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[2019] FCA 571
Federal Court of Australia
2019-04-12
Lee J
Original judgment source is linked above.
LEE J: 1 The applicants in this case have filed an application for a common fund order. 2 There are three class actions currently before the Court which are being case-managed together. It is unnecessary for me to say much about the detail of each of the proceedings for the purposes of the disposition of this application. It suffices to note that one class action, relevant to this application, has been commenced against the Commonwealth seeking damages, as a result of alleged contamination of groundwater, surface water, soil and biota from the use of Aqueous Film Forming Foam by the Commonwealth at RAAF Base Tindal in Katherine in the Northern Territory. I will call this the Katherine proceeding. 3 Broadly similar allegations are made in the two other representative proceedings, which I will describe for the purpose of this judgment as the Williamtown proceeding and the Oakey proceeding. Both the Williamtown proceeding and the Oakey proceeding are closed class representative proceedings, but the Katherine proceeding was commenced and is being maintained on behalf of an open class of group members. 4 All proceedings are funded by a listed and highly reputable litigation funder - IMF Bentham Ltd (IMF). A common fund order was sought by an application dated 19 March 2019. The application was at that time based on a proposal that a notice would be provided to group members of the making of a common fund order generally, with the added information that the funding commission would be determined by the Court at a later date. 5 When the matter came before the Court for argument initially, I indicated that although I was not adverse to the notion of a common fund order being made, I considered it appropriate that any notification given to group members should include some specificity as to the precise terms of the common fund order (subject to later variation). In this regard, it seemed (and seems) to me that if notification is given to group members who are asked to make an informed decision as to whether they should opt-out of a proceeding, then it may be material to that decision that some detail be given as to the amount that the funder is likely to take out of any resolution sum, be it by way of settlement or following a successful determination of their claim. This is particularly the case where no bespoke notice of the proposal to make a common fund order (and invitation for submissions from group members) was proposed, as has sometimes been the case in other proceedings. 6 Although I am cognisant that any specific terms forming part of an interlocutory order would be subject to variation (if it was later determined to be necessary or appropriate), the terms of the order would identify the terms applicable absent variation, hence providing group members with important information material to their decision as to whether they wish to continue to be represented on the basis of those terms of participation. It would also guard against hindsight bias in formulating the terms of any consideration paid to the funder which, as I have explained elsewhere, is a reward for risk of adverse costs and an unsuccessful outcome, a risk assumed by the funder when the outcome of the litigation is uncertain. 7 Although the view of the applicants remained that a common fund order should be made but that the precise terms of any deductions from any resolution sums should not be identified, the matter was then stood over to the next available date and alternative orders are now sought by the applicants. Additionally, very detailed affidavit evidence has been provided to the Court, being an affidavit of Clive Bowman, a very senior officer of IMF and one of the most experienced litigation funders in the country. 8 In essence, the applicants now propose by way of common fund order that all group members pay the same fee that funded group members have agreed to pay, in both the Katherine class action and also the other two class actions. I should make it clear that even though the Katherine proceeding is an open class proceeding, there is evidence that approximately 20% of the open class signed funding agreements with IMF on substantially the same terms that were signed in relation to the Williamtown proceeding and the Oakey proceeding. Additionally, the applicants are also now content to specify in the funding terms provided to the group members what the funding fee is and give full particulars of it in the notice. A revised draft form of orders has now been provided to the Court which contains a revised version of the funding terms. 9 In my view, there is much to be said for a common fund order being made in the Katherine proceeding. The evidence of Mr Bowman amply demonstrates both the ability of the funder to fund this litigation and, as has now been established by a number of cases, a common fund order provides an effective means of funding open class proceedings, which carries with it the benefit of ensuring that all claims are brought before the Court, hence facilitating an important component of Part IVA litigation, which is access to justice for numerous persons who may have relatively modest claims compared to the cost of the litigation. 