Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund) v Sims Limited

RARES J: 1 This is an interlocutory application by Carpenders Park Pty Limited (as trustee of the Carpenders Park Staff Superannuation Fund), the representative applicant in this proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth), for an order that it be replaced by Peter Eckardt as the representative applicant but remain a group member.

Background 2 Carpenders commenced this proceeding on 15 February 2019. The basis of the representative action is a claim that the respondent, Sims Limited, caused Carpenders and other group members loss or damage because the value of their shares fell due to Sims' alleged contraventions of, among other provisions, ss 647 and 1041E of the Corporations Act 2001 (Cth) when it issued statements to the market about its business, such as a five-year plan and earnings guidance in the period between 23 July 2014 and 16 February 2016. 3 The statement of claim pleads, among other matters, that Sims lodged with the Australian Stock Exchange (ASX) and publicly released media statements that made corrective disclosures to the market on each of 12 November 2015 and 19 February 2016. The statement of claim alleges that each disclosure had a revelatory effect that suggested that the traded share prices on the ASX before each correction was greater than it should have been had the market been given full information. 4 There have been numerous steps to prepare the matter for trial. On 25 March 2021, I set down the trial to commence on 4 July 2022 and also ordered that Carpenders provide its outlines of lay evidence on or before 7 May 2021. Carpenders did not comply. Instead, on 10 May 2021, Carpenders' solicitors informed Sims' solicitors that there was a delay in the preparation of its lay evidence and that they expected that Sims' would be served shortly. 5 Ultimately, on 3 June 2021, Carpenders instructed its solicitor, Mr Bill Petrovski, that it no longer wished to act as the representative party in the case, other than in this present application for Mr Eckardt's substitution. 6 Mr Petrovski sought to rely on s 33T of the Federal Court Act to enable the substitution of Mr Eckart. Sims pressed Carpenders' solicitors for further information about matters that had brought about this change of course. 7 In his second affidavit of 7 July 2021, Mr Petrovski noted that market-based causation issues are at the heart of the proceeding. He said that in the course of preparing Carpenders' evidence it became apparent that, while its acquisition of shares in Sims had occurred on 24 November 2015 at the prevailing price on the ASX, being $7, that acquisition was the result of an 'American style' put option. The put option had been made on 12 November 2015 and had a strike price of $8 per share including a premium of 27 cents. In other words, Carpenders had agreed on 12 November 2015 to pay a premium of 27 cents per share (totalling $1080) to buy 4000 Sims shares at the price of $8 each if called on to do so by the counterparty on or before 26 November 2015. When the counterparty exercised the put option on 24 November 2015, Sims shares were trading on the ASX at about $7 per share. 8 As Mr Petrovski noted, the circumstances in which Carpenders and its counterparty entered into the put option will raise issues that are unlikely to affect most group members. Those extra issues include the need to evaluate the basis of the put option and agreed pricing, having regard to the underlying share price, the mechanism of the derivative trading in the put option, Carpenders' decision to enter into the option and its effect on the market prices of the shares. Those issues are likely to involve additional complexity and further expert evidence. And, as has emerged in the course of argument, because Carpenders did not plead its entry into the put option, there will need to be a significant amendment to the pleadings if it is to remain as the representative applicant. That is in contrast to the simple amendments needed for a substitution of Mr Eckhart and his apparently on-market transactions to acquire and sell his holding in Sims. 9 Throughout the period of the discussions and this application both Carpenders and Mr Eckardt have endeavoured to propose that any substitution occur on terms that would protect Sims from suffering any prejudice in relation to its ability to recover costs and resort to the security provided by the litigation funder which supported the proceedings. 10 Sims does not suggest that it will suffer any prejudice by the substitution. Rather, it complains that there is no reason for the substitution to occur.

The questions for decision 11 The substantial issues between the parties are, first, what relevant power the Court has to allow Mr Eckart's substitution, secondly, whether, if there is such a power, the nature of the discretion to be exercised and, thirdly, whether, given the circumstances of the advanced state of the proceeding, it ought be granted.

Sims' submissions 12 Sims argued that Carpenders is already a party to the proceeding and wishes to maintain its current claim, albeit as a group member. Sims accepted that, on the new facts now understood, there will be an additional, potentially non-common, issue or an issue common only to a more limited subgroup as to the workings of the put option, derivatives or option markets in considering whether any market-based causation led to group members suffering any loss. 13 Sims observed that Carpenders' claim has been on foot since 15 February 2019, that it has undertaken specific work, including dealing with Carpenders' discovery, and that, since reviewing discovery, it has commenced work preparing the matter for trial. However, as I have noted, Sims did not allege that any particular prejudice would be caused to it by the change of course. Rather, it contended that the inference that should be drawn is that Carpenders is not willing to have its claim scrutinised, yet Carpenders did not suggest that it would abandon its role as lead applicant if its application were not granted. 14 Sims referred to substitutions that have occurred in the past where, for example, the lead applicant had either settled the proceeding against the respondent or was suffering from a significant illness, such as in Tongue v Tamworth City Council (2004) 141 FCR 233. Sims argued that retaining Carpenders as the representative applicant in the proceeding would provide a better vehicle for the determination of the common questions than allowing it to relinquish its role. It contended that was because, although the circumstances in which it entered into the put option at the moment were not completely clear, Carpenders had acquired its shares on 24 November 2015 after the first corrective statement and sold those shares in November 2016, after both of the corrective disclosures occurred. Sims contended that Mr Eckardt, on the other hand, sold his shares prior to the second corrective statement and therefore his claim would not provide an adequate vehicle to deal fully with the common questions.

