Abraham v Thompson [1997] 4 All ER 362 Adams v Cape Industries plc [1990] Ch 433 Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911 Arkin v Borchard Lines Limited & Ors (No 2) [2004] Vol 1 Lloyd's Law Reports 88 Ashworth Hospital Authority v MGN Ltd [2002] 4 All ER 193; 1 WLR 2033 Atlas Maritime Co SA v Avalon Maritime Ltd, The Coral Rose (No. 1) [1991] 4 All ER 769 Attorney-General v Logan [1891] 2 QB 100 Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 Bankers Trust Co v Shapira [1980] 3 All ER 353 Beneficial Finance Corporation v Price Waterhouse (1996) 68 SASR 19 Bentley Fragrances Pty Ltd v GDR Consultants Pty Ltd (1985) 11 FCR 29 Breen v Williams (1996) 186 CLR 71 Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 British Steel Corporation v Granada Television Limited [1981] AC 1096 Canada Limited 155569 v 248524 Alberta Limited (1999) 176 DLR (4th) 479 Cardale v Watkins (1820) 5 Madd 18 Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Cincinnati and St. Louis Railroad Co. (1887) 11 N.E. Rep. 540 Clairs Keeley (a firm) v Treacy [2003] WASCA 299 Cojuangco, Re Application of (1986) 4 NSWLR 513 Computershare Ltd v Perpetual Registrars Ltd [2000] 1 VR 626 Condliffe v Hislop [1996] 1 All ER 431 Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 Cresvale Far East v Cresvale Securities (No 2) (2001) 39 ACSR 622 CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 Cummings v 2KY Broadcasters Pty Ltd [1981] 1 NSWLR 246 Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors [2004] UKPC 39 (21 July 2004) Evans v Rees (1842) 114 ER 131 Fenton v Hughes (1802) 7 Ves Jun 287 Gardiner, In re ; Ex parte Orgill (1890) 16 VLR 641 Giles v Thompson [1994] 1 AC 142 Glaxo Wellcome PLC v Minister of National Revenue (1998) 162 DLR (4th) 433 Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 Hallett's Estate In re; Knatchbull v Hallett (1880) 13 Ch D 696 Hamilton v Al Fayed (No 2) [2003] QB 1175 Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd.R of 523 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 Hayward v Giffard & Grove ("Hayward") (1838) 4 M&W 194, 150 ER 1399 Heimann v Commonwealth (1935) 54 CLR 126 Hill v Archbold [1968] 1 QB 686 Hill (t/as RF Hill & Associates) v Van Erp (1997) 188 CLR 159 Hooper v Kirella Pty Ltd (1999) 96 FCR 1 Hunter v Chief Constable of the West Midlands Police (Birmingham Six case) [1982] AC 529 Hutchinson v Greenwood (1854) 119 ER 125 Idoport Pty Ltd & Ors v Efficiency Investment BV and Anor [2001] NSWSC 1197 Idoport Pty Ltd v National Australia Bank Ltd [1999] NSWSC 828, BC9905226 Idoport Pty Ltd & Anor v National Australia Bank Ltd & Ors [2001] NSWSC 744, [2001] 914, [2001] 1081, [2002] 18 CASES CITED : Irving v Thompson (1839) 9 Sim 17 Jago v District Court of New South Wales) (1989) 168 CLR 23 Kebaro Pty Ltd v Saunders [2003] FCAFC 5 Keelhall Pty Ltd t/as 'Foodtown Dalmeny' v IGA Distribution Pty Ltd [2003] NSWSC 816 Kerr v Rew (1840) 5 My & Cr 154 Knight v F P Special Assets Ltd (Knight's case) (1992) 174 CLR 178 Knight, Re; Knight v Gardner (1887) 57 LT 238 Land and Property Trust Co Plc In re [1991] 1 WLR 601 Latoudis v Casey (1990) 170 CLR 534 Leicester v Walton (unreported, NSWCA, 22 November 1995), BC9501770 Lord v Firns [2000] NSWSC 1021 Mark Rich and Co Holding GmbH v Krasner [1999] EWJ No. 210 (UKCA) Magic Menu Systems Pty Ltd & MMS Franchising Pty Ltd v AFA Facilitation Pty Ltd, Janus, Kobble Creek Pty Ltd & Simon (1997) 72 FCR 261 McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 McFarlane v EE Caledonia Ltd (No. 2) [1995] 1 WLR 366 Mercantile Group (Europe) AG v Aiyela [1994] QB 366 Merchandise Transport Ltd v British Transport Commission [1961] 3 All ER 495 Mobbs v Vandenbrande (1864) 33 LJQB 177 Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380 National Australia Bank Limited (NAB) v Market Holdings Pty Limited (in liquidation) [2001] NSWSC 253 National Education Advancement Programs (NEAP) Pty Ltd v Ashton (1995) 33 IPR 281 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (No 1) (1995) 132 ALR 514 North South Construction Services Pty Ltd v Construction Pacific Management Pty Ltd [2002] NSWSC 286 Norwich Pharmacal Co v Customs & Excise Commissioners [1974] AC 133 Oshlack v Richmond River Council (1998) 193 CLR 72 Palmer v Walesby (1868) LR3ChApp 732 Pioneer Concrete Services Limited v Yelnah Pty Ltd (1986) 5 NSWLR 254 Post v Toledo, Cincinnati & St Louis Railroad Company (1887) 11 NE 540 Pressed Steel Car Co v Union Pacific Railroad Co (1917) 240 F 135 P v T Ltd [1997] 4 All ER 200 Queen of Portugal v Glyn (1840) 7 Cl & F 466 Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 UKPC Rogers v R (1994) 181 CLR 251 Roux v Australian Broadcasting Commission [1992] 2 VR 577 R v Greene (1842) 4 QB 646, (1843) 114 ER 1043 Sharp v Lush (1879) 10 Ch D 468 Sinclair Refining Co v Jenkins Petroleum Process Co 289 US 689 Skinner v. Commissioner for Railways (1937) 37 SR (NSW) 261 Societe Romanaise De La Chaussure S.A. v British Shoe Corporation Limited [1991] FSR 1 Vd 18 Smits v Roach (2002) 55 NSWLR 166 Stocznia Gdanska SA v Latreefers Inc (No 2) [2000] EWCA Civ 36 Straka v Humber River Regional Hospital [2000] 51 OR (3d) 1 Survival & Industrial Equipment (Newcastle) Pty Ltd v Owners of the Vessel Alley Cat (1992) 36 FCR 129 Theosophical Foundation Pty Ltd v Commissioner of Land Tax (1966) 67 SR (NSW) 70 Trendtex Trading Corporation v Credit Suisse [1982] 1 AC 679 Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 Walton v Gardiner (1993) 177 CLR 378 Wentworth v Wentworth (2000) 52 NSWLR 602 Wik Peoples v State of Queensland (1996) 187 CLR 1 Williams v Spautz (1992) 174 CLR 509 Idoport Pty Limited ACN 075 318 106 (Plaintiff 50113/98) National Australia Bank Limited ACN 004 044 937 (First Defendant 50113/98, Plaintiff 2571/04)) National Markets Group Limited ACN 071 105 149 (Second Defendant 50113/98) National Australia Financial Management Limited (ACN 000 176 116) (Third Defendant 50113/98) Australian Market Automated Quotation (Ausmaq) System Limited (ACN 062 527 575) (Fourth Defendant 50113/98) Glenn L L Barnes (Fifth Defendant 50113/98) Francis J Cicutto (Sixth Defendant 50113/98) PARTIES : David M Krasnostein (Seventh Defendant 50113/98) Kevin F Courtney (Eighth Defendant 50113/98) Russell A McKimm (Ninth Defendant 50113/98) Oamps Limited ACN 006 743 719 (First Defendant 2571/04) Australian International Insurance Limited ACN 006 544 690 (Second Defendant 2571/04) Robert Porter (Third Defendant 2571/04) FILE NUMBER(S) : SC 50113/98; 2571/04 Mr N Hutley SC, Mr A Paterson (Plaintiff 50113/98) COUNSEL : Mr J Gleeson SC, Dr A Bell (Defendants 50113/98, Plaintiff 2571/04) Mr DP Robinson SC, Ms A Seward (First and Second Defendant 2571/04) Withnell Hetherington (Plaintiff 50113/98) SOLICITORS : Freehills (Defendants 50113/98, Plaintiff 2571/04) Norton Gledhill (First and Second Defendant 2571/04) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J 13 August 2004 50113/98 Idoport Pty Limited & Anor v National Australia Bank Limited & Ors 2571/04 National Australia Bank Limited v OAMPS & Ors JUDGMENT The background to the applications presently before the court The Commercial List Proceedings 1 On 24 September 1998, Idoport Pty Limited ("Idoport") and Market Holdings Pty Limited ("Market Holdings") commenced Proceedings No. 50113 of 1998 in the Commercial List against National Australia Bank Limited ["the National" or NAB"], National Markets Group Limited ("NMG"), National Australia Financial Management Limited, Australian Automated Quotation (AUSMAQ) System Pty Limited ("AUSMAQ System"), Mr Glenn Barnes, Mr Francis Cicutto, Mr David Krasnostein, Mr Kevin Courtney and Mr Russell McKimm. 2 On 1 March 1999, Idoport and Market Holdings commenced proceedings No. 50026 of 1999 in the Commercial List against Mr Donald Argus. 3 Interlocutory proceedings seeking the appointment of a receiver/manager and injunctive relief were heard and determined in mid 1999: [1999] NSWSC 828. 4 On 15 February 2000, National and NMG commenced the first cross-claim in Proceedings No. 50113 of 1998 against Idoport, Market Holdings, Negubo Pty Ltd ["Negubo"], Investors Buying Service (IBS) Pty Limited and Mr John Maconochie [the "Maconochie Parties"]. 5 On 3 July 2000, the Maconochie Parties commenced the second cross-claim in Proceedings No. 50113 of 1998 against National, NMG, Mr Richard McKinnon and Mr Simon Moore. 6 The final hearing of the Commercial List Proceedings (which were ordered to be heard and determined together) commenced on 24 July 2000 before me. 7 In late August and early September 2001, the Court heard argument in relation to the defendants' application for security for costs in the Commercial List Proceedings. 8 On 13 September 2001, the Court's reasons were given ordering that Idoport provide security for certain of the defendants' costs of the Commercial List Proceedings (see [2001] NSWSC 744). Formal orders were made on 24 September 2004. 9 On 17 October 2001, on the application of Market Holdings in the Commercial List Proceedings, the Court ordered that the proceedings be dismissed so far as they concerned any cause of action or the whole or any part of any claim for relief made in the proceedings by Market Holdings (see [2001] NSWSC 914). 10 On 1 December 2001, the Commercial List Proceedings were stayed as a result of the failure of Idoport to provide security for the defendants' costs of the Commercial List Proceedings. 11 On 29 January 2002, Idoport's claims in the Commercial List Proceedings were dismissed by reason of Idoport's failure to provide security for the defendants' costs of those proceedings. The Court ordered that Idoport pay the defendants' costs of the Commercial List Proceedings, and further that Idoport and each of the cross-claimants to the second cross-claim (including Negubo) be barred from bringing fresh proceedings concerning any cause of action or the whole or any part of any claim for relief by any of them in those proceedings, until costs of those proceedings have been paid in full (see [2002] NSWSC 18 at [60]-[62]). 12 An application for leave to appeal the decision was filed by Idoport on 25 February 2002. The leave application and the appeal were heard concurrently by the NSW Court of Appeal (Mason P, Stein and Giles JJA) on 25 July 2002. On 15 August 2002 the NSW Court of Appeal unanimously granted leave to appeal and dismissed the appeal with costs. 13 On 11 September 2002 Idoport filed applications for special leave to appeal to the High Court. On 20 June 2003 the High Court (Kirby and Heydon JJ) dismissed Idoport's special leave applications. The application for a gross sum order for costs 14 As a means of quantifying Idoport's liability for the defendants' costs of the Commercial List Proceedings, in accordance with the orders made on 29 January 2002, the National Parties filed an application in the Commercial List Proceedings on 1 September 2003 seeking a gross sum order for costs pursuant to Part 52A rule 6(2)(c) SCR. 15 Following the filing of the gross sum application, the National Parties wrote to each of Withnell Hetherington (Idoport's solicitors in the Commercial List Proceedings), OAMPS Ltd ["OAMPS"], Australian International Insurance Limited ["AIIL"], Mr Nicholas F Walker and Mr Robert Porter seeking information in relation to the funding of the Commercial List Proceedings. Each of those parties declined to provide the information sought by the National Parties. The applications presently before the court 16 There are before the court applications for the making orders for equitable discovery pursued as follows: · a notice of motion filed by the defendants on 22 April 2004 in proceedings No. 50113 of 1998 and proceedings No. 50026 of 1999 seeks equitable discovery from the plaintiff in those proceedings, Idoport, and the third cross-defendant to the first cross-claim, Negubo; and · a summons in fresh proceedings No. 2571 of 2004 in which the National seeks equitable discovery from OAMPS, AIIL and Mr Porter in relation to the funding of the Commercial List Proceedings. Orders against Mr Porter 17 During the course of the hearing of the applications consent orders were made against Mr Porter [a director of OAMPS and AIIL at material times] requiring him within 28 days to make, file and serve upon the solicitors for the National an affidavit disclosing: "(a) Mr Porter's knowledge of: (1) the purpose of the purchase of shares by Australian International Insurance Limited ("AIIL") in Idoport Pty Limited ("Idoport"); (2) the use to be made by Idoport of the funds invested or proposed to be invested by AIIL in Idoport; (3) any disclosure to the shareholders of North & South Group S.A. ("NSG") of: (A) the purpose of NSG's investment in Idoport; (B) the terms of NSG's investment or proposed investment in Idoport; and (C) the use to be made by Idoport of funds invested or proposed to be invested by NSG in Idoport; (4) the purpose of the investment or the proposed investment in NSG by the shareholders of NSG; (5) the terms of the investment or proposed investment in NSG by the shareholders of NSG, including the basis for any return to the shareholders of NSG on their investment in NSG; (6) the use to be made of the funds invested, or proposed to be invested, in NSG by the shareholders of NSG; (7) the identity of each current and former shareholder of NSG including, in relation to former shareholders of NSG, the date on which each of those shareholders ceased to be a shareholder of NSG; (b) the basis of Mr Porter's knowledge of the matters set out in paragraph 1(a)(1) to 1(a)(7) above and exhibiting to the affidavit all documents in Mr Porter's possession, custody or control relating to those matters." 18 Mr Porter reserved his right to seek access to any documents discovered by: "(a) the First Defendant; (b) the Second Defendant; (c) the respondents to the Notice of Motion dated 22 April 2004 in Supreme Court of NSW Proceedings No. 50113 of 1998, for the purpose of complying with the order." 19 Outside of Mr Porter's position, the applications have been strongly resisted, the parties producing in excess of 100 pages of written submissions prior to the commencement of the hearing of the applications. 20 Whilst there were a number of issues concerning principle, as for example: · in relation to the present position in New South Wales as to the circumstances in which equitable discovery may be ordered and as to whether there are any and if so what fixed limits to the Court's power in that regard; · in relation to champerty and abuse of process [including whether champerty may amount to an abuse of process], most of the underlying background facts concerning the subject funding arrangements and the events which took place during the hearing of the proceedings were not in issue. For that reason it is appropriate to adopt from time to time summaries which came forward from one or other of the parties in the course of their overview written submissions as to these matters. Definitions 21 I propose to adopt the definitional approach from this point on of referring to: · the National and the defendants in the Commercial List proceedings collectively as the "National parties"; · proceedings 50113 of 1998 and 50026 of 1999 as "the Commercial List proceedings"; · Idoport and Negubo as "the Idoport parties"; · OAMPS and AIIL as "the OAMPS parties". The general context as put by the National parties 22 The National parties summarised their overall approach and the suggested context as follows: · the National parties are seeking many millions of dollars in costs from Idoport in the Commercial List Proceedings by way of a gross sum in accordance with Part 52A rule 6(2)(c) of the Supreme Court Rules 1970 (NSW) following the dismissal of Idoport's claims in those proceedings and the awarding of costs in favour of the National Parties on 29 January 2002; · on the evidence Idoport is not in a position to pay any substantial sum that is awarded by way of costs; · the prosecution of the Commercial List Proceedings by Idoport was funded by a number of entities, and individuals, none of whom agreed to meet any costs judgment awarded against Idoport; · unlike rules of court in the Federal Court (see Order 15A of the Federal Court Rules 1976 (Cth)) and in various state Supreme Courts (see for example Order 32 of the Supreme Court (General Civil Procedure) Rules 1996 (Vic)), there is no specific court rule enabling the National Parties to seek so-called "information discovery" in the NSW Supreme Court; · the provisions of the Supreme Court Rules relating to costs against third parties are narrower than those operating in the Federal Court and various state Supreme Courts, but do enable the Court to award costs against a third party who has committed an "abuse of process" – see Part 52A rule 4(5)(d); · the National parties commenced the Equitable Discovery applications to obtain information in order to determine whether to seek to recover their costs of the Commercial List Proceedings pursuant to Part 52A rule 4(5)(d) from any or all of the third parties who funded Idoport's prosecution of those proceedings; · if successful in their applications the National Parties will also then be in a position to determine whether or not to join any or all of those parties to the gross sum application. 23 It is in that suggested context that the National Parties contend that having regard to the cost orders made against Idoport, orders as sought by the National Parties in the equitable discovery applications be granted. 24 Reliance is placed upon the general jurisdiction of the Court to order discovery to enable the proper protection and administration of the Court's processes as well as the preservation in Part 1 rule 14 of the right of any person to commence proceedings for discovery. Section 23 of the Supreme Court Act gives the court all jurisdiction which may be necessary for the administration of justice in New South Wales. The submission which has been advanced and is accepted as correct is that the general jurisdiction is not limited by the more specific rule-based jurisdiction such as Part 23. The general context as put by Idoport Pty Ltd and Negubo ["the Idoport Parties"] 25 The Idoport Parties contended in overview written submissions that it is inappropriate for the equitable discovery orders to be made for the reason that there is no arguable case that the National Parties can show the necessary abuse of process to found a non -party costs order. In short the contention was that: · champerty cannot amount to an abuse of process at common law; and · there is no reason to treat a company that raises money by raising equity share capital any differently from a company that raises money by borrowing from a bank. 26 At one stage during the course of the submissions being put to the court by the applicants on the question of the proper construction of Part 52A rule 4 (5) (d), Mr Hutley SC, leading counsel for the Idoport Parties made the following observations: "But that is a matter for debate at the end of the day. Your Honour, the difficulty one confronts in a case like this is that, at the end of the day.. if your Honour finally determines this construction question, your Honour will be determining it not having heard from the parties if my learned friends elect to proceed with the suit… Well, the people who will be interested in this are NSG, if they sue NSG, the shareholders of NSG. To some extent they will have heard from AIIL and OAMPS and your Honour won't have heard from Efficiency…. This issue may not even arise at the end of the day. They may, in effect, be persuaded by my learned friend's submissions… We say that is the true meaning of it, but my learned friend says and advances, one might say, a case which the NAB believes is the correct case. They say: This is our case. If there is support without costs obligation, we have a right of suit. Now that may be an abuse of process under that and, if they're right, they have a case. Now your Honour doesn't need necessarily to determine that question. One of the problems we foresee is that if your Honour does determine the question somebody might come along and say, well, your Honour shouldn't participate in our case because we want to advance that question and it has really been determined on an interlocutory basis by uninterested parties and not having heard from us… Now, of course, it is a question of law and I accept that that may raise different questions, but your Honour needs to see, as it were, the territory of the debate… The absolute determination of that question, your Honour, we do not see as necessary. " [Transcript 91-92] 27 Ultimately the Court was asked to determine the issues in terms of 'arguable case'. 28 The further submission was that no need has been demonstrated for the equitable discovery sought. The general context as put by the OAMPS Parties 29 The OAMPS Parties centrally join in the contention that it is inappropriate for the equitable discovery orders to be made for the reasons that the National is said to already know enough about the funding arrangements between AIIL and Idoport to decide whether to seek a third party costs order against AIIL or OAMPS. The proposition is that this is a sufficient reason to refuse equitable discovery even if it were otherwise available. 