10 On the basis of the affidavit evidence, the applicant invites the Court to draw the following conclusions: (a) over 1,100 persons (having claims arising from similar contamination caused by activities of the Commonwealth at defence force facilities) have signed a litigation funding agreement containing the rate now sought contemporaneously with the inception of this litigation after having a responsible process which involved a number of those persons having access to independent solicitors prior to agreeing to those terms; (b) there is no evidence that any better terms were or are available from any other funder and, in this respect, an experienced class action solicitor has given evidence that in her view the terms offered by IMF funding for the Katherine proceeding were the best reasonably available. In particular, there is no reason to think that the competition which has led to some lowering of rates in different types of class actions provides any guide as to the appropriate rates for funding mass tort cases such as the present; (c) there is a desirability about there being an equality of price in this between all group members across all three of the class actions; and (d) importantly, any group member who is dissatisfied with the proposed funding arrangements can opt-out and, assuming that they act promptly, can vindicate any claim they have by other means. In this respect, IMF has been prepared to fund an independent solicitor to assist unfunded group members in making their decision, ensuring the Court could be satisfied that group members can make an informed decision as to their rights. Additionally, submissions are made about the appropriateness of the funding fee. 11 The proposed funding terms are set out as a schedule to these reasons. The amount payable to IMF is identified at [6] of the proposed funding terms and provides for a multiple of what are described as approved Project Costs plus a percentage of the Resolution Sum. Together with an additional percentage to be added in the event of an appeal. As can be seen, the multiple of approved Project Costs relates to those costs and expenses encapsulated by that definition in the funding terms. 12 There is presently no evidence as to the costs and expenses associated with IMF undertaking the project investigation, project management and costs thus far involved in the provision by IMF of any security for costs. That is, there is no evidence of past costs that have been incurred and a number of the other definitions relate to amounts which cannot yet be quantified. The Commonwealth has made a number of submissions concerning both the common fund orders, the form of the notice and how the Court should deal with the application. 13 The position of the Commonwealth is that it is not the appropriate contradictor to assist the Court in scrutinising the proposed common fund orders for the purposes of determining whether the Court thinks that any of the proposals are necessary or appropriate to ensure that justice is done in the proceeding. The submission has been made that the Court would be assisted by hearing submissions from group members, or from an appointed contradictor, before deciding whether to make one of the orders proposed by the applicants. 14 In particular, the Commonwealth indicates that the Court would be assisted by submissions in circumstances where: (a) the funding rate was not negotiated with the group members who have entered into the funding agreements in this proceeding; what the evidence discloses is that IMF had engaged in a period of negotiation of the funding terms with group members in the Williamtown proceedings and indeed had assisted the Williamtown group members in facilitating their access to independent legal advice; in this proceeding, this did not occur, the group members were presented with the funding rate that had been negotiated with the Williamtown group members approximately two years before; (b) it was submitted that there was no evidence that Shine had tested the litigation funding market in a meaningful way before presenting that funding rate to the group members; (c) for the purpose of considering whether the proposed funding rate is fair and reasonable to the group members, it is not relevant that the group members in the Williamtown and Oakey proceedings have agreed to a funding rate under different circumstances; (d) there is no evidence that the funding rate reflects IMF's contemporaneous assessment of risk and reward at the outset of the Katherine proceedings, but the Commonwealth submits that Mr Bowman's evidence shows that the rate represents IMF's assessment of the risks associated with funding the Williamtown proceeding; (e) there are said to be real questions as to whether the funding rate is fair and reasonable in circumstances where the funding rate seeks recovery of commission by reference to a percentage and, a multiple rather than a choice between the two and that the structure of the proposed funding is a multiple of gross recoveries is said to be unique in the context of common fund orders. Further, as noted above, the multiples are conducted by reference to the definition of Project Costs, which is much broader than usual legal costs and allows IMF to recover the costs of managing the project in order to earn a return; and (f) the claims in the Katherine proceeding will not include claims for diminution in the value and profit of middle-year businesses as a result of what are described as "imminent amendments to the pleadings"; the claims in the Katherine proceeding for diminution of real property values are based on alleged diminution of between 15-20%, but there is no evidence before the Court as to how that alleged percentage diminution in value compares to the claims in the Williamtown and Oakey proceedings; it is said that in order to be satisfied that it is necessary or appropriate that the same funding rate be paid by group members in each of the three proceedings, the Court would need to be satisfied that the damages claims are sufficiently similar in nature or a likely amount in each proceeding. 15 Some further points are made that are unnecessary to detail in these reasons. 16 I mentioned above the affidavit of Mr Bowman. Notwithstanding the respondent's submissions, my preliminary view, on reading the affidavit of Mr Bowman, is that a common fund order is appropriate. As he deposes to at [58] of his affidavit, there is much to be said for significant deference being afforded to the pricing of the risks that occurred through market forces, at the time the funding agreements were negotiated, assuming the integrity of that process. Mr Bowman has set out, in comprehensive detail, the approach of IMF to determining the financial viability of a case; the approach to risk and the contractual setting of the reward for taking on the risk; pricing risk in litigation funding; the approach that IMF takes to identifying which model of pricing methodology is appropriate in different cases; and how it approaches the quality of pricing between group members and other related matters. 