Waterhouse v Contractors Bonding Ltd

• Jurisdiction: New Zealand
• Judge: Glazebrook J
• Judgment Date: 20 September 2013
• Neutral Citation: [2013] NZSC 89
• Docket Number: SC 66/2012
• Court: Supreme Court
• Date: 20 September 2013

Between

Godfrey Waterhouse and Robert John Waterhouse

Appellants

and

Contractors Bonding Limited

Respondent

[2013] NZSC 89

Court:

Elias CJ, McGrath, William Young, Chambers * and Glazebrook JJ

SC 66/2012

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against Court of Appeal's refusal to stay proceedings and ruling that appellant did not need to disclose to the respondent its litigation funding agreement — proceedings related to a failed insurance business in the United States of America — whether the appellant should be ordered to disclose the funding agreement to the respondent and, if so, on what terms — whether the torts of maintenance and champerty should be abolished — whether the courts should exercise a general supervisory role over litigation funding arrangements — whether the courts had the ability to intervene where conduct amounted to the tort of abuse of process.

Counsel:

S J Mills QC and S A Grant for Appellants

R E Harrison QC and J E Riddle for Respondent

• A The appeal is allowed in part and the orders set out at [78] and [79] are made in substitution for the orders made by the Court of Appeal.

• B As each party has had a measure of success, there is no costs award.

JUDGMENT OF THE COURT

REASONS

(Given by Glazebrook J)

Table of Contents

	Para
Introduction	[1]
The High Court judgment	[3]
The Court of Appeal judgment	[7]
Parties' submissions	[14]
The Waterhouses' submissions	[14]
Contractors Bonding's submissions	[19]
Issues arising from the submissions	[23]
Should the torts of maintenance and champerty be abolished?	[25]
Should the courts exercise a general supervisory role over litigation funding arrangements?	[27]
Is the ability for the courts to intervene confined to cases where conduct amounting to the tort of abuse of process manifests itself?	[30]
Are there other matters that can give rise to an abuse of process in litigation funding cases?	[33]
The approach in Fostif	[35]
General comments	[41]
Control of litigation and remuneration	[44]
Is it an abuse of process for a litigation funder not to provide an indemnity for costs?	[49]
Terms on which funding can be withdrawn	[54]
What is the appropriate position for New Zealand with regard to litigation funding and abuse of process?	[56]
In what circumstances should disclosure of litigation funding arrangements be made?	[60]
Applications for a stay on abuse of process grounds	[61]
Applications for security for costs	[63]
Applications for costs	[64]
Initial disclosure	[66]
When should there be disclosure of litigation funding arrangements?	[73]
Should there be limits on disclosure?	[75]
Conclusion	[76]
Result	[77]

Introduction

1 Messrs Godfrey and Robert Waterhouse have brought proceedings against Contractors Bonding Ltd in relation to a failed insurance business in Georgia, the United States of America. 1 The Waterhouses allege negligence, deceit and breach of fiduciary duty. The litigation is to be funded by a third party litigation funder.

2 The issue in this appeal is whether the Waterhouses should be ordered to disclose the litigation funding agreement to Contractors Bonding and, if so, on what terms. 2 Before discussing our approach to that issue, we summarise the judgments of the Courts below.

The High Court judgment

3 When Contractors Bonding was informed by the Waterhouses of the existence of the litigation funding, it applied for a stay of the proceeding either permanently or until:

• (a) the litigation funding agreement was disclosed. This was to include disclosure of the identity of the litigation funder and the nature of all relationships which may subsist as between the litigation funder and the solicitors and counsel acting for the Waterhouses;

• (b) the Waterhouses applied for and obtained leave to prosecute the proceeding; and

• (c) all conditions of any leave were complied with, including the lodging of adequate security for Contractors Bonding's costs.

4 The stay was sought on the grounds that the Waterhouses had not sought and obtained leave to bring proceedings funded by a litigation funder; that the stay was necessary to prevent or control an abuse of the Court's processes as well as to protect Contractors Bonding's financial position as a litigant facing a substantial damages claim; that the Waterhouses were impecunious; and that Mr Robert Waterhouse was resident in the United States of America.

