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

Judgment (5 paragraphs)

[1]

THE COURT ORDERS THAT: Common Fund Order

Pursuant to ss 23 and 33ZF of the Federal Court of Australia Act 1976 (Cth) (FCAA) and r 1.32 of the Federal Court Rules 2011 (Cth), subject to further order, order that upon Resolution (as defined in the Funding Terms) the Applicant and Group Members shall pay from any Claim Proceeds (as defined in the Funding Terms), the amounts referred to in sub-clauses 6 and 7 of the Funding Terms, prior to any distribution to Group Members, in accordance with the Funding Terms (Common Fund Order).
The Funding Terms (being Annexure A to these orders) further define and specify the amounts to be paid pursuant to Order 1. Confidentiality
Pursuant to ss 37AF and 37AG(1)(a) of the FCAA, unless the Court orders otherwise, up to the time at which the Court makes a final order determining the claims for relief in the proceeding, in order to prevent prejudice to the proper administration of justice: (a) paragraphs 8, 9 and 10(b) of the confidential affidavit of Bill Petrovski sworn on 24 May 2019 and Exhibit BP-2 to that affidavit; and (b) paragraphs 8, 9 and 10(b) of Annexure B to the affidavit of Bill Petrovski sworn on 27 June 2019, not be disclosed to any person or entity except to the Applicant, its legal representatives and Investor Claim Partner Pty Ltd and ICP Capital Pty Ltd, on condition that any such person or entity to whom such disclosure is made not disclose that material or any part thereof to any other person or entity without the leave of the Court first had and obtained. THE COURT NOTES THAT: Undertaking
The undertaking given to the Court by counsel for the Applicant on its behalf and on behalf of each of William Roberts Lawyers, Investor Claim Partner Pty Ltd and ICP Capital Pty Ltd, and given to each other, inter se, that each of them will comply with its and their obligations under the Funding Terms. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure A Funding Terms Definitions
The following definitions apply in these Funding Terms: (a) "Adverse Costs Order" means any costs order made in favour of the Respondent against the Applicant and/or ICP and/or ICP Capital Pty Ltd in the Proceeding in respect of costs of the Respondent incurred during the Funding Term; (b) "Administration Expenses" means the cost of the administration of any scheme for the distribution of Claim Proceeds, including fees charged by and expenses paid by the administrator (being the person or entity appointed to administer a scheme for the distribution of any Claim Proceeds), including (without limitation) court fees, barristers' fees, external photocopying fees, IT project management fees, data processing fees, process service fees, expert report fees, external costs consultant fees, interstate agents' fees, courier fees, travel and accommodation fees; (c) "Applicant" means Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund), and any other person who is a lead applicant or representative party in the Proceeding; (d) "Claims" means the claim or claims the Applicant and the Group Members have or may have against the Respondent arising out of, or connected with, SGM's alleged misleading or deceptive conduct and/or breaches of its continuing disclosure obligations in the period 21 August 2015 to 19 February 2016 (inclusive) or such other period as the Lawyers advise and the Funder accepts; (e) "Claim Proceeds" means the sum of money, or the value of any goods or services, which is attributable to the resolution, settlement, judgment and/or enforcement of the Claims and any interest (including interest earned on trust money), and any monies recovered by virtue of a Costs Order or any agreement in respect of costs in relation to the Claims. The Claim Proceeds refers to the gross value of these sums and is not net of any costs or expenses of conducting the Claims; (f) "Common Benefit Work" means Legal Work for the common benefit of Group Members, or a sub-group of Group Members; (g) "Costs Order" means an order made by a court requiring one or more parties to the Proceeding to pay the costs incurred by another party or parties to the Proceeding; (h) "Deferred Project Costs" means the Lawyers' reasonable professional fees not paid by the Funder, (including an additional amount equal to 25% of the unpaid portion of any reasonable professional fees, including any amounts in relation to GST payable by the Lawyers, in so far as the professional fees were incurred either before or during the Funding Period); (i) "Disbursement" means any expense the Lawyers incur whether as principal or as agent on the Group Members' behalf in relation to the Legal Work, including (without limitation) court fees, barristers' fees, external photocopying fees, IT project management fees, data processing fees, process service fees, expert report fees, interstate agents' fees, courier fees, travel and accommodation fees; (j) "Funder" means ICP and ICP Capital Pty Ltd; (k) "Funder's Project Costs" means the aggregate of: (A) the total monies paid by the Funder pursuant to clause 2 below; and (B) to the extent not covered by sub-clause (A) above, the total monies paid by the Funder pursuant to the Funding Agreements prior to the date of the Common Funder Order, including: (I) all reasonable Disbursements, including any amounts in relation to GST payable by the Lawyers, in so far as the Disbursements were incurred either before or during the Funding Period; (II) the Lawyers' reasonable professional fees, including any amounts in relation to GST payable by the Lawyers, in so far as the professional fees were incurred for the Legal Work, subject to the fee capping arrangements in Clause 6 of the Retainer Agreements; (III) the costs of any insurance covering any Adverse Costs Order; (IV) any Costs Order which the Court makes in the Proceeding against the Applicant or other Group Member in favour of the Respondent; and (V) any security for costs in the Proceeding and the costs involved in the provision of any such security. (l) "Funding Agreements" means the funding agreement, titled "ICP Agreement" between the Funder and the Applicant signed by the Applicant on 20 February 2018 and any funding agreements between the Funder and other Group Members in relation to the Claims; (m) "Funding Period" means the period commencing on [the date the Common Fund Order is made] and ending on the date of the judgment in respect of any settlement approval application or judgment in the initial trial of the Applicant's claim and the common issues, whichever is first to occur; (n) "Group Members" means all persons who are identified as group members in the Proceeding including the Applicant, and who do not opt out of the Proceeding by the time specified by the Court for doing so; (o) "GST" means goods and services tax; (p) "Individual Legal Work" means Legal Work in connection with the specific Claims of a specific Group Member, not including Common Benefit Work; (q) "ICP" means Investor Claim Partner Pty Ltd; (r) "Insurer" means any insurer providing the Applicant with any Adverse Costs Order insurance in respect of the Claims; (s) "Lawyers" means the lawyers, William Roberts Pty Ltd trading as William Roberts Lawyers, or any firm of lawyers appointed in their place by the Applicant after consultation with the Funder; (t) "Legal Costs" means the costs referred to in paragraphs 2(a), 2(b) and 7; (u) "Legal Work" means such advice and legal services to the Applicant and Group Members or for the Applicant and Group Members' benefit, including the Common Benefit Work and any Individual Legal Work, as the Lawyers may consider reasonably necessary to: (a) investigate the Claims; (b) prosecute the Claims; (c) negotiate a Settlement of the Claims; and (d) negotiate to secure and maintain funding on behalf of the Group Members in relation to the Claims; (v) "Proceeding" means the representative proceeding filed by the Applicant against SGM on 30 January 2019 in the New South Wales Registry of the Federal Court of Australia; (w) "Project Costs" means the Funder's Project Costs and the Deferred Project Costs; (x) "Resolution" means when all or any part of the Claim Proceeds is received and, where the Claim Proceeds is received in parts, a "Resolution" occurs each time a part is received; (y) "Respondent" means SGM and any other parties named as respondents in the Proceeding; (z) "Retainer Agreements" means the retainer and costs agreement between the Lawyers and the Applicant signed by the Applicant titled "Retainer and Costs Agreement Action against Sims Metal Management Ltd" and any retainer and costs agreements between the Lawyers and other Group Members in relation to the Claims; (aa) "Senior Counsel" means the most senior counsel of those retained by the Applicant for the Proceeding; (bb) "Settlement" means any settlement, compromise, discontinuance or waiver of the Claims or part of the Claims and "settles" shall be construed accordingly; (cc) "SGM" means Sims Metal Management Limited ACN 114 838 630; and (dd) "SGM Share" means an ordinary fully-paid share issued by SGM; Obligations of the Funder

Background 3 On 5 April 2019, I made orders, under s 33X of the Federal Court Act, requiring the provision of notices to the persons who may comprise members of the class that this application for a common fund order has been made. Those orders required Sims Metal to cause its share registry service provider to send the notice and a cover letter to each of the persons who may comprise the group. I am satisfied by the evidence of Carpenders' solicitors that approximately 1500 people were sent notices in accordance with the orders. 4 The notices explained the nature of the proceeding and outlined, in summary form, the proposed funding terms, which included that, were the common fund order granted, the funders, being, compendiously, Investor Claim Partner Pty Limited (ICP) and ICP Capital Pty Limited, would seek to receive a commission of no greater than 25% of the net claim proceeds after deducting the costs paid by the funders in funding the proceeding. The notice made clear that this commission was a cap on the maximum sum that the funders might be awarded by the Court at the conclusion of the proceeding, but did not represent a decision of the Court that the funders would be awarded that sum. The notice also set out that the funders would receive any additional amount on account of GST payable on any commission that they were to receive out of the proceeds, and that, in addition, the lawyers for Carpenders may also be found entitled to be paid an uplift of 25% on their reasonable professional fees, inclusive of GST, in addition to what the funders had already paid them in the ordinary course of funding the proceeding to its conclusion. 5 The notice also informed the group members that the funding terms would ensure that Carpenders and they would receive, at least, 50% of the net claim proceeds. 6 The notice required that any group member who wished to oppose the making of the orders today should do so by filing a notice to that effect on or before 5 June 2019. In the event, no notice was filed by that time, although, on 27 June 2019, the lawyers for Carpenders received a notice from a person, dated 25 June 2019, who identified herself as having held shares during the claim period, but gave no further information as to why she opposed the making of the order, and indicated that she did not intend to appear today. It is likely that this person may have misapprehended the nature of the proceeding today or what might happen. I am satisfied that, she having expressed no reason for her opposition, there is no basis to conclude that she will be adversely affected by the making of the order. 7 The funders appear to have substantial financial resources, and have a long history of involvement in funding representative and other proceedings, through their principal, John Walker, who is their chief executive officer and founder, and has previously held senior roles in the litigation funding industry for many years. I am satisfied that the funders are likely to be able to conduct the proceeding and meet any costs and other orders that they may be required to pay. 8 Mr Walker began investigating potential claims against Sims Metal on about 5 February 2016. He approached Bill Petrovski, of the solicitors for Carpenders, in early June 2016, to seek assistance with that investigation of the potential claims. Mr Petrovski thereafter worked with Mr Walker in doing so. 9 On about 11 August 2016, ICP made a public announcement that it was investigating potential claims with Mr Petrovski's firm, and invited potential group members to register their interest in the proposed class action with ICP. 10 From about 22 September 2016, ICP began engaging with institutional investors who had invested in Sims Metal's shares at the relevant times. Ultimately the funders offered a litigation funding and management agreement to potential group members that resulted in 54 institutional investors and two other investors entering into agreements on those terms. 11 The proceeding commenced on 20 February 2019 as an open class action. Mr Petrovski's evidence is that the 56 group members who have signed the funding agreements with the funders collectively suffered about 17.4% of the total losses of all the potential group members. The funding agreement provides, in effect, that, if the action proceeds to judgment, the reward for the funders will be likely to be 25% of the gross proceeds as well as them recouping their outlays. 12 It follows that, by accepting a cap of 25% of the net proceeds on the basis proposed, in order to obtain a common fund order, the funders have agreed, first, to accept, in substitution, a lesser reward than they would have been paid had they been bound solely to the agreements with the 56 persons who entered the funding agreements, and, secondly, to assume the risk that, at the time the Court makes final orders, either after giving judgment or approving a settlement, it will conclude that the sum payable as a commission to the funders should be set at a percentage or amount lower than 25% of the net proceeds, after paying the lawyers' costs and deferred costs.

