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Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund) v Sims Limited - [2021] FCA 984 - FCA 2021 case summary — Zoe
THE COURT ORDERS THAT:
Substitution of representative party
Peter Hermann Eckardt (the Substituted Applicant) (being the Second Applicant on the amended interlocutory application filed 21 July 2021 (Application)), be substituted pursuant to ss 33T(1) of the Federal Court of Australia Act 1976 (Cth) as the representative party for Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund), (the Original Applicant) (being the First Applicant on the Application), and the title of the proceeding be amended accordingly to "Peter Hermann Eckardt v Sims Limited (ACN 114 838 630)".
Leave be granted to the Substituted Applicant, to file and serve within 7 days of these orders:
a. a Further Amended Originating Application in the form attached to the Application as Annexure A;
b. a Further Amended Statement of Claim in the form attached to the Application as Annexure B.
Orders 1 and 2 be made on the following conditions:
a. the Substituted Applicant pay the Respondent's costs thrown away (if any) in consequence of orders 1 and 2 and otherwise incurred on the Application;
b. the Substituted Applicant be liable to the Respondent for any costs order made against the Original Applicant in favour of the Respondent in this proceeding prior to the date of his substitution;
c. the Respondent be liable to the Substituted Applicant for any costs order made against the Respondent in favour of the Original Applicant in this proceeding prior to the date of his substitution;
d. the Substituted Applicant be liable to the Respondent for any costs incurred by the Respondent in this proceeding prior to the date of his substitution to the extent a costs order is subsequently made in favour of the Respondent in the proceeding;
e. the Respondent be liable to the Substituted Applicant for any costs incurred by the Original Applicant in this proceeding prior to the date of his substitution to the extent a costs order in respect to such costs is subsequently made against the Respondent in the proceeding;
f. subject to further or other order of the Court, the parties have executed and delivered any document or done any act reasonably necessary to cause a replacement of the AmTrust DOI provided under order 1 of the orders made on 1 December 2020 (as defined), with a deed of indemnity from AmTrust Europe Limited in substantially the same form and amount as the AmTrust DOI except for the definition of "Claimant" in clause 1, which shall be amended by deleting "Carpenders Park Pty Ltd (as Trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund)" and inserting "Peter Hermann Eckardt" together with any consequential amendments (Replacement DOI), so that upon the provision of the Replacement DOI, the October DOI is revoked and is otherwise null and void;
g. the $40,000 paid into Court by the Original Applicant as security for the Respondent's costs in respect of the overseas enforcement of its rights under the AmTrust DOI be security for the same costs of the Respondent in respect of the enforcement of any Replacement DOI provided under these orders; and
h. the orders made on 1 December 2020 be otherwise vacated.
Substituted Applicant's further security
The Substituted Applicant provide further security for the Respondent's costs in substantially the same form as the Replacement DOI as follows:
a. a second tranche of $1,200,000 (cumulative total of $3,000,000) to be provided on the date that is 8 weeks before the date on which the Respondent is ordered to file and serve its expert or lay evidence in chief in the Proceeding (whichever is the latter); and
b. a third tranche of $1,000,000 (cumulative total of $4,000,000) to be provided on the date which is 6 weeks before the date on which the hearing is scheduled to commence.
Each Replacement DOI issued for each of the three tranches described in orders 3.f and 4 above will revoke and substitute any preceding Replacement DOI, and will equal the cumulative sum of the tranche in respect of which it was issued and any preceding tranche.
Orders 4 and 5 above are made without prejudice to the Respondent's right to seek additional security, including by any application to the Court, should circumstances arise which, in the Respondent's opinion, justify the provision of additional security.
Substituted Applicant's lay evidence and discovery
The outline of evidence of the Substituted Applicant at pages 78 to 80 of Exhibit BP-8 to the affidavit of Blagoj (Bill) Petrovski sworn 7 July 2021 be his outline of lay evidence in the proceeding, and be filed as such in the proceeding and served within 7 days from the date of these orders.
The Substituted Applicant give standard discovery pursuant to r 20.14 of the Federal Court Rules 2011 to the Respondent within 7 days from the date of these orders, with such discovery to be provided by serving a list of documents in accordance with r 20.16 of the FCR.
Discovery pursuant to order 8 above be provided electronically in accordance with the document management protocol previously agreed between the parties.
Original Applicant's lay evidence
Order 1 of the orders made on 25 March 2021 relating to the service of the Original Applicant's lay evidence be vacated.
Procedural matters
Orders 2-7, and 9 of the orders made on 25 March 2021 be vacated.
Evidence
By Friday, 27 August 2021, the Substituted Applicant file and serve any outline of lay evidence upon which it intends to rely, in addition to the outline of Mr Eckardt served together with the evidence on the Application.
By Friday, 8 October 2021, the Substituted Applicant file and serve any expert reports upon which it intends to rely.
By Friday, 4 March 2022, the Respondent file and serve any outlines of lay evidence upon which it intends to rely.
By Friday, 8 April 2022, the Respondent file and serve any expert reports upon which it intends to rely.
By Friday, 6 May 2022, the Substituted Applicant file and serve any expert reports and outlines of lay evidence in reply.
Joint Expert Reports
By 20 May 2022, the expert witnesses in each discipline confer (either in person, by video-link or telephone), in the absence of the parties, their employees, and legal representatives, and prepare a joint report on the issues on which they agree and disagree and provide short reasons for any disagreement.
Mediation
Pursuant to s 53A(1) of the Act, the proceeding be referred to mediation for an estimated two days, which is to occur by no later than 3 June 2022.
The mediation be conducted by a mediator agreed between the parties, with such agreement to occur by no later than 26 November 2021. If the parties cannot agree to a mediator by this date, the mediator be appointed by the Court (with the Substituted Applicant and Respondent each jointly submitting the names of no more than two nominees to the Associate to Rares J to facilitate such appointment being made).
Case Management
The proceeding be listed for case management on Friday 22 April 2022 at 9.30am.
THE COURT NOTES THAT:
For the purposes of making these orders, a distinction has been made between the Original Applicant and Substituted Applicant. However, following the date of these orders, references in documents in the proceeding to the Applicant, unless the context otherwise requires, be taken to be a reference to Peter Hermann Eckardt.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
[2]
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.
[3]
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.
[4]
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.
[5]
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.
[6]
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.
[7]
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.
Parties
Applicant/Plaintiff:
Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund)