CLASS ACTION ABUSE: WALSH V WORLEYPARSONS LIMITED
June 2, 2017
Walsh v WorleyParsons Limited  VSC 292
In Walsh v WorleyParsons Limited  VSC 292, the Victorian Supreme Court determined that another class action be permanently stayed for an abuse of process.
The claim against WorleyParsons Limited (WorleyParsons) was brought on behalf of its shareholders. It was alleged that the company misled the market in 2013 by virtue of its statements to the market about projected earnings in 2014. The lead plaintiff in the proceeding was Ms Walsh.
In an earlier proceeding in 2013, Melbourne City Investment Pty Ltd (MCI) had commenced its own class action proceeding against WorleyParsons. MCI’s sole director and shareholder, Mr Elliott, was the lawyer who instituted the proceeding. WorleyParsons submitted that following its incorporation, MCI acquired small parcels of shares in ASX200 companies, and that Mr Elliott intended to use MCI as a vehicle for bringing representative proceedings against listed companies.
WorleyParsons applied to strike out MCI’s amended statement of claim and MCI sought leave to file a further amended statement of claim. The application, which was opposed by WorleyParsons, was refused by the Court on the basis that MCI, as a lead plaintiff, lacked standing and had no real interest in bringing its claim. MCI then sought to join Ms Walsh as co‑plaintiff in that proceeding and sought leave to file a further amended statement of claim. The Court refused that application and dismissed the proceeding.
On the same day that the Court heard WorleyParsons’ application to dismiss the MCI proceeding, Ms Walsh (who was represented by Mr Elliott) commenced the further proceeding. WorleyParsons applied to have the subsequent proceeding permanently stayed as an abuse of process, on the basis that MCI was the moving party who instituted the subsequent proceeding. The key issue to be determined was therefore whether a third party, given MCI was neither a named party nor a group member to the proceeding, was the moving party of that proceeding. The Court found that MCI was the moving party and that the proceeding was issued for an improper purpose. The Court ordered that the proceeding be stayed as an abuse of process.
Basis of the Decision
The Court found that it was uncontroversial that a funder in a group proceeding is permitted to actively recruit a potential plaintiff and to be in charge of the proceeding on behalf of all litigants. However, it held that in an abuse of process application, the Court could look beyond the named plaintiff and assess the purpose of the real party. It also held that it is a rare and specific case that such a drastic remedy ought to be awarded by the Court.
The Court found that the totality of the relevant factors in aggregate led to the conclusion that Ms Walsh was not the real or moving party. It held that MCI, as a moving party to the proceeding, initiated and maintained the proceeding for the purposes of sustaining the proceeding that MCI had failed to maintain in its own name. By doing so, it was able to continue its modus operandi in bringing proceedings against the said companies, as part of its business model, to obtain a financial gain for itself and its legal representative, when the proceeding was issued. Therefore, the proceeding was tainted by a predominant purpose that was irrelevant to the vindication of the legal rights of Ms Walsh or the group members, notwithstanding that Ms Walsh might ultimately benefit from the litigation. The Court said it would not permit a form of ‘litigation bracket creep’.
WorleyParsons had also sought, in the alternative, an order pursuant to s33N of the Supreme Court Act that the proceeding should not continue as a class action. While the Court decided that it did not need to determine that application, it said that its opinion was that such application should succeed if it were to be determined on its merits.
This decision is timely, given the announcement by the Victorian Attorney General earlier this year, that the Victorian Law Reform Commission will conduct a major review of the rules governing class actions and litigation funders. The terms of reference of the inquiry were published on 19 January 2017. The inquiry will be keenly followed, including the extent to which any outcome may affect future litigation funding.
Authored by Greg King, Special Counsel, Melbourne.
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