30 The OAMPS parties also in overview submissions contended that there are a number of reasons why, as a matter of jurisdiction or discretion, the Court should refuse the equitable relief sought: · equitable discovery should be refused because it is sought only for the purpose of bringing an application for a third party costs order against OAMPS or AIIL and such an application must inevitably fail for two reasons: - the Court has no jurisdiction to make fresh costs orders because final orders have already been made and entered in the Commercial List Proceedings; or - on the proper construction of Part 52A rule 4(5)(d), the AIIL Agreement is incapable of being characterised as an abuse of process (even if it is champertous and unenforceable between the parties as a matter of public policy); · even if a third party costs application against OAMPS/AIIL is not doomed to failure, it is simply not within the ambit of equitable discovery to obtain information for the purposes of such an application: it is not relevantly a cause of action and it infringes the mere witness rule; · alternatively, if the above 2 arguments fail and equitable discovery is available in the circumstances, nevertheless the Court should refuse relief as there are other remedies available to the National and it should be left to them. 31 The OAMPS withdrew their submissions relying on delay as a discretionary ground for resisting the present applications. 32 Likewise the OAMPS Parties withdrew their submission that there is no jurisdiction to make further orders in the proceedings against AIIL. 33 The matters ultimately pressed are outlined below. The funding arrangements 34 It is necessary to focus upon the evidence as to what is the knowledge of the National Parties concerning the funding arrangements. Clearly enough the National Parties by now may be seen to have amassed reasonably considerable detail concerning the funding arrangements. Their proposition is that they are entitled to equitable discovery in order to ascertain matters within the knowledge of OAMPS concerning the purpose for which AIIL purchased the shares in Idoport; the use to be made by Idoport of those funds; and further, communications between OAMPS or its representatives and Idoport, Negubo, Mr Maconochie, NSG, Mr Walker or their representatives relating to various aspects of, and implementation of, the AIIL Agreement. 35 The proposition is that there is a central relevance involved in ascertaining OAMPS' knowledge of these matters, including its own direct involvement in these matters, for the purpose of giving proper consideration to whether the third party costs order can properly be sought against OAMPS itself, as opposed to merely seeking that order against its subsidiary, AIIL. 36 Whilst it will be necessary to return to these contentions below the convenient starting point is to summarise those matters which are unlikely to be contentious in terms of the present state of knowledge of the National Parties in relation to the funding of the Commercial List Proceedings. 37 In what follows the Court has generally adopted as accurate the summary given in the written submissions of the National Parties. That summary is in part a summary of evidence adduced on the current applications and in part simply a reformulation of the detail given in my judgment [2001] NSWSC 744 [and particularly in Appendix "A" to that judgment]. The following is a particularly useful diagram set out in that Appendix: 38 The National Parties summary submissions in this regard were as follows: "Funding of the Commercial List Proceedings · In prosecuting the Commercial List Proceedings, Idoport obtained three tranches of funding from three different sources, namely: · AIIL; · North & South Group S.A. ("NSG") through its shareholders; and · Efficiency Investment B.V. ("Efficiency"), (together the "Funders"). · Set out below are details of the National Parties' knowledge of the corporate structure and domicile of each of the Funders, and the nature and terms of the funding of the Commercial List Proceedings. · It is apparent that the National Parties are not in possession of full information in relation to any of the Funders. · The funding arrangements do, however, share a number of common features, including: · all involved the purchase of shares – AIIL and NSG purchased shares in Idoport; Efficiency purchased shares in Negubo; · all share purchases occurred shortly prior to (in the case of one share issued to AIIL) or after the commencement of the Commercial List Proceedings (in the case of the other shares issued to AIIL and the shares issued to NSG and Efficiency); · all provided for a disproportionate return on the investment, which could only be met from the claims made in the Commercial List Proceedings; · none made provision for the Funders to be liable for the National Parties' costs if Idoport was unsuccessful in its claims in the Commercial List Proceedings. Funding of the Commercial List Proceedings by AIIL · AIIL is a subsidiary of OAMPS, a company listed on the Australian Stock Exchange ("ASX") (Lovell 1 at para 38-39; Lovell 2 at para 38-39). · On 16 September 1998, a mere eight days before the commencement of the Commercial List Proceedings, AIIL entered into an agreement entitled Investor Shareholders Agreement ("AIIL Agreement") with each of Mr Maconochie and Negubo (DGL5 at 681-689; DGL6 681-689). Mr Porter signed the AIIL Agreement on behalf of AIIL. Mr Maconochie signed as a director of Negubo. The AIIL Agreement required AIIL to contribute significant funds to Idoport in return for shares in Idoport, in consideration for which AIIL became entitled to a potentially significant return on its investment which was linked directly to Idoport's claim in the Commercial List Proceedings. · In all AIIL contributed an amount of $1.55 million to Idoport pursuant to the AIIL Agreement and in return was issued 16 shares in Idoport (at an average price of $96,875 per share). The average price paid by AIIL per share is to be contrasted with Idoport's balance sheet as at 30 June 1998 (some three months before the commencement of the Commercial List Proceedings) which showed a net asset position of $10,297. The funds contributed by AIIL were used by Idoport in order to prosecute the Commercial List Proceedings (see affidavit of Mr Maconochie (DGL5 at 532; DGL6 at 532) and judgment of Justice Einstein in relation to the adjournment application ([2001] NSWSC 1081 (DGL5 at 569; DGL6 at 569)). · The AIIL Agreement made no provision for AIIL to meet any costs orders made against Idoport in the Commercial List Proceedings. · The AIIL Agreement provided that upon signing the agreement, AIIL was to be issued one ordinary share in Idoport at a price of $50,000 (clause 4.1). Following the issue of the share in Idoport, AIIL was to establish an irrevocable letter of credit at Bank of Western Australia ("BankWest") in favour of Idoport (clause 2, annexure A (clause 2)). · Thereafter, upon certain conditions precedent being met, drawdowns against the irrevocable letter of credit could take place in instalments of $100,000 up to an aggregate amount of $1.5 million. For each such drawdown AIIL was to be issued with one ordinary share in Idoport and drawdowns were to be credited to Idoport's bank account at BankWest (annexure A (clause 2)). · Part of the subscription price was paid by AIIL in 5 separate tranches between September 1998 and April 1999 as follows (Lovell 1 at para 45; Lovell 2 at para 45): · $50,000 on 17 September 1998; · $100,000 on 9 November 1998; · $100,000 on 23 December 1998; · $100,000 on 24 February 1999; and · $100,000 on 14 April 1999. · The AIIL Agreement was varied by letter of amendment dated 12 May 1999 (DGL5 at 702; DGL6 at 702). The letter of amendment provided for the remaining 11 shares in Idoport to be issued to AIIL in one further tranche for a payment by AIIL of $1.1 million. At the same time it was agreed that those shares would formally be issued in the name of "Permanent Trustee Australia Limited", as trustee for AIIL. · The balance of the subscription price was then paid by AIIL on 12 May 1999 ($100,000) and 26 May 1999 ($1,000,000) (Lovell 1 at para 45; Lovell 2 at para 45). Upon the payment of the balance of the subscription price, the remaining 11 shares were issued to Permanent Trustee Australia Limited as trustee for AIIL (DGL5 at 702-706; DGL6 at 702-706). · Although AIIL was not afforded any express right to control the prosecution of the Commercial List Proceedings under the AIIL Agreement (clause 12.1), Mr Maconochie and Negubo were required to "consult" AIIL about any decision that may have had the effect of "materially varying" Idoport's income or asset value (clause 10.2). In addition, as AIIL was a joint signatory (along with a nominee of Negubo) to the BankWest account in Idoport's name into which the AIIL payments were to be made (clause 3.2) and was required to authorise payment from the BankWest account for costs incurred by Idoport (clauses 9.1 and 9.2), it undoubtedly had some measure of influence over the disbursement of the funds from that account. The AIIL Agreement also constrained Idoport from engaging in certain activities without AIIL's consent (clause 6) and required Idoport to provide regular updates and information to a nominee of AIIL (clause 10). · The potential return to AIIL on its investment in Idoport operated by way of a "put and call option". Under the "put and call option", upon any of the assets of Idoport being realised such that Idoport's "NTA" (a term that is not defined but presumably means net tangible assets) was to exceed $1.5 million, or alternatively if all of the assets of Idoport were realised regardless of the amount, then either AIIL or Negubo was entitled to call on the other to have AIIL transfer all its shares in Idoport to Negubo at the "agreed price" (clause 13). The "agreed price" was to be the total subscription price paid for the shares plus the lesser of: · ten times the amount of the irrevocable letter of credit drawdown (namely, $15 million); or · 15% of the NTA. In the alternative, Negubo was entitled to "cause the options to be satisfied by the payment of dividends" to AIIL and the selective buy-back of the AIIL's shares in Idoport (clause 14). · As AIIL undertook not to transfer, option or encumber any of its shares to any person (clause 9), in real terms, the put and call option (or the dividend/selective buyback alternative) represented AIIL's only means under the AIIL Agreement of realising the value of its shares in Idoport. · It is unclear, having regard to the terms of the AIIL Agreement, as to whether AIIL's total potential return under that agreement was $15 million or $16.55 million. However, what is clear is that, subject to Negubo's solvency, AIIL's entire investment was to be returned together with a profit of up to approximately 1000%. Having regard to the size of the potential return on AIIL's investment, the price it paid for each of its shares in Idoport (which did not reflect any control premium) and the timing of the purchase of those shares, the inference is open that AIIL's investment did not represent a purchase of shares at a market price. Funding of the Commercial List Proceedings by NSG · A company search of NSG reveals that NSG was incorporated as an "International Business Company" in the British Virgin Islands on 4 January 2000, some 15 months after the commencement of the Commercial List Proceedings (DGL5 at 781-784; DGL6 at 781-784). The company search also shows that: · NSG's authorised capital is US$50,000 divided into 50,000 shares each having a par value of US$1.00; · as NSG is incorporated under the International Business Companies Ordinance, 1984, it is not required to record as publicly available information the identity of its shareholders, directors/officers or "Senior Management" (DGL5 at 781-784; DGL6 at 781-784). · The National Parties are aware that at least one Australian resident, namely Mr Porter, appears to have been a shareholder of NSG (Lovell 1 at paras 92, 97; Lovell 2 at paras 89, 109-110). · On 19 May 2000, being approximately: · 20 months after the commencement of the Commercial List Proceedings; · 2 months before the commencement of the final hearing of the Commercial List Proceedings; and · 4 months after its incorporation, NSG entered into an agreement with Mr Maconochie, Negubo and Idoport ("NSG Agreement") (DGL5 at 796-800; DGL6 at 796-800). The NSG Agreement was executed on behalf of NSG by Mr N F Walker as "director", and by an unidentified person as "secretary" (DGL5 at 800; DGL6 at 800). Mr Maconochie executed the agreement on behalf of both Idoport and Negubo as well as on his own account. · The NSG Agreement provided for Idoport to issue one ordinary share to NSG at a subscription price of "up to AU$5 million", with Mr Maconochie and Negubo agreeing to procure that Idoport issue the share in accordance with the NSG Agreement (clause 3). In return for its investment in Idoport, NSG became entitled to a share in the fruits of the Commercial List Proceedings (see below). · Importantly Idoport's ability to call on the unpaid proportion of NSG's share in Idoport was limited to the amount of money subscribed to NSG by NSG shareholders (see paragraphs 2 and 4 of a letter from Idoport (signed by Mr Maconochie) to NSG (for the attention of Mr Walker) dated 5 June 2000 (DGL5 at 805; DGL6 at 805)). The identity of the NSG shareholders was not disclosed. The only shareholder in NSG known to the National Parties is Mr Porter (Lovell 1 at paras 92, 97; Lovell 2 at paras 89, 109-110). · On 15 May 2000, Idoport issued one share to NW Nominees Ltd, a company resident in Jersey (Lovell 1 at paras 53-54; Lovell 2 at paras 53-54), as trustee for NSG. In exchange for its share, NSG paid a total of $1,850 million to Idoport in four separate tranches as follows (Lovell 1 at para 59; Lovell 2 at para 59): · $700,000 on 1 June 2000; · $600,000 on 10 July 2000; · $500,000 on 21 July 2000; and · $50,000 on 3 September 2000. · The NSG Agreement made no provision for NSG or its shareholders to meet any costs orders made against Idoport in the Commercial List Proceedings. · The funds contributed by NSG pursuant to the NSG Agreement were used by Idoport in prosecuting the Commercial List Proceedings (see affidavit of Mr Maconochie (DGL5 at 532; DGL6 at 532) and the judgment of Justice Einstein ([2001] NSWSC 1081 at [56]) (DGL5 at 569; DGL6 at 569)). In this context, it is also relevant to note that: · in a letter dated 5 June 2000 to the Directors of NSG, Mr Maconochie expressly acknowledged that Idoport's "principal activity is the enforcement of that agreement against the National Australia Bank & Anors" (Lovell 1 at para 58; Lovell 2 at para 58); · the NSG Agreement provided that part or all of NSG's "investment… may be expended to protect [Idoport's] assets and its rights in connection with the Consulting Agreement" (clause 13); and · the funds were provided to Idoport by NSG after the commencement of the Commercial List Proceedings, and immediately prior to the commencement of the final hearing (on 24 July 2000). · NSG's potential return under the NSG Agreement was expressed to be proportionate to the price paid for its share in Idoport (clause 11). Accordingly, if Idoport's net tangible assets (defined as "NTA") exceeded $10,000,000, and if and when Idoport's assets became capable of being realised (or if the assets were realised in any event), NSG was entitled to a return on its investment. The return potentially available to NSG, calculated as a proportion of the price paid by NSG for its share in Idoport, was as follows: · if NSG had paid the full $5 million subscription price by the time the "subscription is closed" (clause 11) then it was to have received 40% of Idoport's NTA up to a realised asset value of $50 million; · for a realised asset value of between $50 million and $200 million, NSG would have received 30% of the NTA; and · for a realised asset value above $200 million, NSG would have received 10% of Idoport's NTA. · As NSG had subscribed for less than the $5 million maximum, NSG's percentage return would have been reduced proportionally, but would still have represented a significant (and disproportionate) return on its investment. · The agreement did not purport to afford NSG any control over Idoport. The NSG Agreement provided that nothing in that agreement was "to be deemed to give or gives NSG any control" over Idoport or its rights and obligations (clause 8). However, Idoport did warrant that its sole business activity was in respect of the Consulting Agreement (clause 4.1), and also undertook not to expand its business activities without NSG's written consent (clause 5.3). In addition, clause 6.2 of the NSG Agreement may have been intended to require Mr Maconochie and Negubo to consult NSG about any decision that may have had the effect of materially varying Idoport's asset value (Mr Maconochie and Negubo were subject to a similar obligation under the AIIL Agreement (clause 10.2)). However, that clause, in fact obliges NSG to consult with itself about any such decision, a provision which, in the context of the NSG Agreement, is meaningless. · The NSG Agreement in its original form did not expressly restrict NSG from transferring its share in Idoport, but NSG agreed not to encumber its share in Idoport without Idoport's and Negubo's written consent (clause 6.1). However, by an amending agreement dated 31 August 2000 (DGL5 at 809), a new clause 6.3 was inserted which prohibited NSG from issuing any options over, or transferring, the share in Idoport. Funding of the Commercial List Proceedings by Efficiency · Efficiency was incorporated in The Netherlands on 6 March 1987 as a Private Limited Liability Company (DGL5 at 811-815; DGL6 at 811-815). Efficiency has authorised share capital of EUR45,378.02 (of which EUR18,151.21 is fully paid up) and its current directors are Mr Tom Meganck and Mr Hermanus Ossevoort (Lovell 1 at para 64; Lovell 2 at para 64). As at 30 December 2002, Efficiency had current assets of EUR4,925,782.26, and current liabilities of EUR4,907,631.05 (Lovell 1 at para 64; Lovell 2 at para 64). · In or about December 2000, approximately five months after the commencement of the hearing of the Commercial List Proceedings, Efficiency entered into a series of interrelated agreements with Idoport and individuals and entities related to Idoport: see Idoport Pty Ltd & Ors v Efficiency Investment BV and Anor [2001] NSWSC 1197. The agreements required Efficiency to fund the Commercial List Proceedings in return for a proportion of the fruits of those proceedings (see Recitals A-D of the Idoport Loan Agreement (DGL5 at 818) and Recitals A-D of the Negubo Loan Agreement (DGL5 at 842)). · Efficiency's funding of the Commercial List Proceedings involved five agreements, including back-to-back loan agreements between Idoport and Negubo, on one hand, and Negubo and Efficiency on the other. The agreements were: · the Negubo Loan Agreement between Efficiency, Negubo, Mr Maconochie and Mrs Mary Maconochie (the "NLA") (DGL5 at 816-839; DGL6 at 816-839); · the Idoport Loan Agreement between Negubo and Idoport (the "ILA") (DGL5 at 840-857; DGL6 at 840-857); · the Market Holdings Participation Agreement between Efficiency, Market Holdings, Mr John Sheahan as liquidator of Market Holdings, Mr Maconochie and Negubo ("Participation Agreement") (DGL5 at 858-882; DGL6 at 858-882); · the Partnership Agreement between Market Holdings, Idoport, Mr Sheahan and Mr Maconochie ("Partnership Agreement") (DGL5 at 883-909; DGL6 at 883-909); and · the Shareholders Agreement between Efficiency, Negubo, Mr Maconochie and Mrs Maconochie (the "SA") (DGL5 at 910-927; DGL6 at 910-927). (together the "Efficiency Agreements"). · The Efficiency Agreements provided two alternative mechanisms for the funding of the Commercial List Proceedings by Efficiency. The first mechanism involved the Participation Agreement and the Partnership Agreement. Those agreements contained certain conditions precedent which, if satisfied, required each 'partner' to pay a share of the costs of the Commercial List Proceedings. The second mechanism, applicable in circumstances where the conditions precedent to the Participation Agreement and the Partnership Agreement could not be satisfied, provided for Idoport to obtain funds for the prosecution of the Commercial List Proceedings by making requests for those funds from Negubo under the ILA, with Negubo making corresponding requests for funds to Efficiency under the NLA. · The conditions precedent to the Participation Agreement and the Partnership Agreement were not satisfied (see National Australia Bank Limited v Market Holdings Pty Limited (in liquidation) [2001] NSWSC 253). Accordingly, the funds contributed by Efficiency for the prosecution of the Commercial List Proceedings were channelled from Efficiency, through Negubo, to Idoport, pursuant to the terms of the NLA, the ILA and the SA. In essence, the Efficiency Agreements operated so that the funds required to prosecute the Commercial List Proceedings were provided by Efficiency to Negubo under the NLA, with the funds then flowing on from Negubo to Idoport. · Ultimately, Efficiency paid $7,500,000 to Idoport (through Negubo) in two separate tranches as follows (Lovell 1 at paras 67-73; Lovell 2 at paras 66-69): · $500,000 on 26 September 2000; · $7,000,000 on 3 October 2000. · Recital A of the SA provided that Efficiency (together with Mr Maconochie and Mrs Maconochie) already owned one fully paid ordinary share in Negubo. In consideration for Efficiency releasing Negubo from its liability to repay the amount loaned by Efficiency to Negubo under the NLA (namely $7.5 million), Negubo was also required to issue to Efficiency one partly paid