Queensland Supreme Court considers “unconventional” forms of security for costs and whether expert reports are privileged and not required to be disclosed

The case of Murphy v Gladstone Ports Corporation Ltd [2019] QSC 12 (Murphy v Gladstone Ports) examines whether:

1. A deed of indemnity issued by a foreign company, coupled with the payment of money into Court for the purposes of enforcing the deed of indemnity in the foreign jurisdiction, is sufficient security for the purposes of a security for costs application; and
2. Whether a party to a proceeding can seek disclosure of expert reports under rule 212 of the Uniform Civil Procedure Rules 1999 (Qld) (the Court Rules).

Background

The Plaintiffs brought a representative class action (pursuant to Part 13A of the Civil Proceedings Act 2011 (Qld) (CPA)) against the Defendant for alleged negligence in the design and construction of a bund wall in Gladstone Harbour. They alleged that, due to the Defendant’s negligence, the wall failed and allowed contaminants into the water, causing economic loss.

The Plaintiffs entered into the representative proceeding funding agreements with Sydney-based litigation finance company LCM Operations Pty Ltd (LCM).

Security for Costs

Pursuant to rule 670 of the Court Rules, a defendant to a proceeding may apply to the Court requiring that the plaintiff pay money into Court to cover the defendant’s costs in defending the proceedings.

Here, the parties agreed that security of costs should be provided, however, disagreed on the form of the security to be provided. The Defendant argued that security in the amount of $400,000 should be provided in the “conventional way”, that is, either by way of bank guarantee or by payment into Court. The Plaintiffs proposed an arrangement whereby AmTrust Europe Limited (AmTrust), a foreign corporation having no assets in Australia, provide a deed of indemnity and that $30,000 be paid into Court as security for the costs of enforcing the deed in the foreign jurisdiction. The deed would also provide for an unconventional and irrevocable undertaking on behalf of AmTrust to pay the Defendant any sum (or sums) up to $400,000, which the Plaintiffs would be legally required to pay in the event that the Plaintiffs were unsuccessful in its litigation.

The Defendant argued that the deed of indemnity was not an adequate form of security on the basis that it had “concerns that the deed may not be enforceable if AmTrust receives, as consideration providing it a share of the proceeds of any successful settlement of judgment. In that event, the deed may form part of a champertous funding arrangement in circumstances where maintenance and champerty are torts in Queensland”.[1] Furthermore, the Defendant raised additional concerns that if the funding agreement is unenforceable, the agreement between AmTrust and LCM may also be void and unenforceable, and if void and unenforceable, the natural consequence would be that the deed of indemnity would also be void and unenforceable.[2]

The Court examined whether the funding agreement was champertous and whether there was a risk that the deed of indemnity would be unenforceable. The Court found that AmTrust was a financially robust corporation and that the effect of the deed was to give the Defendant direct recourse against a substantial fund in a cost efficient and expeditious manner. Justice Crow considered that the risk of the deed of indemnity being unenforceable was negligible. Furthermore, Justice Crow held that the deed of indemnity, together with the additional payment into Court for the enforcement of the deed of indemnity, was adequate security for the Defendant’s costs and did not impose an unacceptable disadvantage on the Defendant.

Disclosure

The statement of claim produced by the Plaintiffs contained a considerable amount of technical detail and it was evident that it had been produced with the assistance of an expert. The Defendant sought disclosure of the expert evidence used throughout the statement of claim pursuant to rule 212 of the Court Rules. Relevantly, rule 212 provides that the duty of disclosure does not apply to a document to which there is a valid claim to privilege from disclosure, however, a document consisting of a statement or report of an expert is not privileged from disclosure.

The Defendant sought discovery of the documents on the basis that it was entitled to the discovery of “any expert reports, including drafts, directly relevant to the issue of dispute on the pleadings”.[3] The Plaintiffs sought to resist the Defendant’s application of discovery on the basis that it was privileged information and that rule 212 does not apply to expert advice that is obtained in a consulting capacity, but rather only to expert evidence that is “deployed” by a party. Furthermore, common law litigation privilege is a “substantive right [and] those substantive rights cannot be affected other than by clear legislative intent, which [was] absent”[4] from rule 212. The Defendant argued that rule 212 is unambiguous and it ought to be given its full effect.

His Honour held that rule 212 ordered that the expert evidence be disclosed on the basis that rule 212 broadens the scope of what documents are required to be disclosed. Further, His Honour rejected the Plaintiffs’ argument and held that under r 212(2), whether a party is “intending to rely on a report” or “intending to deploy a report” are irrelevant when assessing whether an expert report needs to be disclosed. Further, disclosure is required when a statement or report “reflects the expert’s state of mind at the time it was written”.[5]

Developments after the Court’s decision

Subsequent to the Court’s decision, LCM sought a declaration from the Court that the class action funding agreement was enforceable and that the torts of champerty and maintenance do not apply to class action funding arrangements in Queensland.[6] The Court upheld the funding agreement and concluded that Part 13 of the CPA permits class action proceedings to be funded by a commercial litigation funder. The Court did not go so far as to decide that the torts of champerty and maintenance no longer exist in Queensland.  The Court found that it was unnecessary to do so, as no declaratory relief was sought in this regard.

Key takeaway

The Court’s decision in Murphy v Gladstone Ports shows that Courts are willing to utilise “unconventional” forms of security in a security for costs application in circumstances where litigation funders are involved. Further, parties ought to be cautious in preparing their pleadings, when seeking to rely on expert reports, in light of the wording contained in rule 212(2).

[1] Murphy v Gladstone Ports Corporation Ltd [2019] QSC 12 at [20].

[2] Ibid at [23].

[3] Ibid at [64].

[4] Ibid at [68].

[5] Ibid at [101]

[6] Murphy Operator & Ors v Gladstone Ports Corporation & Anor (No 4) [2019] QSC 228.

Authored by:

Guy Edgecombe, Partner

Issac Day, Solicitor