Casey v DePuy International Ltd

(c) for ease of administration, the Costs Contributions are to be paid by individual Group Members as follows: (i) the applicant's solicitor, Maurice Blackburn Pty Limited (Maurice Blackburn) is to deduct the applicable Costs Contributions from the compensation amounts payable to Group Members who are its clients; (ii) the respondents are to deduct the applicable Costs Contributions from the compensation amounts payable to Group Members who are not clients of Maurice Blackburn and the respondents are to then retain those Costs Contributions and every two months are to pay the aggregate Costs Contributions to Maurice Blackburn; (d) Maurice Blackburn and the respondents are to cease deducting Costs Contributions from Group Members' compensation payments after the Outstanding Costs have been fully paid to Maurice Blackburn; (e) for the avoidance of doubt, Costs Contributions do not need to be made by the representatives of the estates of deceased Group Members who are entitled to compensation as provided in clause 9.1 of the Compensation Protocol. 3. All costs orders previously made in the proceeding are vacated. 4. Pursuant to sections 33ZB and 33ZF of the Act: (a) A Group Member who has not opted out of the proceeding may not commence, continue or take any action, claim or proceeding against the Respondents for damages, compensation or other relief arising out of, in respect of or attributable to the "Characteristic" (as defined in the Liability Protocol), other than pursuant to the Liability Protocol and the Compensation Protocol; (b) Subject to paragraph 4(a), a Group Member may commence, continue or take any action, claim or proceeding against the Respondents for damages, compensation or other relief arising out of the provision of an "Affected Implant" (as defined in the Amended Statement of Claim) on the basis of matters other than the Characteristic, including on the basis of the "Exclusionary Criteria" (as defined in the amended settlement agreement) or any other alleged mechanism of failure; (c) Any Group Member who receives compensation under the Compensation Protocol may not commence, continue or take any action, claim or proceeding against the Respondents for damages, compensation or other relief arising out of, in respect of or attributable to an Affected Implant. 5. Pursuant to section 33ZF of the Act, a Group Member is given leave to withdraw an opt out notice if: (a) the Group Member filed their opt out notice along with one or more pages of a Claim Form (as defined in the orders made on 3 September 2012); and (b) the applicant and respondents consent to the withdrawal of the opt out notice; and (c) a Notice of Withdrawal of Opt Out Notice in the form of Annexure A to these orders is signed by and filed for the Group Member. Annexure A Notice of Withdrawal of Opt Out Notice (filed pursuant to orders made by Justice Buchanan on 4 December 2012) No. ACD 10 of 2010 Federal Court of Australia District Registry: Australian Capital Territory Division: General Pamela Casey Applicant DePuy International Limited and Another Respondents I am a group member in this representative proceeding and I give notice that I withdraw the opt out notice that I previously filed in the representative proceeding. Date: Signature of Group Member: Name of Group Member: Address: Telephone:

The parties consent to the withdrawal of the Group Member's opt out notice: Signed by: Signed by: Solicitor for the applicant Solicitor for the respondents

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY GENERAL DIVISION ACD 10 of 2010

JUDGE: BUCHANAN J DATE: 4 DECEMBER 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This judgment deals with an interlocutory application seeking approval of a proposed settlement of a representative proceeding under s 33V(1) of the Federal Court of Australia Act 1976 (Cth) ("the Act"). I take as a guide the matters referred to by Jacobson J in Taylor v Telstra Corporation Ltd [2007] FCA 2008 at [56]-[66] and the matters referred to in Practice Note CM 17 issued on 1 August 2011. 2 The proceedings were commenced on 29 March 2010. They concern implants used as a component in total knee replacement surgery to address a patient's damaged or diseased femur. The implants in question were manufactured by the first respondent and distributed in Australia by the second respondent. In late July 2009 the implants were voluntarily recalled in Australia. 3 On 16 December 2008 the applicant had a bilateral total knee replacement. The implant used for the left knee later required removal and replacement. That operation was performed on 3 February 2010. The proceedings, which were commenced by her on her own behalf and on behalf of persons on whom the implants were used, alleged that the implants were not reasonably fit for the purpose for which they were supplied within the meaning of s 74B of the Trade Practices Act 1974 (Cth) ("the TP Act"); the implants were not of merchantable quality as required by s 74D of the TP Act; and the first respondent was negligent in manufacturing the implants. 4 The group members are defined in the further amended originating application as follows: The group members to whom this proceeding relates are those persons (Group Members) who within the Commonwealth of Australia had implanted in them by a medical practitioner or medical practitioners one or more LCS ® Duofix ™ Femoral Components being one of those components described in Hazard Alert dated 29 July 2009 and bearing one or more of the following product codes and descriptions (Affected Implants): Product Code Product Description 129407010 LCS COMPLETE FEM COMP HA SM RT 129407020 LCS COMPLETE FEM COM HA SM+ RT 129407030 LCS COMPLETE FEM COM HA MED RT 129407040 LCS COMPLETE FEM COM HA STD RT 129407050 LCS COMPLETE FEM COM HA STD+ RT 129407060 LCS COMPLETE FEM COM HA LG RT 129407070 LCS COMPLETE FEM COM HA LG+ RT 129408010 LCS COMPLETE FEM COMP HA SM LT 129408020 LCS COMPLETE FEM COM HA SM+ LT 129408030 LCS COMPLETE FEM COM HA MED LT 129408040 LCS COMPLETE FEM COM HA STD LT 129408050 LCS COMPLETE FEM COM HA STD+ LT 129408060 LCS COMPLETE FEM COM HA LG LT 129408070 LCS COMPLETE FEM COM HA LG+ LT