17 Mr Bowman has also deposed, in my view, in a compelling way, to how the funding of the Williamtown, Oakey and Katherine proceedings were approached, including the negotiation of funding terms in the Williamtown proceeding which showed a pricing structure that was struck following the expression of concerns by representatives of the group members. 18 In those circumstances, subject to a close review of the details, I was attracted to making a common fund order which is premised on the fact that the pricing of risk that occurred in relation to Williamtown is an appropriate proxy to be used for the funding terms in this case which, as part of that process, assumes there being an acceptance of not only the integrity of that process in relation to the Williamtown proceeding, but also its applicability to the Katherine proceeding. 19 In making the case with some force that there should be a common fund order in this proceeding, Mr Edwards made the point, on a number of occasions through the course of his submissions, that the evidence given by Mr Bowman was "unchallenged". The response of Ms Williams SC who appeared on behalf of the Commonwealth was that it had no role in representing the interests of group members, and to the extent that there was to be any challenge to the evidence of Mr Bowman or that submissions were to be advanced by someone having a responsibility to have regard to the interests of group members, then the Court would be assisted by such a person providing assistance. 20 I am acutely conscious that applications such as the present should be both conducted and resolved in accordance with the case management objectives of Part VB of the Federal Court of Australia Act 1976 (Cth). They should not be allowed to become what counsel for the applicant described as a "cottage industry". The Court should do all it can reasonably do to minimise the cost associated with applications such as the present. This is why I brought the application on very quickly and have tried to determine it with celerity. 21 Having said that, ultimately, not only am I required to further the overarching purpose but I also have a protective and supervisory role in respect of group members. 22 Although my preliminary view is that it is appropriate that a common fund order be made along the lines proposed, my considered view is that if I am to be faithful to my duty in approaching my supervisory role, it would be appropriate, particularly in the light of the very long affidavit, the detailed submissions and detailed form of order which I received today, to have counsel assist the Court as an amicus curiae by examining the submissions of the parties, the transcript of today and the earlier hearing, the affidavit of Mr Bowman and, most importantly, the fine details of the proposed order. After that review by counsel, who would be viewing that material through the prism of the protection of group members, counsel could inform the Court as to whether or not they wished to be heard by way of a written submission or an oral submission, which I could deal with at 11am next Wednesday, with the expectation that I would be able to give a final decision on the common fund order immediately following any written or oral submission from the amicus. 23 This seems to me to be a very modest cost which would involve the amicus having to spend no more than a few hours examining the limited material that I had proposed be provided and then, if thought necessary, providing a short written or oral submissions if counsel considered that course necessary. It would serve to provide me with comfort that the interests of group members had been looked after properly and the precise terms of the order I was making were necessary or appropriate to do justice in the proceeding. 24 Despite this, I was informed by counsel for the applicant that if I thought it was necessary or appropriate that the Court attain assistance from an amicus then the application for a common fund order would likely be withdrawn. 25 After a short adjournment, the applicant persisted in the view that if the Court does not agree to make the orders currently sought today, then the appropriate course is to withdraw the application and make any application for a common fund order at the conclusion of the proceeding. Accordingly, although my disposition is to make the common fund order, I do not believe that I would be fulfilling my duty to protect group members without at least providing for an amicus to review the materials and (potentially) assisting the Court by providing short written or oral submissions. Given that the applicant in those circumstances now proposes to withdraw the application, then the present application for a common fund order should be dismissed. 26 When an order is sought at a later time, no doubt, it will be considered on the merits by applying the statutory test in s 33ZF. Although I have indicated that I regard it as appropriate in the present circumstances for the Court receive some limited assistance from an amicus in order to ensure that the protective role of the Court is adequately safeguarded, nothing in these reasons can or should be seen as dictating the approach to be taken on any such future application. That is not to say that the forensic decision taken by the applicant to withdraw the application may not be a relevant discretionary consideration on such an application, but that is a matter for another day. 27 I will reserve the issue of costs, and I will direct the parties to provide an outline of written submissions in respect of costs no longer than two pages which identify the costs orders for which they contend in relation to the application for a common fund order, and which relate to not only the costs of the parties to the proceedings, but how and in what way the costs incurred by the applicant in relation to the application should be treated in relation to group members, if it ever became relevant to give consideration to that issue in the context of approving costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.