Consideration 13 Securities class actions are proceedings that serve both substantial private interests of their funders and those in the class of persons claiming to have been affected. Allsop CJ, Middleton and Robertson JJ explained the purpose of common fund orders, and the Court's powers under s 33ZF of the Federal Court Act, in Lenthall 366 ALR at 159 [91]-[92] as follows: At this point, before examining the balance of Pt IVA, to demonstrate why there is not the textual or contextual limitation on s 33ZF asserted by Westpac, it is helpful to say something of the nature and purpose of the order itself. Westpac stressed the "taking" from the group members' rights of action. That, however, is too narrow a focus, at least in the circumstances here where the claims are small to modest and the claimants numerous. If funding of an open class is seen as a legitimate, appropriate and in a broad sense, necessary, part of the framework for the vindication of the rights of group members, there is every reason in fairness and equity to have the cost of such funding shared equally. The benefit inures to all, and should be paid for by all. An early order making that clear (or refusing it, if circumstances persuade the Court of that approach) can place the group action on a known and stable foundation, and reduce or eliminate the risk of the action not proceeding. Other orders may do the same. What is most appropriate will guide the Court in the exercise of the power. We reject the submission that the absence of express statutory criteria somehow limits the reach of the general words. We deal with this more fully below, but part of the exercise and character of judicial power is the development, on a case by case basis, on evidence led before the Court, of criteria of sufficient clarity, and of an appropriate nature upon which to exercise the power judicially and not idiosyncratically or personally. Depending upon the nature of the power and the task there may be varying degrees of specificity and precision in such considerations. But judicial power is not limited to decision by application to facts of definitions and rules. The words of this section make that pellucid: any order the Court thinks appropriate to ensure justice in the proceeding. One would have thought that it may have been unwise of Parliament to lay down precise criteria for a provision so widely worded and with a purpose to adapt to the future in a novel legislative and litigious framework. (emphasis in original) 14 Similarly, Meagher, Ward and Leeming JJA said, of the statutory analogue of s 33ZF in s 183 of the Civil Procedure Act 2005 (NSW), in Brewster 366 ALR at 189 [81]: In summary, litigation funding was not lawful when Pt IVA was enacted, although it was lawful when Pt 10 was enacted. But if a court forms the view that an interlocutory order, including one binding group members to a common regime relating to funding, is appropriate or necessary to ensure that justice is done in the proceedings, s 183 is sufficient to supply power to make such an order. The general words in s 183, read fairly, enable orders extending to the rights of litigation funders, including an order binding group members to a regime whereby in exchange for a commitment to fund the entirety of the litigation, including any adverse costs orders the funders are presumptively entitled to a proportion of a judgment or settlement when and if it is obtained. The principle of legality and the other considerations flowing from the text and structure of Pt 10, do not detract from the scope of the power in s 183 to make such an order. (emphasis added) 15 When the Court is asked to approve a common fund order at an early stage of litigation, there is always a danger that, in proffering a maximum sum or cap for the amount of commission which a funder may be entitled to receive at the end of the proceeding, it will set an expectation, in the funder and the parties, as well as the group members, that the Court will adopt that maximum sum or cap in its final exercise of discretion under s 33ZF. In fact, the position is that at this preliminary stage of such a proceeding, it is too early for the Court to evaluate, on a fully informed basis, the actual risk that a funder has assumed. Accordingly, it is not feasible to evaluate what the equitable or just apportionment of the reward for the funder undertaking that risk should be, and the corresponding liability that should be thrust upon the group members for it doing so in the event that the proceeding results in a recovery by the applicant or the group members from their engagement in the commercial enterprise represented by the funder promoting and causing the taking of such proceedings. 