share in Negubo (SA, clause 4.1). The new partly paid share had no voting right (SA, clause 7). Ultimately, Efficiency's shares in Negubo were issued as a result of the judgment of Palmer J in Idoport Pty Ltd & Ors v Efficiency Investment BV and Anor [2001] NSWSC 1197. · The NLA provided that Efficiency was entitled to receive repayment of the loan amounts together with interest. Efficiency was to receive its share of any successful outcome of the Commercial List Proceedings pursuant to the terms of the SA. In this context: · Efficiency's share was taken to be partly paid to an amount equal to the loan amount as at the date of issue, and Efficiency was to pay for calls on the share as made from time to time by Negubo (clause 5); · while no upper limit was set for such calls, Efficiency could elect to cease paying calls on terms which establish three tiers of funding, namely: a) once the share was partly paid to $6.5 million, Efficiency could within 15 days elect to cease paying calls on the share, whereupon it had a continuing obligation to pay a further $1 million but nothing more; b) once the share was partly paid to $9 million Efficiency could elect to cease paying calls within 15 days, whereupon it had a continuing obligation to pay a further $1 million but no more (in this case Efficiency could also give such notice within 15 days of the end of each subsequent quarter); c) alternatively, Efficiency might have given no such notice and continued to fund the Commercial List Proceedings. · The three tiers of funding had significance for the return Efficiency was to achieve on its investment. While Efficiency was entitled to interest on the loan amount under the NLA, (with interest capitalised, becoming part of the loan amount, at the end of each interest period (clause 6.4)), Efficiency was to be rewarded under the SA by its ability to require Negubo to declare a dividend on the share at any time the net tangible assets of Negubo were positive. The SA provided for Efficiency to achieve a substantial return on its investment as follows: · if a notice was given by Efficiency at $6.5 million, then the dividend was to be declared at an amount equal to 30% of the net tangible assets of Negubo (SA, clause 6.3.1); · if a notice was given by Efficiency at $9 million, or within 15 days at end of each quarter thereafter, then the dividend was to be declared at an amount equal to 40% of the net tangible assets of Negubo (SA, clauses 6.3.2 and 6.3.3); · if no notice was given by Efficiency, the dividend was to be declared at an amount equal to 50% of the net tangible assets of Negubo (SA, clause 6.3.4). Efficiency was also entitled to call upon Negubo to meet this obligation in the alternative form of a share buy back (SA, clause 6.6). · Idoport was not a party to the SA, and was not required to pay all available litigation proceeds to Negubo. However, presumably the worth of Negubo's assets was to have been valued to take into account the receipt of any litigation proceeds by Idoport. In this respect, it is to be noted that the SA makes provision for independent valuation of Negubo's net tangible assets (SA, clause 8). · In September 2001 Efficiency gave a notice capping its liability to fund, having contributed $6.5 million (see the judgment of Justice Einstein [2002] NSWSC 18 at [47] (DGL5 at 630)). · The Efficiency Agreements imposed a number of significant restraints and obligations on Negubo and Idoport (and, in certain respects, Mr and Mrs Maconochie), including: · not to issue securities or enter into any agreement or arrangement to issue securities, or, subject to Efficiency's consent, pay any dividend, buy back any securities or return any capital (see for example NLA, clause 10.1.2-10.1.3; SA, clause 11.4.2-11.4.3) · to have regard to the interests of Efficiency and not to prejudice the interests of Efficiency (see for example NLA, clause 10.1.9; SA, clause 11.4.7); · not to engage in any activities other than that of preserving or realising its Assets (as defined) and any activities required to be undertaken in connection with the relevant agreement (see for example NLA, clause 10.1.1; SA, clause 11); · in relation to Mr and Mrs Maconochie, not to sell or otherwise dispose of their respective legal and beneficial interests in Negubo (NLA, clause 10.2; SA, clause 11.5). (Idoport gave similar (but not identical) undertakings to Negubo (ILA, clause 12)). · The Efficiency Agreements also: · imposed restraints on Negubo and Idoport (and Mr and Mrs Maconochie) in terms of their ability to obtain funding from other sources (see for example NLA, clauses 10.1.2-10.1.3, 10.1.7; ILA, clauses 10.1.2-10.1.3, 14; SA, clauses 11.4.2-11.4.3, 11.5, 12); and · required Negubo and Idoport to provide Efficiency with ongoing information and updates in relation to the business and activities of Idoport and Negubo (see for example NLA, clause 5, 10.1.8; SA, clause 11.4.6). · Efficiency also retained a degree of practical control having regard to its contractual right to cease paying calls on its partly paid share at certain defined intervals as set out above. · While Efficiency was contractually obliged to provide funds (up to a limit of $1 million) to satisfy an order for security for costs, the Efficiency Agreements otherwise made no provision for Efficiency to meet any costs associated with any costs orders in the Commercial List Proceedings." The OAMPS parties analysis of the AIIL Agreement 39 The OAMPS parties analysis of the AIIL Agreement was as follows: "Analysis of the AIIL Agreement (a) The Investment · The investment was in shares in Idoport, up to a maximum of 16 shares for a total consideration of $1.55M. · The total amount of issued shares would become 116 if all 16 shares are taken up. · The investment was, to the parties' knowledge, in a company which was seeking to enforce a contract, probably by prosecuting an action for specific performance and/or damages. · If the litigation was successful the company's assets would increase either through monetary compensation or by the benefit of the profits from a supposedly lucrative contract if specific performance was ordered. (b) Price Paid for Shares · The National Parties submissions draw attention to the fact that the average price paid for the 16 shares in Idoport was $96,875. A comparison is then made with the Idoport balance sheet as at 30 June 1998 which showed a net asset position of $10,297. · If the inference that is being suggested is that AIIL took into account its view of the prospects of the litigation (of course, a non balance sheet item) in determining whether to buy the shares then that must be a correct conclusion. (c) Control over Litigation · The aspect of "control" of the litigation is dealt with by clauses 10 and 12. This mechanism goes no further than is usual in a small company and does not surrender the conduct of the litigation. As is acknowledged by the National Parties there is no express right to "control" the litigation. There is a requirement to consult about decisions that may have the effect of "materially varying" Idoport's income or asset value. · The aspect of "control" of the subscribed funds is dealt with by clauses 3, 9.1 and 9.2. This mechanism is aimed at making sure that the funds are applied correctly to the objects in clause 9.2. AIIL was bound to procure its nominee to authorise the payment of Idoport's creditors within 7 days of Idoport requesting it to do so- clause 9.1. There was accordingly no right to control the subscribed funds, provided payment of Idoport's creditors was requested. (d) Return on Investment · The calculation of the call option exercise price is the lesser of- · the total share subscription plus 10 times the amount of the draw down under the letter of credit up to a maximum of $15M · 15% of the NTA or if the System IP Rights become the property of JM's family, not less than the total share subscription price. · This calculation has to be related to the shareholding of AIIL in Idoport at the time of the AIIL agreement. As at the time of the AIIL agreement there were on issue 100 shares in Idoport owned by Negubo. Under the AIIL agreement 16 more shares could be issued for $1.55M. The percentage of shares held by AIIL could therefore become 16/116 = 13.79%. This is consistent with, or rather not out of proportion to, a 15% interest in the NTA. The cap of $15M has the effect of limiting the maximum return on the investment. · The analysis of the AIIL Agreement set out in the National Parties submissions fails to appreciate the above point. (e) Clause 15 · Clause 15 of the agreement is obscure. The terms of the clause are inconsistent with Idoport obtaining the proceeds of the realisation of its assets beneficially as it ordinarily would. Rather, the clause literally contemplates the holding of those proceeds on trust by Idoport. However, it should be recognised that Idoport is not a party to the AIIL Agreement. · As a matter of construction of the agreement, it is a covenant by Negubo and Maconochie not to deal with the proceeds of realised assets belonging to Idoport other than consistently with the put and call regime. (f) Mechanism for Exit from Investment · The AIIL agreement was expressed to continue until the put and call options have been performed. · The put and call options are triggered by the circumstance that Idoport's NTA exceeds $1.5M if some of Idoport's assets are realised or if all of Idoport's assets are realised whether or not Idoport's assets exceed $1.5M · The put and call strategy for exit is common in small companies of two shareholders and no market for shares. One shareholder will buy out the other shareholder as an exit strategy. This will require the purchaser to fund the purchase of the shares. At this time Idoport as an entity will have an increased net value and hence the value of the shares will have increased accordingly. This increased net value will be closely related to although probably not identical with the outcome of the litigation. · Negubo, upon exercise of the option, would have to fund the purchase of the Idoport shares owned by AIIL. Clause 14 permits this obligation to be satisfied by a payment of dividend or selective buy back of the shares. Given that all shares would then be owned by Negubo such a clause is sensible and unremarkable." To what extent is it necessary for the Court to decide particular issues on the present application 40 Clearly it would not be appropriate for the Court to decide on the present applications, issues which will arise for determination on the actual hearing of the gross sum costs application. In that context a question arises as to the extent, if at all, to which it is necessary for the Court to decide the following issues on the present application: Issue 1 The true construction of Part 52A Rule 4(5)(d), Issue 2 The elements of champerty in modern times, Issue 3 Whether champerty per se constitutes an abuse of process within Part 52A Rule 4(5) (d), Issue 4 When champerty becomes an abuse of process within the rules, Issue 5 Whether the funding of the litigation as a commercial venture, for reward, without assuming liability for any adverse costs orders, is an abuse of process within this rule. 41 Clearly enough issue 1 falls for very extensive examination. But even then the sensitivity of the issue suggests that the matter should be determined in terms of 'arguable case' only. The Court must also proceed cautiously in relation to issues 2-5 for the reason that the final hearing of the gross sum applications will be the occasion for determination of those issues. It is not appropriate in terms of the applications presently before the Court for the Court to determine these issues. 42 Presently all that is before the court are the applications for equitable discovery. All that is presently necessary is that the Court be satisfied that it is arguable that: · the funding agreements/arrangements, as a matter of substance and having regard to their implementation, may constitute champerty and as such may amount to an abuse of process on the proper meaning of Part 52A Rule 4(5)(d); or · the funding agreements/arrangements, as a matter of substance and having regard to their implementation, may amount to the funding of litigation as a commercial venture, for reward, and in the absence of an assumption of liability for adverse costs orders, may constitute an abuse of process within the rule. The way forward 43 It would seem convenient to proceed by dealing with each of these issues. However clearly a number of the issues clearly raise overlapping considerations. Costs against non parties The construction of Part 52 A Rule 4 (5) (d) The Court's power 44 It is convenient to next refer to the position in the Supreme Court in terms of the power to make costs orders against non parties. The National Parties summary in this regard may be accepted. 45 The court's power to order costs is contained in section 76 of the Supreme Court Act 1970 (NSW). It provides: "(1) Subject to this Act and the rules and subject to any other Act: (a) costs shall be in the discretion of the Court; (b) the Court shall have full power to determine by whom and to what extent costs are to be paid; …" 46 The power in section 76 is however expressed to be subject to the SCR. Part 52A rule 4 of the SCR relevantly provides that the powers and discretions of the Court under section 76 shall be exercised subject to and in accordance with this Part. 47 Part 52A rules 2 and 4 specifically contemplate that a non-party may be liable for costs only in certain circumstances. These are set out in rule 4(5): · when an order has been made against a solicitor under Part 52A rule 43 or where a person has defaulted in attendance in proceedings in breach of a court order under Part 42 rule 7; · for the payment by a relator (who is a person who brings an action in the name of, and with the consent of, the Attorney-General) in proceedings of the whole or any part of the costs of a party to the proceedings; · for payment by a person who is bound by an order made, judgment given or undertaking given to the court in proceedings and who breaches such order, judgment or undertaking, in which case the person will be liable for the whole or any part of the costs of a party to the proceedings occasioned by the failure or the breach; · for payment by a person who has committed contempt of court or an abuse of process of the court; · in exercise of its supervisory jurisdiction over its own officers; · against a person who purports without authority to conduct proceedings in the name of another person; · against a person who commences, carries on, enters an appearance in or defends proceedings as the authorised director of a corporation or purports to do so. 48 Under this statutory regime the court does not retain any inherent jurisdiction to award costs against a non-party outside of the circumstances set out in Part 52A rule 4(5): Leicester v Walton (unreported, NSWCA, 22 November 1995) (page 12). In Wentworth v Wentworth (2000) 52 NSWLR 602 at 636 [162] Heydon JA (as his Honour then was), with whom the other members of the Court of Appeal agreed, observed that the only remaining categories in which costs may be awarded against a non-party are those expressly stated in Part 52A rule 4(5), since as a matter of construction the rule is intended to confine the exercise of the court's power to the situations stipulated in rule 4(5). 49 As the National Parties have submitted, Part 52A rule 4(5) reflects to some degree the common law categories of cases in which orders against third parties would be made that were developed prior to Knight v F P Special Assets Ltd (Knight's case) (1992) 174 CLR 178. In summary these categories were: · actions in ejectment: Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 ("Ram Coomar") at 212; Hutchinson v Greenwood (1854) 119 ER 125 and Evans v Rees (1842) 114 ER 131; · cases of abuse of process: Hayward v Giffard & Grove ("Hayward") (1838) 4 M&W 194; 150 ER 1399; Ram Coomar (corresponds to Part 52A rule 4(5)(d)); · as an exercise of the court's summary (disciplinary) jurisdiction over solicitors: Ram Coomar (corresponds to Part 52A rule 4(5)(e)); · various categories of "real parties", namely: (a) relators: R v Greene (1842) 4 QB 646; (1843) 114 ER 1043; Attorney-General v Logan [1891] 2 QB 100 (corresponds to Part 52A rule 4(5)(b)); (b) a person who instituted proceedings without authority: Gardiner, In re; Ex parte Orgill (1890) 16 VLR 641 (corresponds to Part 52A rule 4(5)(f)); (c) a person interested in an estate who unnecessarily attended on the taking of an account and thereby occasioned additional costs: Sharp v Lush (1879) 10 Ch D 468; (d) an unsuccessful claimant to a beneficial interest in an estate: Re Knight ; Knight v Gardner (1887) 57 LT 238; (e) next friends: Palmer v Walesby (1868) LR3ChApp 732; (f) directors of a company who unsuccessfully petitioned for the appointment of an administrator: In re Land and Property Trust Co Plc [1991] 1 WLR 601 (corresponds to Part 52A rule 4(5)(g)). [See generally the categories outlined by Mason CJ and Deane J in their joint judgment in Knight at 186-188]. 50 The relevant subrule in the present instance is subrule (d), that is where a person has committed an abuse of the process of the court. 51 The question posed for ultimate determination on the gross sum costs application will comprehend when it is that a non-party, for the purposes of this rule, will be taken to have committed "contempt of court or an abuse of process of the Court". The submissions from the National Parties as to the meaning of 'abuse of process' as that phrase is used in Part 52A rule 4(5)(d) The first argument 52 The National Parties advanced extensive submissions in this regard. The submissions advanced two primary arguments. The first was put as follows: "116. The concept of abuse of process is not defined for the purpose of Part 52A rule 4(5)(d). The only authority relating to Part 52A rule 4(5), namely North South Construction Services Pty Ltd v Construction Pacific Management Pty Ltd [2002] NSWSC 286 (Bryson J) gives little guidance as: (a) the facts are far removed from those in the Commercial List Proceedings; (b) the third party was not a funder but the controller of the plaintiff company; (c) there was little discussion as to the basis for the award of costs against a third party. Bryson J (as his Honour then was) quoted the general category found to exist by Mason CJ and Deane J in Knight at 192-193 and held at [10] that 'a director who is the only principal, or one of the principals, of a company and takes the leading part in the conduct of the litigation' fell within this category; (d) his Honour's only substantive remark concerning abuse of process was set out in paragraph 25 of his judgment, where he remarked that it...can usually be recognised in a clear way when observed". 117. One reference point for the meaning of abuse of process in Part 52A rule 4(5) is case law on the exceptions to the rule that third parties are not liable for costs. In Hayward , Lord Abinger C.B at 1400 stated: "But the authority of the Courts at Westminster is derived from the Queen's writ, directing them to take cognisance of the suits mentioned in the writs respectively, and thus bringing the parties before them. This being so, they have no power to order any particular individual to come before them at their pleasure. In the present case, if it could have been shewn that Spencer had committed any contempt of Court, or been guilty, in respect of this suit, of any thing in the nature of barratry or maintenance, it would have been another matter;… " (emphasis added). 118. In Ram Coomar , the Judicial Committee of the Privy Council noted that [at 212]: "Again, the Courts, it has been said, would so interfere in case of any contempt or abuse of their proceedings: see Hayward v Gifford ." 