Associate: Dated: 24 April 2019 SCHEDULE 1 KATHERINE CONTAMINATION CLASS ACTION FUNDING TERMS
1.2 Unless the context otherwise requires, the following rules of interpretation apply to these Funding Terms: (a) a reference to any agreement or document is a reference to such agreement or document as validly amended, varied, restated, assigned or novated from time to time (in each case, other than in breach of the relevant agreement or the provisions of these Funding Terms, in which case it shall remain a reference to such agreement or document immediately prior to such amendment); and (b) a reference to any legislation or legislative provision includes any statutory modification, amendment or re-enactment of that legislation or legislative provision, and includes any subordinate legislation or regulations issued under that legislation or legislative provision. 2. Funding Agreements and Retainer Agreements 2.1 For the duration of the Funding Period, these Funding Terms will prevail over: (a) any inconsistent provision in the Funding Agreements which, subject to these Funding Terms, shall continue in full force and effect; and (b) any inconsistent terms of the Retainer Agreements which, subject to these Funding Terms, shall continue in full force and effect. 3. Status of IMF 3.1 IMF enters these Funding Terms in its capacity as investment manager and agent for each of the Funders and represents that it has the power and authority to do so under the terms of an investment management agreement between it and each of the Funders. 3.2 The obligations between each of the Funders and the Group Members respectively under these Funding Terms are on a several, not joint and several basis, in the Funder Proportion. 4. Obligations of the Funder 4.1 IMF must pay the Project Costs. 5. Receipt and Application of Resolution Sum 5.1 Any Resolution Sum will be received by the Lawyers and paid immediately into a Trust Account. 5.1 If the Applicants or any Group Member obtains any Settlement or obtains any judgment in respect of the Claims, it will: (a) treat any money, other asset or benefit received from the Respondent in connection with the Settlement or judgment as the Resolution Sum; and (b) cause the money, or an amount being the reasonable market value of the asset or benefit, to be delivered to the Lawyers to be dealt with as part of the Resolution Sum. 5.2 The Lawyers will pay to IMF and/or itself out of the Trust Account, all payments referred to in paragraph 6.1 below, with the balance to be distributed to the Group Members on a pro rata basis and in accordance with any distribution scheme approved by the Court. 6. Costs and Commission 6.1 Upon Resolution, IMF and the Lawyers shall be paid or have distributed to them the following amounts from the Resolution Sum, in the order of priority listed below and with all payments within a priority level to be made pari passu and pro rata, prior to any distributions to Group Members: 6.1.1 to IMF, an amount equal to the total amount of Project Costs paid by IMF, as approved by the Court; 6.1.2 to the Lawyers, an amount equal to the Deferred Project Costs, as approved by the Court; 6.1.3 to IMF, as consideration for the financing of the Claims and Proceedings, an amount calculated by reference to the following table (being the sum of Column A and Column B at the applicable time the Resolution Sum is received being: A B Date on which Resolution Sum is received by IMF Multiple of approved Project Costs PLUS a percentage of the Resolution Sum 14 June 2019 to 14 December 2019 2x 15% 15 December 2019 to 14 June 2020 2.5x 15% 15 June 2020 to 14 June 2021 3x 15% After 15 June 2021 3.5x 15%
If IMF in its sole discretion funds an appeal or defence of an appeal, or any further appeal or the defence of any further appeal, an additional 5% shall be added to the percentage in column B of the above table (such that it shall be 20%); 6.1.4 to IMF an additional amount, on account of GST, being the amount obtained by multiplying the prevailing rate of GST (currently 10%) by an amount equal to the consideration to be received by IMF for any taxable supply made to any Group Member by IMF under or in connection with the Funding Agreement and/or these Funding Terms (unless otherwise defined, terms used in this clause have the same meaning as in the GST Act). 