5 According to records maintained by the second respondent, prior to their recall 5,071 of the implants in question were used in Australia. The reason for recall was that it was discovered that in some implants alumina particles used during the manufacturing process had the potential to migrate to the space between articulating surfaces in the knee, leading to wear of those surfaces. That wear was demonstrably greater than the normal and comparatively superficial wear that would be expected in a well-functioning knee prosthesis. Where it occurred, this situation reflected what the applicant submitted was a "superadded risk of failure" of the implants although, on the evidence, only a comparatively small proportion of the implants have failed or are likely to fail. Generally speaking, according to the evidence, total knee replacement surgery normally has a high chance of success; approximately 95%. In ordinary circumstances there will be some instances where a prosthetic joint might fail and need "revision", most commonly due to loosening of the device, infection or surgical error. The "superadded risk" referred to by the applicant increased the likelihood that a prosthetic joint might fail, but within limited margins. 6 Over a period of time the parties negotiated two protocols to settle the representative proceedings, including the claims of the applicant. One protocol is known as the "liability protocol" and the other is known as the "compensation protocol". The liability protocol requires the establishment of an expert panel of surgeons to act as assessors. Claims for compensation are to be assessed by reference to criteria set out in the liability protocol. The overarching criterion is that compensation will be paid "if it is more likely than not that alumina particles from an Affected Implant caused Abnormal Wear (the Characteristic)". 7 "Abnormal Wear" is defined as "striations, scratches or deep grooves in the direction of articulation on any of the Articulating Surfaces that is greater than the wear that would generally be expected in a total knee replacement prosthesis that had been implanted for a comparable period of time." Objective criteria are nominated to determine whether the "characteristic" is satisfied. In many cases the removed implant (the explant) will be available and if abnormal wear is present it will be observable. If the explant is not available or if only one of the metal components of the explant is available then other indicators of abnormal wear are specified. Those indicators are ones which the parties adopted on the basis of expert advice. 8 Generally speaking, it is anticipated that agreement about liability will be possible in a large proportion of cases. Where agreement is not possible an expert assessor is to be appointed whose deliberations are to be guided by certain presumptive criteria and also certain exclusionary criteria. The exclusionary criteria have a significance to which it will be necessary to return. In a small number of cases where a group member is unable to undergo revision surgery for medical reasons and the group member has not had an arthroscopy, and liability is not accepted by the respondents, the period during which that group member may opt out was extended by orders made by consent on 3 September 2012, pursuant to s 33J(3) of the Act, to 30 days after the date on which the group member receives final written notification that the respondents do not accept liability pursuant to the liability protocol. I shall return to the question of protection of the rights of group members to take action against the respondents on the basis of matters other than the "characteristic" which gives rise to liability. 9 Where liability is accepted, compensation is to be assessed according to the compensation protocol. Compensation for non-economic loss and gratuitous care is to be determined in accordance with four categories: A, B, C and D. The amounts of compensation for categories A, B and C are $30,000, $40,000 and $65,000 respectively. Compensation in those cases is to be paid without the need for any individual assessment of non-economic loss or "gratuitous care", which means past gratuitous attendant care services within the meaning of the TP Act. Categories A, B and C are identified as follows: Category A: Any Eligible Group Member who does not meet the criteria for Categories B, C or D of the Compensation Protocol. Category B: Any Eligible Group Member who has undergone one Revision plus one other Surgical Procedure consequent on the Affected Implant. Category C: Any Eligible Group Member who has undergone one Revision plus two or three other Surgical Procedures consequent on the Affected Implant.

10 In the case of Category D, compensation for non-economic loss and gratuitous care is to be individually assessed. Category D is defined in the following way: Category D: Any Eligible Group Member who meets one or more of the following criteria: (i) has undergone one Revision plus four or more other Surgical Procedures consequent on the Affected Implant; and/or (ii) has undergone more than one Revision consequent on the Affected Implant; and/or (iii) has experienced extraordinary and significant complications or injury in excess of that to which Eligible Group Members in Category A, B or C would experience as a result of failure of an Affected Implant.