119. This passage, in citing Hayward , equates "any thing in the nature of barratry or maintenance" to an abuse of process, at least for costs purposes. Part 52A rule 4(5)(d) of the SCR by using the expression "abuse of process" reflects this recognised common law exception, so that maintainers (and by necessary extension champerters) may be the subject of an award of costs against them. 120. Such a conclusion is supported by the following: (a) the wording of Part 52A rule 4(5)(d), by referring to contempt of court and abuse of process in the one phrase, mirrors the wording used in Hayward and Ram Coomar; (b) the adoption of this approach by the High Court in Knight , setting out the relevant passages from both Hayward and Ram Coomar in its leading judgments: see Mason CJ and Deane J at 186-188 (with whom Gaudron J agreed) and Dawson J at 199-200 and 203 to 204; (c) Hayward and Ram Coomar were decided at a time when maintenance and champerty were a crime and a tort, as well as being contrary to public policy. Ram Coomar reflects a view of the law that a third party engaging in maintenance or champerty is abusing the process of the Court and on that basis may be held liable to pay costs; (d) when the High Court in Knight came to review the various instances in which costs orders had been made against third parties, it cited both Hayward and Ram Coomar : see especially 186-188, 199-200, 203-204, 211; (e) on 25 June 1993 the SCR were amended to introduce a new Part 52 rule 4. On it proper construction, the intent of Part 52 rule 4 was specifically to identify particular categories of third party costs under the old law which had been recognised in Knight and to preserve them in existence. It follows that the intention of rule 4(5)(d), when it refers to contempt of court or abuse of process, is to pick up those grounds for third party cost orders as had been recognised in the nineteenth century in Hayward and Ram Coomar and adopted by Knight ; and then to preserve them in the SCR; (f) it follows, that the concept of abuse of process within rule 4(5)(d) extends at least to cover maintenance, or champerty which is an aggravated form of maintenance. That is, if a third party is guilty of maintenance and champerty, as those concepts were understood at the time the High Court decided Knight 's case, that was an abuse of process, which without more would entitle a costs order to be made against the third party; (g) it is true that the New South Wales parliament passed the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) in 1993. That Act was assented to on 29 November 1993 and came into force on 12 May 1995. However, at the time that Part 52 rule 4 SCR was amended, ie 25 June 1993, that Act had not yet come into force and might never have come into force. Accordingly, its passing does not shed any light on the intention of the rule makers; (h) on 25 June 1994 Part 52A rule 4 of the SCR was inserted in similar terms to the previous rule. The rule makers should be presumed to have intended to pick up the same concept of abuse of process; (i) the rule, operating as it did from 1 July 1994, came into force after the NSW Law Reform Commission issued its discussion paper on barratry, maintenance and champerty in May 1994 which specifically adverted to the possibility of imposing cost sanctions as the appropriate remedy (see paragraphs 2.46-2.48 of the Commission's report); (j) it would have been simple for the Rule Committee to draft the amending rule in a way that excluded champerty and maintenance if this had been the intent of the rule. 121. The above interpretation gives meaning to the rules in a way that is consistent with the historical categories. Champerty 122. Champerty consists of the assistance or encouragement of a party to an action in which the maintainor has no interest. Champerty is a species of maintenance, on terms that the maintainor and the plaintiff share in the outcome of the action: see Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 at 267; see also Clairs Keeley (a firm) v Treacy [2003] WASCA 299 at [46]-[50]. 123. For present purposes it is sufficient to observe that: (a) contracts, if savouring of maintenance and champerty, may be treated as contrary to public policy or otherwise illegal in New South Wales: Maintenance, Champerty and Barratry Abolition Act 1993 (NSW), section 6; (b) the law of maintenance and champerty is directed at wanton and officious intermeddling with the disputes of others in which the intermeddler has no legitimate interest: see Trendtex Trading Corporation v Credit Suisse [1982] 1 AC 679; Giles v Thompson [1994] 1 AC 142; (c) a genuine commercial interest will constitute a legitimate interest, but only if it was acquired prior to the giving of the assistance: Giles v Thompson; National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (No 1) (1995) 132 ALR 514 at 540; Re Movitor Pty Ltd (in liq) v Sims (1996) 64 FCR 380 at 388; (d) in contrast, trafficking in litigation, that is the unjustified buying and selling of rights to litigation where the purchaser has no proper reason to be concerned with the litigation will amount to an abuse of process. Wanton and officious intermeddling with the disputes of others may constitute a form of trafficking in litigation: Stocznia Gdanska SA v Latreefers Inc (No 2) [2000] EWCA Civ 36 at [61] ; Roux v ABC [1992] 2 VR 577 at 606; Clairs Keeley v Treacy [2003] WASCA 299 at [142], [187]. 124. Accordingly the National Parties, in seeking costs orders against the Funders, would need to prove that the Funders did not have a genuine pre-existing interest in the Commercial List Proceedings. The nature of the funding arrangements, including the return on the investment would be relevant to this issue. Abuse of process and stays of proceedings 125. The principles need to be understood in light of the fact that a finding of abuse of process normally brings about a stay of proceedings. The severity of this remedy may lead to a somewhat narrow interpretation of what may constitute an abuse. 126. There is no compelling reason of policy or principle however that requires an "abuse of process of the Court" for the purpose of Part 52A rule 4(5)(d), to equate with the principles that govern the circumstances in which it is appropriate to grant a stay of proceedings. The two types of order (an order for costs, and an order that proceedings be stayed) are distinct in nature, purpose and effect. An order for costs attempts to compensate the successful party for the expense to which it has been put in contesting the proceedings: see generally Latoudis v Casey (1990) 170 CLR 534; Oshlack v Richmond River Council (1998) 193 CLR 72 ( "Oshlack" ). In contrast, an order for a stay of proceedings attempts to protect the court's own processes from improper or unfair use: see generally Walton v Gardiner (1993) 177 CLR 378. It has the effect of shutting out the plaintiff's claim from being heard. 127. The two concepts are not equated in Knight, or in the authorities reviewed in Knight. The inherent jurisdiction to award costs against non-parties in the case of an abuse of process was not expressed to be so limited. 128. Conduct which may justify an order that a non-party pay costs, may not necessarily justify a stay of proceedings, due to the more final nature of the latter remedy. This is illustrated by the attitude taken by the English courts to maintenance and champerty cases, where the preferred approach is not to grant a stay but to deal with the issue by making orders as to costs against the non-party: see for example Abraham v Thompson [1997] 4 All ER 362 (CA)." The proper construction of the phrase "abuse of process" in Part 52A Rule 4 (5) (d) 53 I have already indicated that what follows is intended to put the matter in terms of only an arguably correct construction. Albeit that in what follows the language used appears firm and definite, it is not intended to go outside of an acceptance of an arguable case. 54 In my view the submissions which came forward from OAMPS appear generally to be of substance and to represent the better view. 55 As OAMPS submitted the essence of the submissions from the National Parties is that abuse of process" for the purposes of Pt 52A rule 4(5)(d) reflects the historical common law category which necessarily includes maintenance and champerty. The steps put by the National Parties which are said to lead to this conclusion are as follows: "(i) the substance of Pt 52A rule 4(5)(d) was inserted into the SCR in 1993 about a year after the 1992 judgement in Knight v FP Special Assets Ltd (1992) 174 CLR 178; and (ii) Pt 52A rule 4(5) "reflects to some degree the common law categories of cases in which orders against third parties would be made that were developed prior to Knight …"; and (iii) Pt 52A rule 4(5)(d) reflects the common law categories of contempt of court and abuse of process; and (iv) there is no guidance as to the meaning of "abuse of process" in Pt 52A rule 4(5)(d) to be found in case law; and (v) the discussion in Knight by Mason CJ and Deane J (with whom Gaudron J agreed) reviewed the cases of Ram Coomar Coondoo v Chunder Canto Mookerjee (1876) 2 App Cas 186 and Hayward v Giffard (1838) 4 M&W 194; 150 ER 1399 ; and (vi) the passage cited from Ram Coomar in Knight by Mason CJ and Deane J (at paragraph 118 of the National Parties submissions) appears to regard barratry and maintenance as the abuse of proceedings to which it refers, at least for costs purposes." 56 This conclusion is put even though maintenance and champerty have lost their status of crimes and torts. 57 The proposition that the intention of Pt 52A rule 4(5)(d) was to preserve in the Supreme Court Rules, the nineteenth century grounds for third party costs orders recognised by Hayward and Ram Coomar as they existed at the time of Knight is likely incorrect. 58 As OAMPS has contended, the proposition put forward by National Parties is that at the time of Knight (that is, in 1992) maintenance and champerty clearly constituted an abuse of process. Stripped of the verbiage, the proposition put forward by the National Parties is that the subsequent abolition of the status of maintenance and champerty as crimes and torts does not remove maintenance and champerty from the category "abuse of process" in the rule. 59 It is then clear that the National Parties proposition is that the words "abuse of process" do not denote the category "abuse of process of the Court" as understood from time to time but rather denotes "the category of cases" which, as at 1992, were acknowledged by the High Court as being regarded as cases in which a non-party costs order was properly made on the basis of an abuse of process. 60 The National Parties submissions on the meaning of "abuse of process" in rule 4(5)(d) are likely incorrect. At the risk of some repetition it is necessary to return to the history. 61 As at 24 June 1992 the Supreme Court's power to order costs against a non-party lay in the general discretionary power found in section 76(1) of the SC Act which was expressed to be "Subject to this Act and the rules and subject to any other Act…". 62 Part 52 rule 4(1) of the SCR was in the same terms as the current Pt 52A rule 4(1), that is: "The powers and discretions of the Court under section 76 of the Act (which relates to costs generally) shall be exercised subject to and in accordance with this Part." 63 There was no rule in Part 52 which dealt directly with costs orders against non-parties. 64 On 25 June 1992 the High Court gave judgment in Knight. The practical effect of Knight was to establish a doctrinal basis for costs orders against non-parties in terms that there was "no absence of jurisdiction to order costs against non-parties in the strict sense and that the jurisdiction could be exercised against persons who were considered to be the "real parties" to the litigation": Knight at 188. A statutory provision giving a court a general discretionary power to award costs gave power to award costs against non-parties on the Knight basis. 65 On 25 June 1993 Part 52 rule 4, the predecessor to the current Pt 52A rule 4 and in substantially the same terms, was substituted and inserted into the SCR. "(i) Rule 4(2), subject to rule 4(5), excludes the jurisdiction of the Court to make costs orders against non-parties. (ii) Rule 4(3) prohibits a non-party being made a party for the purpose of making a costs application against that person. (iii) Rule 4(4) provides rule 4(3) will not apply where a person is otherwise a proper party or the subject of a section 78 claim for relief. (iv) Rule 4(5) sets out various exceptions to the general rule in 4(2) including the exception in subrule 4(5)(d) being in respect of an order for payment by a person who has committed a contempt of court or an abuse of process of the court. (v) Rule 4(6) provides that Pt 52 has effect subject to the Act and to the rules and any other Act. It retains the wording of the pre 25 June 1993 Pt 52 rule 4(2) except that it makes subrules 4(1) to (5) the relevant rules confining its scope." 66 The object of the 25 June 1993 amendment was "to restrict the power of the court in making a costs order against a person who is not a party": clause 7 of the Explanatory Note to Amendment No 248 of 1993. There is no explanation of the purpose or scope of the categories in Pt 52 rule 4(5) in the Explanatory Note. 67 As OAMPS has pointed out there is real support for the view that the restriction of the Court's power is achieved by partially abrogating the effect of Knight so that there is no general power to award costs against a non-party except as provided by the exceptions set out in subrule 4(5). This effect has been recognised by Cresvale Far East v Cresvale Securities (No 2) (2001) 39 ACSR 622 at 629, per Austin, J., citing Leicester v Walton (unreported, New South Wales Court of Appeal, 22 November 1995). 68 Subrule 4(5)(d) provides that a person committing a contempt of court or an abuse of process can be such an exception. 69 I accept as correct, the proposition that an abuse of process is a legal concept encompassing the improper use or threatened use of proceedings for an improper purpose which interferes with the administration of justice by interfering or improperly using the processes of the court: Walton v Gardiner (1993) 177 CLR 378, 392-3, Hunter v Chief Constable of the West Midlands Police (Birmingham Six case) [1982] AC 529, 536, Williams v Spautz (1992) 174 CLR 509, 526-7. This concept will necessarily change over time as the Court's processes change and as particular conduct is characterised in different ways by different generations of legal thinkers: see also Keith Mason QC, "The Inherent Jurisdiction of the Court" (1983) 57 ALJ 449 at 454. 70 In 1993 the NSW Parliament enacted the Maintenance, Champerty and Barratry Abolition Act 1993 ("the Abolition Act"). In 1993 the Parliament also enacted amendments to the Legal Profession Act: see discussion in Smits v Roach (2002) 55 NSWLR 166, at 180. Since the Abolition Act came into force in 1995, champerty and maintenance are no longer crimes or torts and therefore cannot constitute an abuse of process on those historical bases. Left open is the public policy exception which can make a particular agreement champertous although not necessarily an abuse of the court's process. 71 In Knight, Mason CJ and Deane J discussed a range of cases in the context of the contempt of court and abuse of process exceptions. Apart from Hayward v Giffard and Ram Coomar, they also discussed Mobbs v Vandenbrande (1864) 33 LJQB 177 and footnoted Hutchinson v Greenwood (1854) 4 El & Bl 324, 119 ER 125. 72 As OAMPS submitted these cases all contemplated a jurisdiction for the making of a non-party costs order said to arise out of an abuse of process. In Hayward v Giffard the fact that barratry and maintenance was an abuse at that time did not need to be mentioned; it was the only relevant abuse on the facts. 73 In Hutchinson v Greenwood (see at 126 per Lord Campbell CJ) and Mobbs v Vandenbrande (see at 180 per Blackburn J) the fact of non-party costs orders against individuals standing behind ejectment suits was tentatively explained as arising out of the traditional category of an abuse of process which permitted a non-party costs order. The relevant point here is not what was or was not considered an abuse but that there was a line of authority in the historical case law that accepted unequivocally that an abuse of process might warrant a non-party costs order. It is that discussion that was being reviewed along with other lines of authority, for example, those authorities referring to the "real party" behind the litigation. 74 OAMPS submitted and I accept that the logical conclusion to take from their Honours' discussion in Knight is that they were simply reviewing the historical record of a number of general categories of conduct acknowledged by the courts to warrant non-party costs orders. This review was done before reformulating the principle underlying the jurisdiction. 75 I accept as likely as correct, the submission put by OAMPS that the National Parties proposition that the concept of "abuse of process" in rule 4(5)(d) must be tied to the alleged "adoption" by Mason CJ, Deane and Gaudron JJ of the discussion in Ram Coomar [such that the rule's direct object is to fix in time, as an abuse of process, the concepts of maintenance and champerty as they existed in 1992] requires a reading of Knight that appears to ignore the other cases discussed. 76 There is of course considerable room for differences of opinion where the rule makers chose in June 1994 to introduce the relevant Part 52 A rule in precisely the same terms as had appeared in June 1993 version [to be found in Part 52]. To my mind however the better view is likely that the rule makers must be regarded as having taken the passing of the Abolition Act [assented to on 29 November 1993] into account when passing Part 52A. The notion that the rule makers may have acted upon the basis that in passing the rule they should approach the matter on the basis that not yet having come into force, the Act should simply be disregarded, seems to me to likely be unsound. 77 Further the approach put forward by the National Parties is likely misconceived, as it also requires an artificial reading of a rule of court that is necessarily designed to endure over time. 78 To the contrary and as OAMPS has submitted, the better view is that the rule-maker understood that Knight had subsumed the category of "abuse of process" into a more general underlying principle and decided that this new principle was to be restricted in its reach to specified cases including the traditional categories covered by rule 4(5)(d). There was no need for the Rules Committee to exclude or include champerty and maintenance from the purview of rule 4(5)(d) since the rule is not aimed at specific conduct but at all conduct that constitutes, from time to time, an abuse of process. 79 This view is consistent with what was recognised in Keelhall Pty Ltd t/as 'Foodtown Dalmeny' v IGA Distribution Pty Ltd [2003] NSWSC 816, where after a review of the authorities the following is to be found: "52 These observations it seems to me correctly state the overarching principle. I accept that 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 court. Likewise very great care must be taken by the court not to use its power to deny access to justice to a party who has sought to fund bona fides proceedings unless that which has been done amounts to an abuse of the court's own process. The mere fact that a funding agreement may be against public policy and therefore unenforceable as between the parties to it is, by itself, no reason for regarding the proceedings to which it relates or the conduct of those parties as an abuse (Original emphasis)." Funding proceedings as a commercial venture-The second primary argument put by the National Party's 80 The second primary argument put by the National Parties is that the funding by a third party of litigation as a commercial venture, for reward, without assuming liability for any adverse costs orders is or depending upon the particular circumstances, is capable of amounting to an abuse of process for the purposes of Part 52A rule 4(5)(d). The conduct would, it is said, undermine the fundamental principle that parties who use the courts process should be at risk in relation to costs if the proceedings be unsuccessful. 81 To my mind there is substance in the submissions put in this regard. Subject to certain particular matters they are adopted in what follows. 82 The National Parties make the point that in jurisdictions where costs are in the general discretion of the Court there are a number of instances where costs orders have been made against third parties on this basis: see for example Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 esp at 452 [64] (Federal Court of Australia); Condliffe v Hislop [1996] 1 All ER 431 esp at 439-440; 1 WLR 753; Abraham v Thompson [1997] 4 All ER 362 (English Court of Appeal); 155569 Canada Limited v 248524 Alberta Limited (1999) 176 DLR (4th) 479; Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors [2004] UKPC 39 (21 July 2004). 83 In McFarlane v EE Caledonia Ltd (No. 2) [1995] 1 WLR 366 Longmore J stated the following at 373: ".... It may well be that it is not necessary in every case of lawful maintenance that the maintainer should accept liability for a successful adverse party's costs: for example, a member of a family or a religious fraternity may well have a sufficient interest in maintaining an action to save such maintenance from contractual illegality, even without acceptance of liability for such costs. But in what one may call a business context (eg insurance, trade union activity, or commercial litigation support for remuneration) the acceptance of such liability will always, in my view, be a highly relevant consideration." (emphasis added) 84 In Condliffe v Hislop [1996] 1 All ER 431 Kennedy LJ stated at 440: "… the court is entitled to protect its own procedures , and as Sir Thomas Bingham MR said in Roache v News Group Newspapers Ltd, Times, 23 November 1992, [1992] CA Transcript 1120 the principle that in the ordinary way costs follow the event 'is of fundamental importance in deterring plaintiffs from bringing and defendants from defending actions they are likely to lose'. If that principle is threatened, as for example if an insurer or a trade union were known to be giving financial support to a party without accepting liability for the costs of the other side if the supported party were to lose, then, as it seems to me, the court might, at least in some cases, be prepared to order that the action be stayed … Normally the better course will be to let the action proceed to trial and then, if need be, consider the powers of the court under s51 of the Supreme Court Act 1981 (as in McFarlane's case) but if the circumstances suggest that the litigating party or the maintainer may not be bona fide, or that if that party were to lose, an order for costs would be difficult to enforce against the maintainer then, as it seems to me, a stay could be imposed." (emphasis added) 85 As noted by Potter LJ in Abraham v Thompson [1997] 4 All ER 362 at 375, Kennedy LJ's reference to the entitlement of the court to protect its own procedures was a reference to the inherent power of the court to prevent abuse of its process. In the same case, Millett LJ found, at 378, that the presence of unlawful maintenance was not of itself an abuse, but that the real mischief was that the proceedings might be financed by a person who was immune from liability for costs. He noted that this was the mischief that concerned Lord Denning MR in Hill v Archbold [1968] 1 QB 686 and that it had also now been remedied by the UK Supreme Court Act 1981 allowing a costs order to be made against a maintainer. 