6.2 The amounts referred to in paragraph 6.1 above shall not become due or owing by the Group Members unless and until any Resolution Sum is received, and then will not exceed the Resolution Sum. 6.3 The amounts referred to in paragraph 6.1 above shall not exceed any such amount as the Court determines to be fair and reasonable in all the circumstances. 7. Relationship Between the Applicants, Lawyers and IMF 7.1 The Lawyers' professional duties are owed to the Applicants and not to IMF. 7.2 IMF will give day-to-day instructions to the Lawyers on all matters concerning the Claims and the Proceedings, subject to clauses 7.3 and 9. 7.3 The Applicants may override any instruction given by IMF, subject to clause 9 below. The Applicants may give binding instructions to the Lawyers and make binding decisions on behalf of the Group Members in relation to the Claims up to the time of any court approval of settlement of the Claims or the delivery of judgment in respect of the common issues in the Proceedings (including, but not limited to, instructions and decisions in relation to Settlement), save where, in the reasonable professional opinion of the Lawyers, separate instructions are required from the Group Members. 7.4 The Lawyers will: (a) keep IMF fully informed of all matters concerning the Claims and the Proceedings, including any mediation and settlement discussions; and (b) ensure that IMF is given all necessary information and advice in order for the Funder to provide informed instructions. 8. Confidentiality 8.1 IMF shall strictly maintain the confidentiality of any information provided to IMF by the Applicants, Group Members or the Lawyers for a purpose connected to the Proceedings in accordance with its confidentiality obligations in the Funding Agreements, and shall adopt proper and effective procedures for maintaining the confidentiality and safe custody of the information. 9. Settlement 9.1 If there is a disagreement between IMF and the Applicants as to whether to settle the Proceedings, or as to the appropriate terms for the settlement of the Proceedings: (a) the Lawyers will brief the most senior counsel of those retained by the Lawyers to advise as to whether, in that counsel's opinion, settlement of the Proceedings on the terms is fair and reasonable in all of the circumstances; (b) representatives of IMF may attend any conference with counsel at which the issue is to be discussed; (c) the legal costs of obtaining counsel's advice shall be met by IMF as part of the Project Costs; and (d) the advice of counsel will be final and binding on both the Applicants and IMF. 9.2 Under clause 9.1 above, in determining whether a proposed settlement is reasonable having regard to all the circumstances, counsel may proceed as he or she sees fit to inform himself or herself before forming and delivering his or her advice, but any such determination shall include the following considerations: (a) the strengths and weaknesses of the claims of all Group Members; (b) the quantum of the claims of all Group Members and any difficulties which might exist in proving that quantum; (c) the recoverability of a judgment sum from the Respondent; (d) the extent to which further legal costs incurred in the Proceedings are likely to be recoverable from the Respondent; (e) the risk of IMF being ordered to pay adverse costs and the quantum of such costs. Counsel will have regard to this factor as though all Group Members carried such risk rather than IMF; (f) the matters set out at paragraph [248.95] of the "Australian Securities and Investments Commission's Regulatory Guide 248: Litigation schemes and proof of debt schemes Managing conflicts of interest" (April 2013); and (g) any other matters counsel considers relevant. 10. Termination 10.1 The funding arrangements under these Funding Terms may only be terminated by order of the Court, granted on application made by the Applicants or IMF, upon notice given to the Applicants, IMF and such other persons as ordered by the Court. 