16 It is important to bear in mind that a funder almost always will initiate a group proceeding or class action because it has analysed its risk and the prospects of success beforehand with considerable care before it embarks on that commercial adventure. The commercial adventure consists of the advance in the proceeding of the claims of persons affected with a view to the funder's own profit. That observation is by no means a criticism but reflects the reality that the Court is dealing in such a situation, when it is asked to make a common fund order and ultimately determine, at the end of the proceeding, how that the funder's reward should be regulated in adjusting rights. Ultimately, the amount of the reward must be conditioned by the Court exercising its power, under s 33ZF, to make the order that it thinks appropriate or necessary to ensure that justice is done in the proceeding. 17 The parties provided evidence and submissions in this application about the sizes of the reward, or cap on the reward, provided in numerous common fund orders that this and other courts have made in recent times, as a guide to assessing the appropriate cap in this proceeding. That material has confirmed that, in recent years, there has been a significant, and beneficial, reduction in the amounts of rewards that litigation funders have sought or been allowed to recover from some, in the past, that were more extravagant. I criticised one such instance in my reasons in Australian Executor Trustees Ltd v Provident Capital Ltd (2018) 125 ACSR 133 at 138 [25]-[26] as follows: All too often, courts are asked to approve settlements of class actions or become aware, in applications such as this, that the lion's share of settlement proceeds never reaches the persons in whose name, and purportedly for whose benefit, the proceedings were brought and the settlement or judgment paid. Professor Michael Legg, in his recent article "A Critical Assessment of Shareholder Class Action Settlements the Allco Class Action" (2018) 46 ABLR 54 at 66 accurately described a net return of a little over 50% ($20.6 million) of a settlement (of $40 million) paid by a company, as "an expensive and inefficient approach to obtaining compensation". He observed of the expenses consisting of $10.5 million as the applicants' legal costs and, after Beach J had made a common fund order, of 30% in favour of the funder's net recovery of $8.85 million (Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs and mgrs apptd) (in liq) (No 3) (2017) 343 ALR 476; 118 ACSR 614; [2017] FCA 330) that "the transaction costs undermine the objective of compensation". Earlier, Prof Legg had suggested that the continued entry of new funders into the litigation funding market could suggest that above normal returns are being earned and that, as a consequence, "the current approach to determining a litigation funders' fee may create concern" (46 ABLR at 64). 18 The recent cases have shown that litigation funders can and will provide funding, and so provide the access to justice which the purpose of the Australian Law Reform Commission and the Parliament had in mind when Part IVA of the Federal Court Act was enacted, at rates that are far less and more reasonable than those previously offered or obtained. 19 Hence, in the circumstances of this case, it seems to me that the willingness of the funders to propose or accept the common fund order in the form that provided for the Court to retain its discretion, under s 33ZF, to revisit and lower the capped maximum of a net 25% commission, makes it unnecessary for me to evaluate, at this stage, whether a lesser cap should be imposed. 20 It sufficies to emphasise that the 25% cap that the order will provide should not be seen as creating an expectation other than that it is the maximum for which the funders may be awarded a reward. That cap is not a guarantee, or a fetter on the Court's discretion under s 33ZF that will need to be exercised at the time at which the final orders are made, as to how much the funders should be allowed to recover out of the net proceeds obtained in the event of successful outcome from its and the group members' perspective. The net proceeds will reflect the damage, or value of the claim for damages, that the group members (as opposed to the funders) actually suffered. 21 Because each group proceeding under Pt IVA of the Federal Court Act and its analogues will have its own particular features and apparent risks at the time, usually well before the proceeding is finalised, at which a common fund order is sought, it will be difficult for the Court to find any particular benchmark by which to judge the appropriateness of a particular cap. However, there may be cases in which the Court might perceive that an initial proposed cap is extravagant or unduly generous so as to suggest a need to appoint an amicus curiae to argue as to what other alternatives might be adopted, although it is not necessary to do so here.

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Judgment (5 paragraphs)

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