86 In the Canadian case 155569 Canada Limited v 248524 Alberta Limited (1999) 176 DLR (4th) 479, Veit J, sitting in the Court of Queen's Bench of Alberta, stated (at para [50]): "In recent years, however, the courts have not been so concerned about maintenance either as a crime or as a tort: Shah. However, courts are still concerned about maintenance as an abuse of the court's process: it is an abuse because a person who should be taking the risk of the lawsuit is not explicitly recognising that it is liable for the successful party's costs, and, to the extent that it seeks to avoid that result, it seeks to avoid bringing itself within the framework of the discipline of costs ." (emphasis added) 87 The National Parties submitted and I accept that these cases illustrate the application of two fundamental propositions: · the role of the court is to quell controversy (as to which see Gummow J in Hill (t/as RF Hill & Associates) v Van Erp (1997) 188 CLR 159 at 229) not to provide an opportunity for substantial commercial gain for a person who has no pre-existing interest in litigation; · that for reasons of fairness and policy, a successful party in litigation is entitled, subject to certain limited exceptions, to an award of costs to indemnify it against expense it has incurred: Oshlack at 97 [67]-[68]. 88 A particular focus is placed upon the circumstance where "pure funders" are involved, that is persons with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course: Hamilton v Al Fayed (No 2) [2003] QB 1175. 89 At the least it is arguable that it is appropriate to interpret 'abuse of process' in rule 4(5)(d) in this way. This interpretation is consistent with the considerable body of High Court authority as to the meaning, and extent, of the concept of abuse of process. The proposition which is arguable is that the power to dismiss or stay proceedings for abuse of process is a manifestation of: "the general principle empowering a court to dismiss or stay proceedings which are oppressive, vexatious or an abuse of process and the rationale for the exercise of the power to stay is the avoidance of injustice between parties in a particular case." [See Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 554 (per Mason CJ, Deane, Dawson and Gaudron JJ). The proposition is that it is an aspect of the inherent or implied power which "every court must have to prevent its own processes being used to bring about injustice": CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391 (per Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ)] 90 Two of the well established categories of abuse of process are unfair trials and the bringing of proceedings for an improper purpose: see respectively Jago v District Court of New South West) (1989) 168 CLR 23 and Williams v Spautz (1992) 174 CLR 509 respectively. However, as the High Court has held in subsequent decisions, abuse of process is not confined to specific closed categories: see Walton v Gardiner (1993) 177 CLR 378 at 392-393 (Mason CJ, Deane and Dawson JJ); Rogers v R (1994) 181 CLR 251 at 255-256. 91 That it is clearly arguable that rule 4(5)(d) should be interpreted in this way is also consistent with the approach taken by Justice Bryson in North South Construction Services and with the approach taken in the NSW Law Reform Commission Discussion Paper on Barratry, Maintenance and Champerty (Discussion Paper 36 (1994)) – see at paragraphs 2.46-2.50). 92 In Wentworth v Wentworth (2000) 52 NSWLR 602 at 636 [163] Heydon JA (as his Honour then was) stated that Part 52A of the SCR had the effect of abolishing the "newly formulated category relating to insolvent persons" discussed in Knight. 93 In relation to this statement: · "his Honour was not there considering the meaning of 'abuse of process' under rule 4(5)(d) (the case concerned rule 4(5)(e)); · the statement insofar as it relates to the "newly formulated category" in Knight is obiter; and · given the judgment of the Full Federal Court in Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [109]-[111] it is equally arguable that the amendment of the SCR which gave rise to Part 52A rule 4 did not 'abolish' this new category but merely provided that the discretion was not at large by formulating certain 'heads' under which a third party may be liable. The inclusion of the category 'abuse of process' does not signify a narrowing of the categories to exclude the "newly formulated category" but merely a reformulation of it under the rubric "abuse of process". 94 Heydon JA was not dealing with the case of a third party funder but dealt with a narrower point, namely that the general category of case [referred to in Knight [at the foot of page 192] was not to be found in the rule and for this reason the rule maker must be taken not to have picked up that category. His Honour was not required to deal with the question of what is comprised within abuse of process, [and particularly with the question of whether it is impossible for a maintainer to be found to have committed an abuse of process for reasons related to a combination of (1) having funded proceedings in a manner such that it could not become liable for costs thereof and (2) the manner and degree of control or participation by it in the conduct of the litigation]. 95 Accordingly Wentworth v Wentworth does not bind a court of first instance as standing in the way of a third party costs order in the present case. 96 It should also be noted that if I be wrong, the National Parties have formally submitted that Wentworth was wrongly decided. The National Parties have additionally submitted that that if, and to the extent that, Part 52A as interpreted in Wentworth prevents the Court from making such an order against the Funders it is invalid as being beyond power. The general power of any Superior Court to control its own processes is said to clearly extend to enabling appropriate cost sanctions against commercial funders of the present type. This is so given the fundamental role that costs orders play: Oshlack. The submissions from the Idoport parties as to the policy reasons for making nonparty costs orders 97 The submissions included the following "In Arkin v Borchard Lines Limited & Ors (No 2) [2004] Vol 1 Lloyd's Law Reports 88, Coleman J (at para 18) identified three material public policy reasons to be considered in determining whether a funder should pay the costs in a proceeding. In summary, these are: (a) Discouraging ill founded claims; (b) Facilitating access to justice; (c) Protecting the due administration of justice, which requires that the courts should discourage the interference by funders in the proper and responsible management and conduct of the litigation in any manner adverse to that purpose. Coleman J analysed the interaction of these considerations in paragraphs 18, 22 and 70-73 of his judgment. In the case presently before the court, the first consideration referred to above cannot be relevant as the case concluded at a (relatively) early stage, even before the defendant had given any evidence. In paragraph 355 of his 19 August 1999 judgment (Idoport Pty Ltd v National Australia Bank Ltd [1999] NSWSC 828; BC9905226). 98 With respect the approach taken by Coleman J appears unexceptional providing that the notion of 'closed categories' is not put forward. 99 Clearly the Court in the interlocutory hearing found that the plaintiffs had established a particularly serious prima facie case for trial in relation to many issues. 100 The Idoport Parties next proposition is underpinned by a reference to the English cases also draw a distinction between "pure funders" and "professional funders": See for example Hamilton v Al Fayed [2003] QB 1175. "In Hamilton v Al Fayed the category of professional funders was said to include "a trade union, an insurer or a professional or trade association". The court concluded that it was just and reasonable to make a costs order against this sort of funder. Similar views were expressed by Lord Denning in Hill v Archbold [1968] 1 QB 686 at 694-5 and in McFarlane v EE Caledonia Ltd [1995] 1 WLR 366 at 373." 101 The proposition is that the simple distinction between "pure funders" and "professional funders" is clearly not applicable in New South Wales as it could not be suggested that a trade union funding a member's defence or an insurer was committing the necessary abuse of process. 102 It is then pointed out that in Magic Menu Systems Pty Ltd & Anor v AFA Facilitation Pty Ltd (1997) 72 FCR 261 the Full Court of the Federal Court discussed maintenance and champerty. The Full Court noted that "…public policy considerations shaped the attitude of the Courts towards agreements to maintain litigation", but added at 267: "What maintained actions were thought likely to produce, and which was inimical to the public interest, altered over the course of time and with changing social conditions, as did the recognition of interests which were sufficient to justify interference in another's litigation by supporting it …. It may now be observed, for example, that concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which face the ordinary litigant in funding litigation and gaining access to the Courts." See also Roux v Australian Broadcasting Commission [1992] 2 VR 577 at 605-608. In Roux Byrne J stated (at 607): "… to my mind the fact that that the maintainer is under no liability to the other litigant cannot by itself be determinative of the unlawfulness of the maintenance." 103 The essential proposition is then that the circumstances of this case must be seen in the light that a company can only raise money by raising share capital, borrowings or income. The submission is that there is no reason to treat a company that raises money by raising equity share capital any differently from a company that raises money by borrowing say from a bank. The bank would of course be seeking a commercial gain so it should be equally exposed to potential costs. 104 It is put that further, in the absence of control, there is no reason in principle to treat a public company any differently from a private company. The question which is put to throw up the point is: "If a public company, which was insolvent and used shareholders funds to bring proceedings lost those proceedings, would its share holders be liable for costs and would a distinction be drawn depending on whether those shares were acquired before or after the commencement of the proceedings?" Finding – categories of abuse of process not closed 105 To my mind this is an area in which it cannot be said that there are no circumstances in which an outside funder with no interest in the litigation which determines to fund the litigation by means of an acquisition of shares in the party to the litigation may be found to be in abuse of the process of the Court. As earlier observed, the categories of abuse of the Courts process are not closed. 106 Also as earlier indicated, the real question to be answered concerns what particular conduct may [and on the present applications may arguably] be sufficient to constitute an abuse of process. The principles The submissions from the National Parties 107 The submissions were as follows: · "The National Parties seek equitable discovery orders in relation to both the identity of the Funders and information concerning the circumstances in which the funding occurred. It is necessary therefore to outline the circumstances in which equitable discovery orders will be granted. · Prior to the passing of the Judicature Acts, litigants who sought discovery in aid of cases brought in common law courts could file a bill of discovery in the courts of equity, seeking the discovery of facts within the knowledge of the defendant or the discovery of documents in the possession or power of the defendant. The sole object of the bill was discovery, and the jurisdiction was founded on the notion of the assistance Courts of Equity gave to other courts in which the administration of justice could not otherwise be usefully or successfully attained: see Story, Commentaries on Equity Jurisprudence as Administered in England and America (13th ed) Vol 2, pars 1481-1483; Bray, Principles and Practice of Discovery (1885), p 611; McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 ("McLean") at 644 C-D. · With the passing of the Judicature Acts litigants in common law actions had access to discovery procedures and the role of the bill of discovery diminished until its apparent revival in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133 ("Norwich Pharmacal"): see Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 9 [24]. The bill of discovery process did not however fall into complete disuse (National Education Advancement Programs (NEAP) Pty Ltd v Ashton (1995) 33 IPR 281 ("NEAP") at 286). · Importantly the power of the NSW Supreme Court to order equitable discovery is expressly preserved by Part 1 rule 14 SCR. · In Norwich Pharmacal, the first of a trilogy of House of Lords decisions on equitable discovery, the Court was concerned with the limits of the so-called "mere witness" rule, namely that discovery cannot be obtained prior to the commencement of proceedings from a person who will in due course be compellable to give that information either by oral testimony as a witness or on subpoena. Lord Reid (at 173-174) described three situations where the mere witness rule was relevant. The first is where the plaintiff has a cause of action against a party, in which case the mere witness rule does not apply and discovery is available against that party to find the identity of other wrongdoers in relation to the same wrong. (For a recent Australian case confirming that discovery may be obtained against such a party see Computershare Ltd v Perpetual Registrars Ltd [2000] 1 VR 626 ("Computershare")). Secondly, where the person has no connection with the wrong other than that he or she was a "spectator" or has some document in relation to it (in which case discovery will not be ordered on the basis that such a person is a "mere witness"). The third situation involves an intermediate category which Lord Reid described as being where a person is "mixed up in another's wrong-doing". In relation to this category his Lordship held that the mere witness rule did not apply because if the information is not made available no proceeding would occur at all given that the identity of the wrongdoer would not be known. Accordingly, to apply the mere witness rule in such a case would be to "…divorce it entirely from its proper sphere" (at 174) . This led his Lordship to conclude (at 175) that: "…if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. I do not think that it matters whether he became so mixed up by voluntary action on his part or because it was his duty to do what he did. It may be that if this causes him expense the person seeking the information ought to reimburse him. But justice requires that he should co-operate in righting the wrong if he unwittingly facilitated its perpetration." This formulation was approved in the subsequent House of Lords decision British Steel Corporation v Granada Television Limited [1981] AC 1096 (" Granada ") at 1171, 1182, 1192 and 1196. · In contrast to the English position, in New South Wales there has been only limited authority considering the reach of equitable discovery and Norwich Pharmacal. In McLean Young J, as his Honour then was, at 645, set out a list of four factors that need to be present, namely that: · the plaintiff has established wrong-doing; · the plaintiff has established that he or she needs discovery in order that he or she might not be denied justice; · the plaintiff has established that discovery is necessary; (relying for these three points on the analysis of Templeman LJ (as his Lordship then was) in the Court of Appeal in Granada ); and · the wrong-doing involved more than a mere tort (relying on the decision of Hunt J as his Honour then was in Cummings v 2KY Broadcasters Pty Ltd [1981] 1 NSWLR 246 at 249, a case that did not cite Norwich Pharmacal). In Re Application of Cojuangco (1986) 4 NSWLR 513 Hunt J at 521 cited Granada for the proposition that in a "Norwich Pharmacal type of case" it is sufficient if the applicant has a cause of action (whether or not he or she intends to pursue it) and that discovery is necessary to enable justice to be done. In NEAP Young J at 289 reiterated his view that the "Norwich principle" applies only where something more than a mere tort is involved. · Although these decisions can be justified on their facts, in light of the doctrinal basis of equitable discovery and subsequent developments in other jurisdictions, McLean and NEAP should not be taken to lay down a conclusive test for determining the grant of equitable discovery orders in New South Wales. In particular there is no absolute requirement that the plaintiff establish "wrong-doing" (in the sense of a cause of action), and that such a wrong-doing involve something more than a mere tort. · The House of Lords in Norwich Pharmacal, although purporting to revivify an old Chancery practice, in reality restated the old rules for modern times, a necessary process given the power of common law courts to order discovery altered the position from "the old days when the auxiliary jurisdiction of the Court of Equity was the only avenue available": NEAP at 289. Nevertheless in considering how, in New South Wales, the rule should now be formulated for modern times, it is legitimate and necessary for the court to take account of the doctrine underlying the development of the bill of discovery, namely as a procedure to assist the administration of justice. · The making of preliminary discovery orders should be seen as being an exercise of the powers of an Equity court analogous to the granting of certain types of anti-suit injunctions (see CSR Limited v CIGNA Insurance Australia Limited (1997) 189 CLR 345 at 391-392) and Mareva orders (Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 400-401 [41]), namely to enable the proper protection and administration of the court's processes: see generally Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 at 243 [94]. The statement by the High Court in CIGNA at 352 is equally appropriate to equitable discovery orders, namely: "The inherent power to grant anti-suit injunctions is not confined to the examples just given. As with other aspects of that power, it is not to be restricted to defined and closed categories. Rather, it is to be exercised when the administration of justice so demands or, in the context of anti-suit injunctions, when necessary for the protection of the court's own proceedings or processes." · Being an equitable remedy there is a need to avoid a rigid test that is not adaptable to new situations. As Lord Woolf CJ remarked in the third of the House of Lords trilogy of cases in this area, Ashworth Hospital Authority v MGN Ltd [2002] 4 All ER 193; 1 WLR 2033 ("Ashworth") at [57]): "New situations are inevitably going to arise where it will be appropriate for the jurisdiction to be exercised where it has not been exercised previously. The limits which applied to its use in its infancy should not be allowed to stultify its use now that it has become a valuable and mature remedy." · Further the nature of the remedy means that it should not be burdened by restrictive rules as to its availability. As Justice Cardozo remarked, in delivering the decision of the United States Supreme Court in Sinclair Refining Co v Jenkins Petroleum Process Co 289 US 689, a case concerning an application for equitable discovery in respect of a plaintiff's damages claim (at 693): "Procedure must have the capacity of flexible adjustment to changing groups of facts. The law of discovery has been invested at times with unnecessary mystery. There are few fields where considerations of practical convenience should play a larger role. The rationale of the remedy, when used as an auxiliary process in aid of trials at law, is simplicity itself. At times, cases will not be proved, or will be proved clumsily or wastefully, if the litigant is not permitted to gather his evidence in advance. When this necessity is made out with reasonable certainty, a bill in equity is maintainable to give him what he needs…Today the remedy survives, chiefly, if not wholly, to give facility to proof." · The adoption of a flexible rather than a prescriptive approach is consistent with the development of the principles of Equity which, unlike the Common Law, are "established from time to time – altered, improved and refined from time to time": Hallett's Estate, In re; Knatchbull v Hallett (1880) 13 Ch D 696 at 710; quoted by Gummow J in Wik Peoples v State of Queensland (1996) 187 CLR 1 at 179; see too Spigelman CJ in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 304-305 [8] – [11]. · A consideration of the test propounded by Young J in McLean, the