Consideration 15 Relevantly, s 33T(1) provides: 33T Adequacy of representation (1) If, on an application by a group member, it appears to the Court that a representative party is not able adequately to represent the interests of the group members, the Court may substitute another group member as representative party and may make such other orders as it thinks fit. 16 In Tongue 141 FCR 238 at [37], Jacobson J said: The refusal of other group members to assume the mantle of applicant cannot be a barrier to the exercise of the Court's discretion to grant leave to a representative party to withdraw. An unwilling party should not be forced to litigate against his or her will. That is a principle which applies in ordinary proceedings; see O 22, r 2 of the Federal Court Rules 1979 (Cth). There is no reason why the same approach should not apply in representative proceedings. That is particularly apt where there is a compelling case for Mr Tongue to withdraw and neither the respondent nor the objectors oppose his withdrawal. (emphasis added) 17 His Honour also held (at 240-241 [52]-[53]) that the power under s 33T was discretionary and carried with it the power to impose conditions, which his Honour then did. 18 In Oasis Fund Management Ltd v Royal Bank of Scotland NV [2010] NSWSC 584 at [24], Biscoe AJ said: A willingness to continue to act as a representative plaintiff is fundamental to representative proceedings. An unwilling representative plaintiff cannot adequately represent the interests of others. An unwilling representative plaintiff should not be forced to litigate against his or her will: Tongue v Tamworth City Council [2004] FCA 1702, 141 FCR 233 at [37] per Jacobson J. This is particularly so in a case such as the present where there is a compelling case for Mr Ford to cease to be the representative plaintiff because of ill health. The Court should be jealous of ensuring the adequacy of representation of represented persons: see [17]-[21] above. If that requires substitution of a representative plaintiff, one would expect the rules to be flexible enough to permit the Court to order substitution. (emphasis added) 19 At the end of the day, it seems to me that an unwilling applicant in a group proceeding cannot be forced to remain as an applicant, whatever its reason or lack of reason for not wishing to remain the representative party. The purpose of a representative proceeding is to deal with the claims that a class of persons may have against a particular respondent. The structure of Pt IVA of the Federal Court Act is concerned to ensure that members of the group have appropriate attention given to their interests throughout the processes of the Court determining the common questions. This can be seen in such requirements as the need to give notices under s 33X of, first, the right to opt-out, secondly, an application to have the proceeding dismissed on the ground of want of prosecution or, thirdly, an application under s 33W seeking leave for a representative party to withdraw because that person has sought to settle or has settled his, her or its individual claim. In addition, s 33Q gives the Court the power, where it appears that determination of the issue or issues common to all group members would not finally determine the claims of all group members, to give directions about the determination of the remaining matters. The Court also has powers under, among others, s 33ZF, on its own motion or on the application of party or group member, to make an order that the Court thinks appropriate or necessary to ensure that justice is done in the proceeding. And, as Jacobson J noted in Tongue 141 FCR at 238 [37], there are provisions in what is now Pt 9 of the Federal Court Rules 2011 to allow amendments to add, remove or change one or more parties to a proceeding. 20 The position that has developed here is ultimately unsatisfactory, particularly since the existence of the arrangements for the put option and its exercise in the scheme of Carpenders' purchase of the shares ought to have been appreciated with the complications that that involved well before the preparation of Carpenders' evidence. However, in my opinion, it is safe to infer that this matter did not loom large in anyone's thinking until it became obvious that, first, the claim had not been pleaded on the basis of the correct facts and, secondly, those facts would raise a substantive new issue about the effect of derivatives trading in this particular type of put option and possibly other derivative transactions. The litigation of that new issue at the trial of the common questions would distract from the resolution of the principal common questions relating to whether the alleged failures of Sims to comply with its disclosure obligations had the effect of inflating its share price that led to a market-based causation, resulting in the group members suffering the alleged losses. 21 Sims identified no substantive prejudice to it from a change of applicant. The more complex or esoteric issues involving the effect of the put option or other derivatives trading on investment decisions and share prices is not a common question at the moment in the proceeding. If that issue were now to be added by Carpenders' amending to plead it and Sims responding to it, there would need to be further substantive expert evidence that would add complications the nature of the proceeding. Given those factors, in my opinion, it is in the interests of justice that I allow the substitution. 22 The fact that a person is unwilling to remain a representative party, in my opinion, is capable of raising a question as to whether that person is suitable or acceptable to remain in charge of the litigation. Ordinarily, applicants have choices in commencing proceedings. Respondents do not. Where the conduct of a group proceeding depends on the attitude of the applicant, the Court should not force an unwilling person to remain as the representative applicant and to subject that person to the ordinary or other stresses of litigation rather than to take, in effect, a backseat as a group member so as to allow the rest of the common issues to be dealt with by another person who is willing to engage as the substituted representative applicant in the stress of litigation: see Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at 214 [100]-[101] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.

Conclusion 23 For these reasons, I think that it is appropriate to allow the substitution to occur, which will involve minimal amendments to the pleadings by simply changing the particular transactions on which the new applicant, Mr Eckardt, will rely. I will also make orders as suggested by Mr Eckardt and Carpenders to ensure that Sims suffers no prejudice as to its ability to recover costs in the proceeding, regardless of the impact of substitution. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.