5 In the High Court, Allan J decided to follow the implied direction of the Court of Appeal in Saunders v Houghton. 3 He ordered the Waterhouses to produce the litigation funding agreement to the Court for inspection, so that the Court would be able to ensure that the funder was not legally able to usurp control over the proceeding. 4 The proceedings were stayed pending production of that agreement. 5

6 After inspecting the agreement, Allan J issued a minute saying that there was nothing in the agreement warranting its disclosure to Contractors Bonding or to its counsel. 6 In particular, he was satisfied that the agreement did not confer on the litigation funder an unacceptable level of control over the conduct of the proceeding.

The Court of Appeal judgment

7 The Court of Appeal saw the two issues in the case as being whether the courts should exercise any form of oversight over proceedings between individual litigants where a litigation funder is involved, and if so, the nature and extent of that oversight. 7

8 The Court held that both the trial court and the non-funded party should be given formal notice that a litigation funder is involved when a proceeding is

commenced. 8 The following details of the funding arrangements should then be disclosed to the non-funded party: 9

The Court said that these details were relevant to determining whether the agreement raised any issues that could lead to an abuse of process. 10

• (a) the identity and location of the litigation funder;

• (b) its financial standing/viability;

• (c) its amenability to the jurisdiction of the New Zealand courts, if that is relevant; and

• (d) the terms on which funding can be withdrawn and the consequences of withdrawal.

9 In addition, the Court directed that a redacted copy of the agreement be provided to Contractors Bonding within 10 working days. 11 The Court considered that input from Contractors Bonding would be necessary to assist the High Court's assessment of the funding arrangements. 12

10 The Court accepted, however, that disclosure should not generally include details that might give rise to a tactical advantage to the non-funded party such as information about any “war chest” or other commercially sensitive details. 13 It considered that any issues concerning the breach of a confidentiality clause in the agreement could “be managed” but did not elaborate on how this might be done. 14

11 The Court rejected the suggestion made by Contractors Bonding that any litigation funding agreement should be submitted to the trial court for approval at the time the litigation is commenced. Once the key features of the litigation funding

agreement were disclosed, the matter could be left to the defendant to raise any concerns in a particular case. 15

12 The Court of Appeal also rejected the suggestion of Contractors Bonding 16 that the litigation funder should certify to the Court that it has funding available to meet the costs of the litigation and personally undertake to pay all awards of costs and disbursements in favour of the defendant and any order for security for costs made against it (or the plaintiff). The Court commented that the ability to seek security for costs and the ability to award costs against a non-party was relevant to that suggestion. 17

13 The Court set a timetable for applications to the High Court by the Waterhouses in relation to privilege issues and for any applications by Contractors Bonding in relation to the agreement. 18 The proceeding was stayed pending disclosure of the redacted version of the agreement or further order of the High Court. 19

Parties' submissions

The Waterhouses' submissions

14 Mr Mills QC, for the Waterhouses, submits that the torts of maintenance and champerty should be abolished. In his submission, in cases not involving representative actions, litigation funding arrangements should only concern the courts if they are an abuse of process. 20 He submits further that the High Court

Rules that prohibit abuse of process should be interpreted consistently with the tort that they were designed to embody.

15 Mr Mills submits that there must be some indication of an abuse of process, which is independent of the mere existence of a litigation funding agreement, before

any application for a stay can be made. Even where arguable abuse of process manifests itself, Mr Mills submits that disclosure of the litigation funding arrangement (including the identity of the funder) should be limited in the first instance to the court only

16 As to the specific matters that the Court of Appeal ordered be disclosed, 21 Mr Mills submits that no such disclosure is warranted. In particular, Mr Mills submits that the funder's financial position is irrelevant. Any failure to pay costs by an unsuccessful funded plaintiff can be dealt with by means of an order for third party costs. Mr Mills submits that the terms on which a litigation funder might withdraw funding constitute commercially sensitive information and disclosure would have the potential to provide a tactical advantage to the other party.

17 Mr Mills submits that the case by case development of a judge-made regime to supervise litigation funding arrangements, which he posits would result from the Court of Appeal's approach, will spawn satellite litigation. He...