doctrinal considerations set out above, and subsequent authorities, suggests that there are three particular issues that need to be considered in determining the circumstances in which equitable discovery will be ordered, namely: (a) the extent to which it is necessary to demonstrate the existence of a cause of action against the "wrong-doer" in respect of which equitable discovery is sought to aid; (b) whether equitable discovery should be confined to so-called "identity" discovery (to determine the identity of the wrong-doer) or should extend to "information" discovery, that is material to determine whether there is a remedy and if so in relation to what; and (c) what, if any, other factors are relevant to the court's discretion to order equitable discovery including whether it is confined to allegations of "more than mere torts". Demonstration of cause of action · As to (a) certain authorities have expressed the test for discovery in terms of needing to show the existence of an arguable "cause of action" (Granada at 1174D; 1200F) or "wrongdoing" (Ashworth at 199 [26]; 209 [60]) or even a "bona fide or legitimate claim" (Glaxo Wellcome PLC v Minister of National Revenue (1998) 162 DLR (4th) 433 (Canadian Federal Court of Appeal)). This formulation is one means by which the Courts have attempted to ensure that discovery is granted only in appropriate cases. It is not an exclusive test given: · even in those cases where a cause of action has been stated as being required it has been recognised that there is no requirement that proceedings actually be brought: see Granada at 1174; 1200; Ashworth at 205-206 [44]-[47]; and · the need to show a cause of action has not been universally applied. For example, equitable discovery has been granted in aid of enforcing court orders and to establish whether a cause of action existed. · Equitable discovery has been granted to preserve the applicant's practical ability to obtain a remedy. For example discovery orders have been made against third parties in aid of tracing claims (Bankers Trust Co v Shapira [1980] 3 All ER 353; 1 WLR 1274; Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911; see too Marc Rich & Co Holding GmbH v Krasner [1999] EWJ No. 210 (CA)) and in relation to both pre-judgment and post-judgment Mareva orders (see A v C [1981] 2 WLR 629 (pre-judgment); Mercantile Group (Europe) AG v Aiyela [1994] QB 366 ("Aiyela") (post-judgment)). · Importantly in P v T Ltd [1997] 4 All ER 200; 1 WLR 1309 equitable discovery was granted to enable the applicant to determine whether or not he had a cause of action (see particularly at 208h). Lord Woolf in Ashworth (at [57]) referred to P v T Ltd as an illustration of the fact that "new circumstances for [equitable discovery's] appropriate use will continue to arise". Interestingly Young J in Lord v Firns [2000] NSWSC 1021 cited P v T Ltd at [13] without disapproval. Similarly in Straka v Humber River Regional Hospital [2000] 51 OR (3d) 1 the Ontario Court of Appeal, after referring to P v T Ltd, held at 16 [53] that a rigid view should not be taken of the need to show a bona fide claim, considering that it was only one factor to be weighed together with other relevant factors. · There is no reason in principle or authority to adopt a rigid requirement that there be an existing cause of action. The availability of equitable discovery to support a Mareva order, and to ensure the efficacy of a tracing remedy illustrate that, as a matter of authority, there is no requirement in all cases that a cause of action exists. Further there is no reason in principle why this should be so - such a requirement would be inconsistent with the doctrinal underpinning of the procedure as a means of assisting the administration of justice in a manner analogous to a Mareva order or certain types of anti-suit injunctions. The existence of a cause of action should rather be viewed as one way of fulfilling the requirement that equitable discovery be sought and used for a proper purpose, not a mere 'fishing' expedition. As Lord Woolf stated in Ashworth at 209-210 [60] the potential for fishing or misuse of documents can be controlled by requiring identification in general terms of the 'wrongdoing' the subject of the application and the purpose for which the disclosure will be used when made. Confinement of equitable discovery to identity cases? · As to (b) there is now ample authority that equitable discovery extends beyond mere identity discovery and encompasses "full information … [including] all information necessary to enable the plaintiff to decide whether it is worth suing the wrongdoer or not": Societe Romanaise De La Chaussure S.A. v British Shoe Corporation Limited [1991] FSR 1 Vd 18 at 5. Cases which support this view include Ashworth at 202 [34]; Computershare at 634; Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 10; and Aiyela at 374-375 (referred to with apparent approval by Gummow J in Breen v Williams (1996) 186 CLR 71 at 120 and by Gummow and Hayne JJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Limited (2001) 208 CLR 199 at 247). To limit the power to mere identity would be to render Part 1 rule 14 SCR otiose, given that preliminary discovery to determine identity already exists under Part 3 rule 1 SCR. Factors of relevance · As to (c), the position is well summarised by Hoffman LJ in Aiyela at 374C-D in describing the jurisdiction as existing: "when two conditions are satisfied. First, the third party must have become mixed up in the transaction concerning which discovery is required. Secondly, the order for discovery must not offend against the "mere witness" rule, which prevents a party from obtaining discovery against a person who "will in due course be compellable to give that information either by oral testimony as a witness or on a subpoena duces tecum": see [1974] A.C. 133, 174, per Lord Reid." · To this formulation perhaps can be added that equitable discovery, being a discretionary remedy, will not be ordered if legal, including statutory remedies (such as the ability to make a freedom of information application) appear adequate: see Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 446; Glaxo Wellcome PLC v Minister of National Revenue (1998) 162 DLR (4th) 433 at 449. There is no reason in principle, or on the authorities, to fetter the modern power to order equitable discovery by requiring that the conduct the subject of the application amount to more than a mere tort, or indeed be tortious: see Ashworth; Computershare. · In this way the requirements set out in McLean are not exhaustive having regard to developments in the law both in terms of authority and principle. · Further, there is no objection to obtaining equitable discovery from an entity (such as Idoport) that is a party to existing proceedings: see Computershare at 634 [19]; Bentley Fragrances Pty Ltd v GDR Consultants Pty Ltd (1985) 11 FCR 29 at 35. · An alternative basis to seek all or part of the relief at least in the Commercial List Proceedings could be discovery (see Parts 23 and 37 of the SCR) or interrogatories (see Part 24 of the SCR). The National Parties rely upon this in the alternative." The submissions put forward by the OAMPS parties 108 The written submissions which were ultimately pressed were as follows: "WHY NO ORDER SHOULD BE MADE. Introduction. (a) Part 1 rule 14 expressly preserves the Courts jurisdiction for a person to commence proceedings for discovery. (b) Historically, this jurisdiction can be traced back through the NSW Equity Acts and practices to the jurisdiction exercised by the Chancery Courts. (c) An application for discovery made in the existing proceedings against Maconochie, Negubo and Idoport involves different considerations and is based upon a different jurisprudential base. (d) Computershare Ltd v Perpetual Registrars Ltd (2000) 1 V.R. 626 was correctly decided. However, in that case there was no need to resort to equitable discovery. The court's interlocutory processes were ample and were exercised in accordance with principle and exigencies of the suit. (e) Societe Romanaise De La Chaussure S.A. v British Shoe Corporation [1991] FSR 1 Vd 18 was similarly correctly decided. Principles Relevant to the Current Application. (a) The state of the law in NSW is unfavourable to the National Parties, a fact they appear to acknowledge as such in their written submissions. In particular, there is no encouragement for the proposition that discovery can be had to determine whether you have a cause of action . (b) It is submitted that even if the state of the law in NSW is not represented by such authorities as McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623, Cummings v 2KY Broadcasters Pty Ltd [1981] 1 NSWLR 246, and Survival & Industrial Equipment (Newcastle) Pty Ltd v Owners of the Vessel Alley Cat (1992) 36 FCR 129 there are still three impediments to the relief sought. They are the principle in Cardale v. Watkins , the principle in Irving v Thompson and the availability of alternative court processes. The Principle in Cardale v Watkins (1820) 5 Madd 18. (a) It was determined in Cardale v Watkins that a bill of discovery must be in aid of some proceedings either pending or intended and there must be allegations to that effect . (b) By 1836, when Thomas Hare published A Treatise on Discovery of Evidence by Bill and Answer in Equity, the principle was well established. At page 110-111 Hare wrote: To administer to the ends of justice, without pronouncing any decision upon the rights of the parties, by possessing the plaintiff, who appears to have a legal or equitable right, of that evidence which is necessary to make a legal or equitable right available, equity will compel either party to a suit or action to confess or deny upon oath his knowledge of the facts alleged, which tend to sustain the case of the party seeking discovery. It is given either because the plaintiff cannot otherwise prove the facts, or in aid of proof. The modern authorities relating to this jurisdiction, with perhaps once exception, recognise no other object in compelling an answer than its use as evidence in some judicial proceeding. It is therefore a rule, that every bill of discovery is sought in aid of some judicial proceeding commenced or contemplated. If no such object appears, the bill is demurrable. [Footnotes omitted.] (c) Later, Bray, in The Principles and Practice of Discovery (1855), at p.611, put the matter thus: A bill of discovery must be filed in aid of some proceedings either pending or intended, and there must be allegations to that effect: a court of equity did not compel discovery for the mere gratification of curiosity: Cardale v. Watkins 5 Madd. 18. In a bill for discovery it was necessary for the plaintiff to show by his bill a case in which a court of equity would assume a jurisdiction for the mere purpose of compelling discovery, This jurisdiction was exercised to assist the administration of justice in the prosecution or defence of some other suit either in the court itself or in some other court: Redes. Pl. 186. The discovery itself must be material to some suit instituted or capable of being instituted: Redes Pl. 191, 192. (d) The affidavit of Mr Lovell expressly does not swear to any intention to commence an action against AIIL nor to seek redress against AIIL in any other way in further proceedings or by a non-curial method. Mr Lovell rather says, relevantly, in substance that there may be a basis to proceed against AIIL under Part 52A rule 4. (e) Cardale v Watkins was referred to in McLean at p.644D as representing the practice in Chancery. (f) Cardale v. Watkins was considered by the House of Lords in British Steel v Granada [1981] AC 1096, a case again concerning "identity discovery". Counsel for the appellants raised the matter at p.1148D. (g) At 1174B, Lord Wilberforce ameliorated this condition of the remedy: There remains one further argument – again of a technical character. It is said that the relief, being in the nature of discovery, can only be granted in aid of some existing proceedings, or at the most in aid of intended proceedings . This is supported by the admirably brief authority of Cardale v. Watkins (1820) 5 Madd. 18 – but there may be a middle ground between the " mere gratification of curiosity " which is discountenanced, and "in aid of some other proceeding either pending or intended" which is permitted. Here it is claimed that B.S.C. desires to know the identity of the source, not for any actual proceedings (there are and could be none until the name is disclosed), nor for any intended proceedings: their purpose it is said is only to be able to dismiss the employee and/or to deprive him of his pension. Now I would be prepared if necessary to hold that, given a cause of action, an intention to seek redress – by court action or otherwise – would be enough, and there is support for this: see Norwich Pharmacal Co. v. Customs and Excise Commissioners [1974] A.C. 133, 188 per Viscount Dilhorne and Post v Toledo, Cincinnati and St. Louis Railroad Co. (1887) 11 NE Rep 540. (h) Lord Fraser dealt with this same argument at 1200D. (i) It is to be observed that in each of the speeches it was clear that British Steel had a cause of action in breach of confidence and that the identity of the wrong-doer was unknown. (j) In the course of giving judgment in P v T Ltd [1997] 4 All ER 200, Sir Richard Scott observed at 209 – It seems to me intolerable that an individual in his position should be stained by serious allegations, the content of which he has no means of discovering and which he has no means of meeting otherwise than with the assistance of an order of discovery such as he seeks from me. It seems to me that the principles expressed in the Norwich Pharmacal case, although they have not previously been applied so far as I know to a case in which the question whether there has been a tort has not clearly been answered, ought to be applicable in a case such as the present. (k) No reasoning for the apparent extension of the principle is evident other than the emotive circumstances of the case. In Ashworth Hospital Authority v MGN Ltd [2002] 4 All ER 193, 209 (at paragraph 57), Lord Woolf, speaking in the House of Lords, described the case of P v T Ltd as a case where "relief was granted because it was necessary in the interests of justice albeit that the claimant was not able to identify without discovery what would be the appropriate cause of action". In other words, while it was plain that P had a cause of action, he needed discovery to identify what cause of action was appropriate. The Principle in Irving v Thompson (1839) 9 Sim 17. (a) Bray writes in The Principles and Practice of Discovery (1855) that the general rule was that " no person without an interest could be made a defendant to a bill for the purpose of discovery " (at 40). This is the " mere witness rule ". A person who had an "interest" in a suit for relief was a person against whom a decree might be made or who might be affected by a decree made (at 40-1). A bill of discovery sensu stricto , that is, a bill that sought only discovery and no relief in consequence thereof (or even at all) (see Bray, at 609) "could not be maintained against a person not a party to the record in the action in aid of which discovery was sought" (at 40; emphasis added). Further, a person without an interest could not be made a party to an action or a suit for relief for the purpose of filing a bill of discovery against that person . (b) Bray cites a number of cases in support of this general rule. (c) In Fenton v. Hughes (1802) 7 Ves Jun 287, Fenton commenced an action against Hughes. Fenton filed a bill for discovery against, inter alios , one Bate, who had introduced Fenton to Hughes. Bate demurred to the bill. (d) Lord Eldon held that "to a bill for relief a mere witness should not be made a Defendant " (at 289) and that there was no authority to shake the "rule not to make a mere witness a Defendant, especially upon a bill for discovery" (at 291). No mention appears to have been made of the fact that Bate was not a party to the action. However, his Lordship did consider that perhaps a company secretary could be named in a bill of discovery filed in aid of an action against the company (at 289), and as to that said that it was the practice to make the secretary a party in order to obtain such discovery. His Lordship said that making the secretary a party was "extremely questionable", but that "it is very singular to make a person a Defendant, in order to enable yourself to deal better and with more success with those, whom you have a right to put on the record". (e) In Irving v. Thompson (1839) 9 Sim 17, Irving was the chairman of a company and was empowered to sue on its behalf. The company was an insurer, and one Thompson commenced an action against Irving for the purpose of recovering a sum for goods insured by the company. Irving filed a bill for discovery against Thompson and an associate of his, Kruger, in the belief that they had information that the ship in which the relevant goods were lost was unseaworthy. Kruger demurred to the bill. (f) Shadwell, V.C. held that although Kruger may benefit from Thompson's action, he was "not a party to the record at law" (at 27). His Lordship considered Lord Eldon's judgment in Fenton v. Hughes and held that that bound the case before him (at 27), even though the report of the case did not appear to deal with the question whether Bate was a party to the record at law, but only with the question whether Bate had an interest. His Lordship allowed the demurrer. (g) Irving was followed in a number of cases; see for example Kerr v Rew (1840) 5 My & Cr 154 and Queen of Portugal v. Glyn (1840) 7 Cl & F 466. Availability of Alternative Compulsory Court Process. (a) Historically, the bill for discovery in equity developed along the following lines in aid of a person's rights at law. · A bill of discovery would be entertained in aid of the prosecution or defence to any civil proceedings in any court of not inferior dignity and not having itself power to compel a discovery. · A party might file a bill of discovery before he commenced his action, where he required discovery in order to ascertain what form of action to bring · A party might file a bill of discovery before he commenced his action, where he required discovery in order to ascertain the proper person against whom to bring the action · It was not necessary that the Plaintiff be "destitute of other proof of his case" before he could file a bill. · There was no right to file a bill of discovery against a mere witness. (b) Given these origins and purpose, it is not surprising that the availability of other remedies is a powerful factor in the discretion to order equitable relief. (c) There is an instructive passage in Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434,445 where Gummow J. concludes: In each case in which the old equity jurisdiction is invoked, there will be the threshold issue of whether the rules of procedure relating to discovery in the particular court in question operate as a code on the subject and exclude the further operation of that traditional jurisdiction. Section 45 of the Equity Act 1901 (NSW) expressly preserved that jurisdiction (see Heimann v. Commonwealth (1935) 54 CLR 126 at 132-3, per Evatt J, and see, generally, Skinner v. Commissioner for Railways (1937) 37 SR (NSW) 261 at 263-4, per Jordan CJ). On the other hand, it appears not to have been finally settled whether the discovery provisions of the United States Federal Rules of Civil Procedure, introduced in 1938, are an exhaustive treatment of the subject: Moore's Federal Practice , vol 4, paras 26.53. Finally, it must be remembered that, like other equitable remedies in aid of legal rights, discovery of this special kind will not be ordered if legal (including statutory) remedies appear adequate : Pressed Steel Car Co v. Union Pacific Railroad Co (1917) 240 F 135 at 136, per Learned Hand J. The availability of procedures under the FOI Act would thus appear to be a material factor in any attempt to utilise the old equity procedures by the present applicant or its clients. [Emphasis added.] (d) This view was repeated by Gummow, J in Breen v Williams (1996) 186 CLR 71,at 121. See also McLean v Burns Philp Trustee (supra) at 645E, Application of Cojuangco (1986) 4 NSWLR 513, 520G, and Ashworth Hospital Authority v MGN Ltd [2002] 4 All ER 193, 209 at paragraph 57. (e) It is submitted that this proposition is apposite in the circumstances. The circumstances are, according to the National Parties (i) that the identity of AIIL as a wrong-doer is known; (ii) that a wrong-doing by AIIL consisting of a form or forms of champerty is known; (iii) that knowledge of the facts surrounding the wrong-doing so as to frame the proceedings are known; (iv) that legal submissions show that the wrong-doing is an abuse of process within the ambit of Part 52A rule 4; (v) that processes of discovery are available in the Court (the NSW Supreme Court) where the proceedings are to be commenced inter partes for relief; (vi) that they are entitled to a substantial part of the relief sought against AIIL and OAMPS from Idoport and Negubo in the Commercial List Proceedings under Parts 23, 24 and 37 of the SCR; and (vii) that the remedy (the costs order) is in the Supreme Court of New South Wales." The submissions from the Idoport parties 109 The submissions were as follows: "THE NEED FOR EQUITABLE DISCOVERY · It is common ground that equitable discovery is permitted pursuant