11 Compensation payable to eligible group members for financial losses, including out-of-pocket expenses and economic loss, is to be assessed as it would have been under Part VIB of the TP Act. 12 In the case of bilateral revision surgery discounts to compensation for non-economic loss and gratuitous care are to be applied. The discount to the aggregate amount of compensation for non-economic loss and gratuitous care is to be 25% where the two revision surgeries have occurred at the same time or during the same admission to hospital, and 12.5% where the two revision surgeries have occurred within six months of one another. Evidence was given to the effect that it would be unusual for a group member to undergo bilateral revision during the same operation or the same admission to hospital. The evidence further indicated that where a patient did undergo two revision surgeries during the same admission to hospital, the overall recovery period would likely be less than if the group member had undergone separate revision surgeries. In cases where a group member undergoes two revision surgeries within six months, it was submitted that due to overlapping periods of rehabilitation, the total rehabilitation period would often be less than twelve months, and therefore a discount was justified. In a letter dated 26 October 2012 one group member, Mr Ian Williams, objected to this aspect of the compensation proposal. He had revision surgery on one knee in August 2009 and on the other knee in November 2009. He complained that the pain and suffering he experienced with respect to each knee was not reduced by reason of the surgeries occurring within six months of one another and suggested that compensation should not be reduced either. However, the evidence has satisfied me that, broadly speaking at least, there is justification for the proposed discounts. 13 Confidential expert legal opinion was provided to the effect that the settlement proposed represents an appropriate balancing of the interests of the group members who will be entitled to compensation against the prospects for achieving a litigated outcome, and the risks involved in failure of such litigation. There are different considerations to be borne in mind with respect to proceedings under the TP Act and proceedings in negligence but, taking those matters into account, I am satisfied that the levels of compensation proposed and the way in which liability is to be assessed are appropriate in the circumstances. 14 The compensation protocol also provides for compensation to be paid to the estates of deceased group members. That compensation includes an amount of $7,500 for non-economic loss and gratuitous care, which represents 25% of the compensation that would be paid to a Category A group member, and financial losses up to the date of death. The not insignificant discount to compensation for non-economic loss and gratuitous care reflects the risk that liability would not be established in relation to the estate claims under ss 74B and 74D of the TP Act in light of the decision of a Full Federal Court in Pritchard v Racecage Pty Ltd (1997) 72 FCR 203 and in light of the risk, depending on the various laws of individual States and Territories, about whether a claim for non-economic loss would survive the death of a claimant. These aspects of the compensation protocol appear to me also to strike an appropriate balance. 15 As originally proposed, the settlement would have extinguished the rights of group members who had not opted out but who were assessed as not eligible for compensation under the liability protocol. Upon that difficulty being exposed the parties gave renewed consideration to that aspect of the settlement and in the final, amended settlement agreement made provision for group members who were not assessed as eligible for compensation under the liability protocol to retain the right to commence, continue or take any action, claim or proceeding against the respondents. Those circumstances included the specific exclusionary criteria to be taken into account in the assessment of liability and "any other alleged mechanism of failure" falling outside the defined characteristic. The preservation of those rights is reflected in the orders which accompany this judgment. Those changes are important ones which address the rights of group members who will not be entitled to a payment under the compensation protocol. 16 The parties have reached an agreement as to how the costs of the proceedings should be dealt with. The settlement agreement deals separately with pre-settlement costs (those incurred up to and including 29 August 2012) and post-settlement costs (those incurred after 29 August 2012). 17 The respondents are first to pay $700,000 towards pre-settlement costs. The balance of pre-settlement costs plus interest is to be paid by way of "cost contributions" from group members whose claims are successful. Those costs contributions are stipulated to be $900, $1,200, $2,000 and $2,300 respectively for Categories A, B, C and D. These amounts represent 3% of the compensation payable for non-economic loss and gratuitous care for Categories A, B and C and is likely to be less than 3% of total compensation once compensation for financial losses is taken into account. Those contributions are to be made until a further amount (after the amount of $700,000 is paid by the respondents) of $389,540.94 plus interest has been paid. The respondents are to pay post-settlement costs calculated quarterly in accordance with a costs agreement made between the applicant and her solicitors but at lower hourly rates, which are set out in the settlement agreement. 18 Evidence was provided as to the reasonableness of the costs incurred, and to be incurred. The expert evidence suggested some adjustments to the fees and disbursements actually charged and the parties adopted those adjustments. The amount that the applicant seeks to recover by means of costs contributions from group members is the amount assessed as having been reasonably incurred pre-settlement, less the $700,000 that the respondents have agreed to pay, plus interest. Neither the applicant nor group members are required to contribute to the payment of the post-settlement costs. I am satisfied, having regard to the evidence, that the proposals regarding the recovery of costs are reasonable. 19 There have been very few complaints among the more than 430 inquiries received regarding the proposed settlement. I have already referred to one objection which was taken. Otherwise there were only two group members who complained about aspects of the settlement. One group member was displeased with the proposal for costs contributions; another group member complained that the compensation amounts for non-economic loss were too low. In my view neither of those further two objections provide a reason not to approve the settlement. I am satisfied, having regard to the evidence and submissions provided in support of the settlement, and taking into account the positive response of the parties to the concerns raised by the Court, that the settlement should be approved. I make orders in the form finally agreed between the parties, dated 20 November 2012. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.