10.2 If an application is made by IMF under clause 10.1 above, and the Court grants that application, then (subject to any contrary order of the Court) all obligations of the Applicants, Group Members, IMF and the Lawyers under these Funding Terms will cease on the Termination Date, save for the following: (a) IMF will continue to be entitled to receive payment from any Resolution Sum (whether received before or after the Termination Date) pursuant to clauses 6.1.1 and 6.1.4 above. For the avoidance of doubt, neither IMF nor the Lawyers will be entitled to receive any payment from any future Resolution Sums pursuant to clause 6.1.3 above; and (b) IMF must pay: (i) any outstanding Project Costs pursuant to clause 4.1 above incurred up to the Termination Date; and (ii) to the extent such amounts are not captured by clause 10.2(b)(i) above, any Quantified Costs Order against the Applicants in respect of costs which arise in, or are attributed to, the period ending on the Termination Date. 10.3 If an application is made by the Applicants under clause 10.1 above, and the Court grants that application, then (subject to any contrary order of the Court) all obligations of the Applicants, Group Members, IMF and the Lawyers under these Funding Terms will cease on the date the termination becomes effective, save for the following: (a) IMF and the Lawyers will continue to be entitled to receive payment from any Resolution Sum (whether received before or after the Termination Date) pursuant to clause 6.1; and (b) IMF must pay: (i) any outstanding costs pursuant to clause 4.1 above incurred up to the Termination Date; and (ii) to the extent such amounts are not captured by clause 10.3(b)(i) above, any Quantified Costs Order against the Applicants in respect of costs which arise in, or are attributed to, the period ending on the Termination Date. 10.4 If land owned by a Group Members becomes subject to a Compulsory Acquisition, then that Group Member can elect to terminate these Funding Terms so far as they bind them by giving written notice to the Lawyers as well as providing them with a copy of the notice of Compulsory Acquisition within 30 days of the date of the notice of Compulsory Acquisition, and: (a) If the Group Member makes an election to terminate these Funding Terms so far as they bind them, then if the Group Member subsequently receives a Resolution Sum: (i) the Group Member will still be bound by cl 5.2; (ii) the Group Member will: A. be liable to pay to IMF an amount, as approved by the Court, equal to their pro-rata share of the Project Costs incurred prior to the date of the notice of Compulsory Acquisition and any GST thereon (being the amounts referred to in cll 6.1.1 and 6.1.4 above as applicable), with such pro rata share to be determined by the Lawyers by reference to the proportion that the Group Member's claim bears to the total amount of the claims of all Group Members); and B. not be liable to pay IMF any amount by way of funding fee or commission under cl 6.1.3; but cl 6.2 will continue to apply, such that no amount payable by the Group Member will exceed the Resolution Sum received by the Group Member. (b) If the Group Member makes an election not to terminate these Funding Terms so far as they bind them, then cl 6 will apply with the following modifications: (i) the Group Member will not be liable to pay IMF any amount by way of funding fee or commission under cl 6.1.3; (ii) the Group Member will be liable to pay to IMF: (A) an amount, as approved by the Court, equal to their pro-rata share of the Project Costs incurred prior to the date of the notice of Compulsory Acquisition and any GST thereon (being the amounts referred to in cll 6.1.1 and 6.1.4 above as applicable), with such pro rata share to be determined by the Lawyers by reference to the proportion that the Group Member's claim bears to the total amount of the claims of all Group Members), and (B) any individual costs incurred for that Group Member in respect of the Compulsory Acquisition plus (C) interest at a rate of 2% above the base rate of the Reserve Bank of Australia for the period from the date of the Acquisition Notice to Resolution of that Group Member's claim; and (iii) the Group Member will be liable to pay to IMF any Project Costs incurred solely on behalf of that Group Member in respect of the Compulsory Acquisition after the date of the notice of Compulsory Acquisition, plus interest at a rate of 2% above the base rate of the Reserve Bank of Australia, and and cl 6.2 will continue to apply, such that no amount payable by the Group Member will exceed the Resolution Sum otherwise to be received by the Group Member. 10.5 Termination of these Funding Terms shall not affect the rights or obligations of the Applicants, IMF or Group Members who have signed a Funding Agreement and/or the Lawyers under the Funding Agreements or the Retainer Agreements (as is relevant), which shall remain in full force and effect subject to termination in accordance with their respective terms.
Bartlett
Commonwealth of Australia