to Rule 14, Part 1 of the Supreme Court Rules. · Clearly discovery will not be ordered if non party costs orders are unlikely to be made. · Equitable discovery will only be permitted where it is necessary in order than justice not be denied: McLean v Burns Philp Trustee Co Limited (1985) 2 NSWLR 623 at 645; Cojuangco, Re Application of (1986) 4 NSWLR 513 at 521. It is for the applicant to establish the equitable discovery is necessary: McLean v Burns Philp Trustee Co Limited (1985) 2 NSWLR 623 at 645. · The defendants deal with the "need" for equitable discovery in paragraphs 145-146 of their submissions. However none of the matters referred to creates a need: (a) Mr Maconochie has already been cross-examined in respect of AIIL. (b) There is no real issue as to the purpose for which the funds were used (parts 3(b), (d) and (i) of the notice of motion). See: (i) the cross examination of Mr Maconochie on 28 July 1999, transcript page 18, line 15ff (pages 707-709 of exhibit DGL5)). (ii) the evidence of Mr D'Emilo (one of Idoport's former solicitors) as to the use of the monies from AIIL and NSG referred to in paragraphs 13 and 21 of schedule A of the security for costs judgment (exhibit DGL5 at 502 & 504). (iii) the Efficiency agreement, clause 4.1 of which proscribes how the monies can be used (page 845 of DGL5). (iv) Paragraph 4 of the affidavit of Mr Maconochie sworn 16 November 2001 discloses that the funds from all three funders were used in the funding of the proceeding (pages 528-548 of exhibit DGL5) (c) The questions sought to be asked of Mr Maconochie in part 3 of the notice of motion seek his knowledge of funders' purposes. Purpose is a subjective matter and Mr Maconochie's opinions will not be probative of anything. (d) In so far as the questions are directed to Efficiency's assets (part 1(c) to (e) of the notice of motion), these are not necessary, although they might be convenient. Whether or not Efficiency has assets in Australia does not go to whether there is a cause of action. (e) In so far as the questions are directed at identifying the shareholders of North South Group (part 1(a) and 3(e) to (g) of the notice of motion), these questions, even if appropriate do not need to be asked of Mr Maconochie. They are more appropriately asked of Mr Porter, who it appears had a direct role in North South Group. See Lovell's affidavit paragraphs 91-97. (f) Parts 4 to 6 of the notice of motion, if appropriate at all, could be met by the production of documents alone. Further: (i) The various agreements are already in evidence; (ii) Idoport's income or asset value (part 4(d); part 5(d)) are not relevant to abuse of process as it can be assumed in this case that its only real asset was the consulting agreement which was the subject of the litigation; (iii) Whether or not NSG encumbered its share in Idoport (part 5(c)) cannot be relevant to abuse of process; (iv) Mere information about the proceedings (part 6(d)) cannot be relevant to abuse of process. · Any "need" for the discovery sought is not such that justice will be denied if the orders are not made. This is particularly so in the light of the information and documents that the defendants already have and the subpoenas already issued. · By way of analogy, the Court has the power to set aside interrogatories that are unnecessary, such as if they are directed to matters that are already admitted; if they exceed the requirements of the case; or if they are unnecessarily burdensome or otherwise oppressive. See Ritchie para 24.3.1 and the cases referred to therein." Dealing with the remaining issues 110 As emphasised earlier all parties who appeared on the applications exhibited considerable anxiety lest the Court in proceeding to deal with the present equitable discovery applications, stray into the extremely sensitive issues [both of principle as well as of fact] which are likely to be litigated on the actual hearing of the gross sum costs applications [which depending upon the outcome of the equitable discovery applications presently before the court, may very well be pressed in time against persons and companies not presently parties to the equitable discovery applications]. 111 The extensive recitation of the parties submissions to be found in this judgment has been necessary particularly by reason of this anxiety and the fact that in so many areas [notwithstanding the detail of the written submissions which had been advanced by the parties] it ultimately appeared that the Court was not being invited to do otherwise than to be informed by the many authorities referred to on the sensitive topics. 112 My general understanding was that all parties accepted that the current applications should be determined by the proper exercise of the Court's discretion upon the basis that court would have to be satisfied that the applicant's had, within the relevant principles, properly demonstrated a need for the suggested equitable discovery and had demonstrated at least an arguable case that the funding arrangements, having regard to the suggested cloak of secrecy as to how the corporate entities were established, the suggested possibility of piercing the corporate veils and having regard to the manner of implementation of the funding arrangements, may distinctly arguably have constituted an abuse of process. 113 I approach the applications as primarily pursued in an attempt to persuade the court that the applicants have demonstrated a sufficiently arguable case that the staged and complex funding of this litigation as a commercial venture for reward may have constituted an abuse of process within those principles when one takes into account: · the funding of the proceedings without an assumption of liability for any adverse costs orders, and/or · the extent, nature and degree of active participation and/or involvement, such as there may or may not have been, in relation to the actual conduct of the litigation, and or · the suggested champertous nature of the funding arrangements when taken into account with the manner in which those arrangements were effected as a practical matter 114 Clearly also the applicants are seeking to prove an arguable case that the suggested abuse of process led to particular costs being incurred. 115 Naturally the principles which underpin the power of the court to grant equitable discovery are highly significant. Likewise of particular significance is the particular suggested need for the equitable discovery, so that the close arguments advanced by the parties in favour of or negating this proposition have been carefully considered in the decision as to the proper exercise of the Courts relevant discretion to make the orders sought. Application by Idoport and Negubo to tender further materials: 116 An application was made by Idoport and Negubo to tender the following documents relating to proceedings 4964 of 2000 before Young J: (a) the outline of submissions filed for the NAB parties dated 19 February 2000 (sic – 2001); and (b) the transcript of the hearing on 22 February 2001. 117 The application is rejected for the following reasons put forward by the National Parties: · the submissions were confidential and the content of the submissions could not be used other than for the purpose of proceedings 4964/00; · the submissions were entitled "confidential submissions served pursuant to paragraph 12 of orders made by Justice Young" and provided an analysis of the key elements of the Efficiency Agreements.- In this context: (a) the Efficiency Agreements were produced in answer to notices to produce in Proceedings 4091 of 2000, and remained the subject of the confidentiality regime outlined in Exhibit P6; (b) Justice Young's orders dated 15 February 2001 varied the confidentiality undertaking the subject of orders made by his Honour on 15 December 2000 in order to enable persons who had signed the Confidentiality Undertaking to disclose the confidential material to an assistant for the purpose of, inter alia, typing any submissions and to enable limited copies of the confidential material. This was the only amendment made to the confidentiality undertaking of 15 December 2000. · Accordingly, the subject matter of the submissions could only be disclosed on a strictly limited basis in accordance with the relevant confidentiality undertakings. · The matters summarised in the table in paragraph 7 of Idoport/Negubo's reply submissions were referred to during the cross-examination of Mr Sheahan. As a result of the confidentiality regime put in place by Justice Young, Mr Sheahan's cross-examination did not refer, other than in the most general terms, to the terms and effect of the Efficiency Agreements (see for example T23.03-25.12 where the conditions precedent to the Partnership and Umbrella Agreements are referred to in general terms). 118 The Idoport Parties have also sought to tender the outline of submissions of the NAB Parties in the Commercial List Proceedings of 19 February 2001. That tender is allowed. The submissions will be admitted as exhibit 19/2. As to need 119 During the course of advancing oral submissions Mr Hutley submitted as follows: "We submit that, whilst the Court is not limited to the discovery of name where undoubted wrongdoing seems to be a prerequisite to the exercise of the jurisdiction to compel discovery of name, the Courts have, where going beyond the name category of cases, been astute to identify a real impediment to the plaintiff advancing a case and thereby seeking access to justice. The cases broadly break into three classes. Firstly, the absence of identifiable defendant case. Secondly, the absence of critical information to formulate a cause of action or claim. Thirdly, what might be called the tracing or asset identification cases where the Court has identified that there was some asset or thing unknown and relevantly unknowable by the plaintiff without access to the equitable jurisdiction of the Court and in the absence of that knowledge the plaintiff was unable to protect that which the plaintiff seemed on very powerful evidence before the Court or as a matter of right because it was post-judgment to be assets in which the plaintiff was either equitably interested or without which the fruits of the plaintiff's judgment against a particular party would be rendered nugatory. The current case advanced by the NAB has many peculiar aspects and we submit those aspects demonstrate that on no basis would your Honour exercise the powers of this Court to assist them through equitable discovery with one potential exception, namely, the shareholders of NSG…" [Transcript 113] 120 The further submission was that the evidence before the Court makes clear that the applicants presently are shown to know with precision the terms upon which the material funds were advanced, the cause of action which they seek to pursue [that is to say the application under Part 52A rule 4 (5) (d)] and with some exceptions, are shown to be aware of the identity of all putative defendants to the potential applications for third party costs orders. 121 Mr Hutley's submission was that neither the applicants nor their solicitors had sworn that without the equitable discovery presently sought, the potential litigation against any of the identified parties could not or would not take place. He particularly took the Court to an exchange between the Court and Mr Gleeson SC, leading counsel for the National Parties, [transcript 63 et seq] where I had asked: "So to put it bluntly the applicants do not submit - is this right - that on the materials which are presently before the Court there is sufficient to justify commencing a case based upon an abuse of process or, alternatively, is it that the applicants don't have to make clear what that position is, but they do make clear that, whether or not there is sufficient, they are entitled presently to more before starting. I need to understand exactly what it is that you are putting." 122 The response was relevantly as follows: "GLEESON: Yes, and your Honour an answer, which has to be given carefully, requires attention to the different aspects of our application. NSG To the extent we seek named discovery for the names of the NSG shareholders we do not have the material to make that application today. If we had their names today, which we don't have, whether we could allege today an abuse of process against them would be in the borderline area, for this reason, that with them we have not only to get an abuse of process against NSG as a funder, but we have to in effect pierce the corporate veil to go to the individual shareholders. And what we would like to put …is no more than that that would be a borderline case on the material we have today because of the difficulties in piercing a corporate veil unless you have a solid basis to do it. If we could do it, it would be on an agency type argument and we certainly have some material to suggest agency .. OAMPS The next category down is a claim against OAMPS. Now to make a third party claim against OAMPS also involves, in a sense, piercing the corporate veil because the direct party to the shareholding agreement was AIIL. There is, however, material - and I have taken your Honour to some of it this morning - to suggest that there was a fairly significant degree of involvement of OAMPS in the activities of AIIL at various stages in the matter, so there is a reason to think, based on that material, that it may be appropriate to pierce the corporate veil. Whether there is enough to make that allegation today is again a borderline question. AILL The third category is AIIL. In respect of AIIL there is probably a stronger case than in respect to the first and second categories at the moment. We have the funding agreement and we have some evidence of involvement and control. Against that, however, we have a public position taken by that company and repeated in its submissions that it is proper to be characterised as a mere shareholder and the purpose for seeking the discovery is in order to allow the bank to have the best information that can currently be obtained so as not only to make a considered decision but to plead it in the most precise and particular fashion. EFFICIENCY The final category is Efficiency. Efficiency is a little different because we have the agreements and they have been the subject of detailed court findings as to what they mean. We had made a submission at an earlier stage in this matter, I think to your Honour, that those agreements were champertous. We made that for a particular purpose which was that on the security for costs application we were confronted with a delay argument and we had various answers to that, one of which was: Well, if the agreements were unenforceable as a matter of public policy you wouldn't give much weight to the delay argument. Your Honour noted those submissions but did not decide the question of champerty because it was unnecessary to do so. What is clear, however, is that at that point in the case we did not need to and did not allege that there was an abuse of process and I think it is correct that at no stage at which these funders have been before the Court previously has the Court been asked to decide that their behaviour either put them in abuse of process or rendered Idoport's proceedings an abuse of process. So that what we then seek in respect to Efficiency are two categories of information. One is, as it were, more information about their involvement, that is, although they did have rights of involvement and control, how did they exercise them? That information will enable a better decision to be made on bringing them in. Secondly, there is quite a discrete category of information which is about the assets of Efficiency in Australia. Now that is sought because we haven't been able to find out if they have any assets in Australia. If they are joined to the proceedings, that is going to be a mini expedition in itself because it will require service out under Part 10." [Transcript 63-66] 123 The submissions which were then put by Mr Hutley drew very close attention to the precise terms of the matters which were sought in the notice of motion to be detailed in an affidavit to be made by a director of Idoport and Negubo. In that regard Mr Hutley made the following points: · that the applicants were conceding that their cases against NSG and OAMPS were borderline cases as it was necessary for the applicants to endeavour to pierce the corporate veil in each instance; · that the applicants had exhibited an absolute lack of materials showing at any level [let alone a prima facie case level], that such a piercing of the corporate veil may have a prospect of success and that Mr Gleeson had appeared to concede that it would be necessary in this regard to establish an agency relationship between the relevant shareholders and either or both of these corporate entities; · that the terms of the notice of motion were very far more extensive then seeking to elicit knowledge of relevant information concerning these agency relationships or the possibility thereof; · that insofar as OAMPS was a holding company of AIIL it would be hardly surprising to find that it had had an involvement in the conduct of its subsidiary; · that as to AIIL, although the case was put by the applicants as a clearly stronger case at least in terms of the present evidence before the Court, there being some evidence of involvement and control, the need which was put forward by the applicants to seek discovery appeared entirely out of line with the fact that Mr Smith SC on 31 May 2000 put to the Court that if the defendants were successful in obtaining an order for costs [of the proceedings and in relation to the cross-claim], they were entitled to seek an order for costs against funders, and on the material said then to be before the Court, had a real interest in the success of the litigation [part of Exhibit R 1 (b) on the present applications, transcript page 22] [See also the terms of the letter sought by leave to be sent to funders notifying them of an intent to pursue them for costs orders – Attached to the Notice of Motion filed 11 July 2000 – Part of Exhibit R1(a)] · that as to Efficiency the applicants have the relevant agreements and indeed contended [cf exhibit 19/2] that they were unenforceable as champertous on the security for costs applications; · that as to Efficiency, it was out of the question for the Court to order equitable discovery in terms of the information sought as to its assets within Australia. 124 The short proposition which followed was that there had not been demonstrated any need for the equitable discovery in terms of a demonstration that justice would be denied to the applicants if the equitable discovery orders were not made. The submission was that the applicants are shown to be seeking not access to materials needed to obtain justice, but materials which might ultimately assist their case which, for all the Court could know, may well be intended to be commenced irrespective of what orders may be made on the equitable discovery applications. 125 Further Mr Hutley adverted to the consent orders which were made against Mr Porter during the course of the hearing of the applications. The submission was that Mr Porter, having apparently been a shareholder of NSG, the information likely to come forward from him must be taken into account by the Court in the exercise of its discretion in terms of the applicants endeavours to establish the relevant need. Dealing with the matter Equitable discovery in the context of prospective third party costs applications 126 The arguable case which to my mind has been made good by the applicants is that equitable discovery is available in this State and is available in the context of a prospective third party costs application. Such an application does sufficiently comprise "proceedings" or "a cause of action" or "wrongdoing" so as to engage the processes of discovery, whether in relation to name discovery or information discovery. 127 The proposition that there are fixed limits on the bounds of equitable discovery, as established by cases prior to 1850, such that it can never be used to obtain information relevant to the bringing of a third party costs application is rejected. 128 In Ashworth, the House of Lords clearly accepted that an intention to commence proceedings was not necessary (see Lord Slynn at [3]; Lord Woolf CJ at [42]-[47] (Lord Browne-Wilkinson, Lord Nolan and Lord Hobhouse agreed with Lord Woolf CJ). 129 Likewise the principle in Irving v Thompson (1839) 9 Sim 17 has been overtaken by Norwich Pharmacal. 130 The present circumstances go well beyond the ingratiation of curiosity [cf Cardale v Watkins], there being an arguable case that each of the respondents was involved or "mixed up" in the relevant matters so as to escape the mere witness rule. 131 Mercantile Group v Aiyela is in any event authority for the proposition that the mere witness rule had no relevance where discovery is sought against a third party in aid of a post-judgment Mareva injunction since any trial would already have taken place. There the mixing up of the third party in the first defendant's arrangements to defeat execution of the judgment was sufficient to make it just and equitable for the discovery order sought to be made. 132 Importantly and as pointed out by Cardozo J in Sinclair Refining Co (supra), procedure must have the capacity of flexible adjustment to changing groups of facts there being few fields where considerations of practical convenience should play a larger role. As already observed: "Lord Woolf in Ashworth (at [57]) referred to P v T Ltd as an illustration of the fact that "new circumstances for [equitable discovery's] appropriate use will continue to arise"." 133 Young J in Lord v Firns [2000] NSWSC 1021 [when referring to the suit for discovery in equity being a curial process available for administrators who find that non-curial inquiries are insufficient] cited P v T Ltd at [13] without disapproval. Jurisdiction to make a third party costs order in the Commercial List proceedings 134 I accept that it is reasonably arguable that the Courts continues to have jurisdiction to make a third party costs order in the Commercial List proceedings. Abuse of process 135 The above reasons have already held that the categories of abuse of Court process are not closed and that there can be circumstances in which an outside funder without any interest in the litigation which determines to fund the litigation by means of an acquisition of shares in a party to the litigation may, depending upon the particular circumstances be found to be in abuse of the processes of the court. 136 I further accept that is arguable that either or both of: · the circumstance that a funder [having no pre existing interest in particular proceedings] may determine, [in return for a promise of a significant share of any verdict] to approach the mode of funding the litigation by using particular measures to avoid the possibility of being identified as a funder [for the purpose of being exposed to a costs order should the litigation be unsuccessful]; · the circumstance that a funder may be involved to a higher or lesser degree in controlling or intermeddling with the conduct of the litigation, may expose the funder to a third party costs order if found to be in abuse of the processes of the court. 137 The central concern relates to what has been said to be the ordinary price to be paid for bringing civil litigation in the Courts: Harpur v Ariadne Australia Ltd (No 2) [1984] 2 Qd.R of 523 at 532. Depending upon the particular circumstances, those who as real parties are behind plaintiffs, can be required to undertake some of the risks of the proceedings if they wish to have the benefits of the litigation. The arguable entitlement of a party which is successful in proceedings is to be in a position to reach back to pursue those who have stood behind the plaintiffs in order, if the proceedings be successful, to obtain a share of the proceeds. The mischief is capable of embracing the financing of [and/or active participation in controlling] proceedings by persons who undertake particular steps [as a practical matter by cloaking their identity] so as render themselves immune from liability for costs. 138 Hence a funder found to have structured an investment through an offshore vehicle in order to conceal it's identity from public discovery may expose itself to a third party costs order, if found to be in abuse of the processes of the court. 139 I accept that it is arguable that there is no compelling reason of policy or principle that requires an "abuse of process of the court" for the purpose of Part 52A rule 4(5)(d), to equate with the principles that govern the circumstances in which it is appropriate to grant a stay of proceedings. What has been demonstrated presently? 140 Ultimately it is necessary to deal with the detail. This is particularly so in examining the suggested lacuna in the material presently available to the National Parties. The areas which were put forward by those parties in final address were: · the identity of the NSG shareholders; · whether the corporate veil can be pierced or lifted in respect of the NSG shareholders or OAMPS; · the degree of control/involvement/intermeddling by NSG or its shareholders, OAMPS, AIIL, Efficiency; · what are the assets of Efficiency in Australia. 141 It is appropriate to deal with these matters seriatim. Identity of the NSG shareholders 142 It is clear that the National Parties to not have the names of these shareholders and do not have the means to ascertain those names. It is also clear that the Idoport/OAMPS parties have refused to divulge them. 143 The suggestion that the National Parties will find this information out from Mr Porter seems unlikely to necessarily result the issue. However it is practicable to deal with this possibility by staggered dates for discovery. Modes of piercing the corporate veil 144 The National Parties sought to deal with the proposition put against them that there was no basis for the court to infer that the corporate veil might be pierced by citing authorities which make the point that a piercing or lifting of the corporate veil might take place in more than one way and is not limited to agency. The statements of principle put by the National Parties are accepted. In short: · In Pioneer Concrete Services Limited v Yelnah Pty Ltd (1986) 5 NSWLR 254, Young J at 264 explained the expression "lifting the corporate veil" in the following terms: "This expression means that although whenever each individual company is formed a separate legal personality is created courts will on occasions look behind the legal personality to the real controllers." · It may be more correct to use the term "piercing the corporate veil". In Atlas Maritime Co SA v Avalon Maritime Ltd, The Coral Rose (No. 1) [1991] 4 All ER 769, Staughton LJ stated at 779 that: "To pierce the corporate veil is an expression that I would reserve for treating the rights and liabilities or activities of a company as the rights or liabilities or activities of its shareholders. To lift the corporate veil, or to look behind it, on the other hand, should mean to have regard to the shareholding in a company for some legal purpose." · There is no common, unifying principle, which underlies the occasional decision of courts to pierce the corporate veil. Although an ad hoc explanation may be offered by a court which so decides, there is no principled approach to be derived from the authorities: Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 at 567, per Rogers A-JA. · The cases merely provide instances in which courts have on the facts refused to be bound by the form or fact of incorporation when justice requires the substance or reality to be investigated: see Theosophical Foundation Pty Ltd v Commissioner of Land Tax (1966) 67 SR (NSW) 70. · When one company is found to be the agent of an individual, it is often said that the corporate veil has been pierced. Strictly speaking this may not be true. A finding that one party is the agent of another does not require a disregard of the separate entity. It merely imputes the acts of one party to another under normal agency principles. · An agency relationship of this type may not be inferred from mere control of the company or ownership of shares. Rather, it will depend on an investigation of all aspects of the relationship between the parties: Halsbury's Laws of England, Volume 7(1) at [93]; Adams v Cape Industries plc [1990] Ch 433 at 536H. · Although control of a company by its members (or even a sole member) as such does not make the company an agent for the member or members, the additional factor of a failure to provide adequate resources for the company's function may give rise to the suggestion that the under-resourced company is an agent for its controller(s): see generally Ford's Principles of Corporations Law at [4.250]. · There may be cases where the Court will "pierce" the corporate veil, not because it considers it just to do so, but because special circumstances exist indicating that it is a mere facade concealing the true facts. In identifying what is a mere facade, the motive of those behind the company will be relevant. The court will go behind the status of the company as a separate legal entity distinct from its shareholders, and will consider who are the persons, as shareholders or even as agents, directing and controlling the activities of the company: see Merchandise Transport Ltd v British Transport Commission [1961] 3 All ER 495 at 517, 518; see generally Halsbury's Laws of England, Volume 7(1) at [93]. · In these circumstances, the corporate veil may be "pierced" so as to attribute rights or duties to the member as a principal: see generally Ford's Principles of Corporations Law at [4.250]. Returning to the evidence 145 Turning then to the particular material before the court, I have earlier in this judgment referred to the fact that the price of the shares issued to NSG was tied to the amount subscribed by the shareholders in accordance with an investment summary. The National Parties do not have that document but the court may infer that it likely described how the money would be used for the purpose of funding the litigation and was likely a document on the basis of which a decision was made as to how much money would be placed into NSG. The court has been taken to a letter of 5 June 2000 from Mr Maconochie to the directors of the North and South Group which stated that the issue price of the share in Idoport issued to that group was A$100,000 with an unpaid amount of A$4,900,000. The same letter stated that the share had been issued pursuant to the Shareholders Agreement and that the maximum that Idoport was able to call upon the North and South Group to pay upon the share in relation to the unpaid amount was the lesser of A$4,900,000 or the amount subscribed to the group in relation to the issue of a particular class of shares in accordance with the Investment Summary of 21 March 2000. The share would be at all times fully paid to the amount subscribed to the North and South Group by subscribers to a particular class of shares in that group and that Idoport may only call upon that group to pay up to a maximum amount of a particular class of subscriptions. In short this is evidence satisfying the Court that there is a need for the National Parties to obtain access to the investment summary. 146 It will be recalled that NSG was incorporated in the British Virgin Islands. The evidence before the Court makes quite plain that by reason of the prevailing laws of secrecy, the National Parties have not been able to obtain by search, any detail of significance in relation to ascertaining who the shareholders were. In short the court is able to infer that the vehicle selected for the investment may have been so selected for the purpose of concealing the identity of the shareholders. 147 In the event that shareholders determine to fund litigation indirectly through a company vehicle [approaching the structure of the vehicle by selecting a vehicle incorporated in a place where those laws of secrecy will protect the identity of the shareholders] it is possible, depending upon the particular circumstances and the degree of involvement if any in the litigation, that should there be an abuse of process demonstrated, the court may pierce the corporate veil. 148 It is clear that the National Parties have without material success, approached those persons within the jurisdiction who are likely to have information in relation to these matters. Whether OAMPS may have been engaged in abuse of process. 149 The materials tendered by the applicants on the instant application were tendered for the purpose of putting to the Court that it was appropriate to make the following findings: · that OAMPS and AIIL had knowledge of the purposes for which their funding would be used in the action; · that OAMPS and AIIL had particular knowledge that their funding would be used to prepare damages statements and bring the receivership application; · that OAMPS and AIIL were let into and shared and acquiesced in the strategic tactics of Idoport in bringing the receivership application; · that that application was perceived by Idoport and them to be strategically significant; · that the shared intention was that that application would force an early settlement of the action which would allow OAMPS and AIIL to receive a return on their investment many times the size of that investment; · that OAMPS and AIIL agreed to an amendment to the funding, in May 99, with the above knowledge and intentions; · that those parties knew that if the settlement was not achieved through the receivership application then either Idoport would be left to seek out new funders or absent that, there may be difficulties in the matter being pursued through to a final hearing, as in fact occurred; · that those parties knew that by funding these steps in the action the bank would be put to very substantial costs of defence, as in fact happened, and that there would not be assets in Idoport to meet any costs order subsequently made in the action as occurred. 150 To my mind those and many other of the materials presently before the court on the applications, go a considerable distance towards arguably permitting the court to draw certain [although perhaps not all] of the inferences to the suggested effect. However bearing in mind the manner in which the application was ultimately argued it is unnecessary to make findings on whether an arguable case has presently been demonstrated in relation to the drawing of each of those inferences. Those matters will more properly be the subject of address when the gross sum costs orders are before the court for final hearing and when all of the evidence will be before the Court. [Particularly noteworthy in relation to other of the materials before the court are the documents (1) which show that OAMPS was placed upon notice of the issue of breaching the laws of champerty and maintenance unless the companies were placed in liquidation and the liquidator's exception to that rule were sought to be availed, (2) which show the clear warnings to the OAMPS interests that a particular method of structuring the action or the funding might breach those doctrines of maintenance and champerty and might lead to the funder being the subject of the very sort of costs application presently threatened, and (3) such as production of the draft statement of claim produced by OAMPS and AIIL dated 16 August 1998, which furnish some evidence that those parties may have had a degree of involvement in the action from its outset beyond that of a mere shareholder]. 151 In short the National Parties are entitled to equitable discovery in order to ascertain matters within the knowledge of OAMPS concerning the purpose for which AIIL purchased the shares in Idoport; the use to be made by Idoport of those funds; and further, communications between OAMPS or its representatives and Idoport, Negubo, Mr Maconochie, NSG, Mr Walker or their representatives relating to various aspects of, and implementation of, the AIIL Agreement. Information held with respect to the conduct of AIIL 152 This is an area where it seems plain that evidence of the involvement or control or intermeddling in the litigation may well be critical to be establishing of any abuse of process which may have occurred. It seems clear that at present the National parties have only partial evidence on this matter. Information held with respect to the conduct of Efficiency 153 It is clear from the evidence presently before the Court that the National parties have some albeit limited evidence to put before the court. The question is whether or not sufficient has been shown to entitle those parties to have the further discovery which is sought. 154 Insofar as the respondents to the applications strongly contended that there was no sworn evidence of a lacuna in the material available to the National Parties in order to permit the bringing of further proceedings seeking a third party costs order, there is no fixed requirement as to the nature or type of evidence required to be before the Court. The Court on an application such as the present adjudicates in terms of all of the evidence then before the court. To my mind the authorities extend this distance. In Ashworth Hospital v MGN [2002] UKHL 29 Lord Woolf CJ in examining the jurisdiction to order discovery put the matter as follows (at page 209): "New situations are inevitably going to arise where it will be appropriate for the jurisdiction to be exercised where it has not been exercised previously. The limits which applied to its use in its infancy should not be allowed to stultify its use now that it has become a valuable and mature remedy…" Ultimate finding 155 Ultimately and notwithstanding the submissions that a close examination of the particular orders sought in the notice of motion and in the summons went beyond that which was appropriate, I am satisfied that there is a real prospect that the orders sought may aid in the administration of justice and that the applicants have shown sufficient of the impediments in their way to justify the proper exercise of the relevant discretion in terms of the making of each of the orders sought. 156 The applicants have demonstrated that there is material available to suggest at least at an arguable case level, that depending upon the precise evidence which becomes available, there is sufficient of a possibility that an application [seeking to establish an abuse of process] may be properly brought under the rules, to justify the making of the orders which are sought. Notwithstanding the submissions put in exhibit 19/2 the applicants, bearing in mind the need to be entirely satisfied of the existence of materials on the basis of which it may be proper to allege abuse of process, are presently entitled to the discovery sought. They have established that there is a need to obtain the further discovery which is sought. The issue may well extend beyond the mere terms of the funding agreements into questions of how the agreements were implemented in practice including questions of control or intermeddling or involvement. 157 The discovery which is sought is shown to be for a purpose which in the particular and unusual circumstances traded by the evidence presently before the court is necessary and proper in the administration of justice The discretionary defences 158 To my mind none of the discretionary defences is of substance. They amounted to submissions that Mr Hutley's clients could not be expected to give any, or any useful evidence as to the purposes of or state of knowledge of OAMPS or AIIL; that Mr Porter may produce the material information, that Mr Hutley's clients were impecunious in terms of being unable to shoulder the burden of even seeking to comply with the orders sought and that there were other curial processes available to the National Parties. The applicants have discharged the burden of showing that they have exhausted all avenues otherwise available to them; there is no material prejudice demonstrated to prevent either of the clients represented by Mr Hutley or those represented by Mr Robinson SC [leading counsel for OAMPS and AIIL] from being required to give the necessary answers; those answers may be required following Mr Porter complying with the order made against him [the information provided by Mr Porter has been ordered to be furnished to OAMPS and AIIL]; the orders to be made against Mr Hutley's clients will oblige the applicants to pay the reasonable costs incurred in seeking to comply with the orders; and there are no curial avenues otherwise available to the applicants which have been shown to be appropriate presently or which displace the proper exercise of the Court's discretion being to make the orders presently sought. Questions about efficiency's assets 159 However in my view the questions that are directed to Efficiency's assets (part 1(c) to (e) of the notice of motion) should be disallowed. In Beneficial Finance v Price Waterhouse (1996) 68 SASR 19, Perry J stated (at 35): "… unless a party sued volunteers the information, there is no right in the plaintiff to examine a defendant ahead of the trial in an endeavour to elicit information about the defendant's means, with a view to deciding whether it is worthwhile to go on with the case or some part of it." 160 The financial position of Efficiency does not go to any legal issue between the parties, but only to the forensic decision about whether or not proceedings should be brought. I accept as correct the submission that the issue here is analogous to the pursuit of documents effecting insurance arrangements of a party to litigation, in the absence of there being an issue in the proceeding concerning the party's insurance arrangements. Short minutes of order and further submissions 161 There are a number of matters of detail which remain for consideration. These were adverted to during the hearing of the applications and include the framing of orders to comprehend the reasonable costs of the parties who are to be the subject of the orders, questions of confidentiality, a question of timing concerning compliance by Mr Porter with the orders made against him and one or two other matters. The proceedings will be before the court for the making of final orders and to deal with all outstanding matters including costs as soon as the parties have had a proper opportunity to read this judgment and to exchange draft short minutes of order. Having carefully examined the proposed orders set out in the notice of motion and the summons to my mind, subject to attention being given to these matters of detail, the proper exercise of the Courts discretion will be to make the orders therein sought. I certify that paragraphs 1 - 161 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 13 August 2004 ___________________ Susan Piggott Associate 13 August 2004 Last Modified: 08/16/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.