Clark v National Australia Bank Limited

LEE J: 1 This is an application for the approval of a settlement of a class action commenced pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) (Act). It is unnecessary to yet again rehearse the principles that are to be applied on such an application. I summarised them in Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 (at [13]-[14]). The only additional matters that I would add to that summary are the observations of Wigney J in Stanford v DePuy International Ltd (No. 6) [2016] FCA 1452 (at [116]-[117]): Where settlement is reached prior to judicial determination, the assessment of the proposed settlement must be undertaken mindful of the unpredictability of the applicant's and group members' fate. In those circumstances, the settlement must be viewed as a pragmatic compromise to the relevant claims. In that regard, the Court should be mindful of the fact that the parties and their legal representatives are often in a better position to appreciate the risks, and also mindful of the fact that different parties and their lawyers will have different appetites for risk: Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323 at [74]. … approval of a settlement should not be approached as if there is a single outcome that may be seen to be fair and reasonable. Reasonableness is a range, and the question is whether the proposed settlement falls within that range having regard to the known facts and circumstances, not whether it is the best outcome which the Court considers might have been achieved: Darwalla at 339 [50]; Kelly v Willmott Forests at [74]. 2 The claims in this proceeding were summarised by senior and junior counsel comprehensively in a confidential joint opinion on settlement (Opinion). It is sufficient to reproduce that description as follows: 8 The primary claim in the proceeding is a claim by the applicant (individually and on behalf of the group members) that the first and second respondents (NAB and MLC respectively) have engaged in unconscionable conduct in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (ASIC Act). There are also claims that NAB has engaged in misleading or deceptive conduct towards a subset of group members in contravention of s 12DA of the ASIC Act (Misleading Conduct Claim), and provided personal financial product advice that was not suitable to a subset of group members (Inappropriate Advice Claim). 9 The claims relate to the arranging and distribution by NAB and issuance by MLC of consumer credit insurance (CCI) policies known as "NAB Credit Card Cover" (NCCC) and "NAB Personal Loan Cover" (NPLC). Each of NCCC and NPLC was a "bundled" CCI product that provided, subject to exclusions and limitations in the terms and conditions, different types of cover (sometimes described as benefits) in the event of the policy holder's death, critical illness, disability or involuntary unemployment. The various species of cover were not offered on a standalone basis, but only as part of a bundled product. 10 Underpinning the unconscionable conduct allegations is the applicant's case theory that: 10.1 it was unconscionable to issue or sell NCCC or NPLC because the products were of no real value or benefit, or at least of no real value or benefit to customers who were excluded from claiming under one or more categories of cover under the policy, and that the respondents knew or should have known this: the Valueless Product Aspect. 10.2 it was unconscionable to sell NCCC or NPLC in the particular manner in which each product was sold, which involved certain types of impugned sales practices engaged in by sales representatives, in circumstances where the respondents knew or should have known about that conduct: the Manner of Sale Aspect. The Manner of Sale Aspect includes allegations concerning "systems" (within the meaning of s 12CB(4) of the ASIC Act) of selling NCCC and NPLC online (Online Sales System), over the telephone (Telephone Sales System) and (for NPLC only) in NAB branches (Branch Sales System). 11 The proceeding was initially commenced relating to NCCC only, and largely focussed on the Valueless Product Aspect. Following discovery by the respondents, leave was sought to amend, and the proceeding was expanded to include allegations with respect to the Manner of Sale Aspect, the Misleading Conduct Claim (which also forms part of the Manner of Sale Aspect), and to extend the claims to include the NPLC products. In October 2019, shortly before mediation, leave was granted to amend the originating application and statement of claim further to also include the Inappropriate Advice Claim (which then also formed part of the Manner of Sale Aspect). 3 The group members were persons who, as a result of the circumstances in which the policies were sold by NAB, were alleged: (a) not to have appreciated they purchased the relevant policy; (b) to have believed that they were required to take out the policy in order to have a credit card issued to them or a personal loan advanced to them; (c) to have believed that there would be no cost to obtain the policy; or (d) to have believed that the policy was suited to their needs or represented value for money. In addition, some group members were alleged to have fallen into an exclusion, which meant that they were not able to benefit (or were unlikely to benefit) from one or more of the covers provided because, for example, they were not Australian residents, not "gainfully employed" or were employed on a fixed or short-term contract, or had a "critical illness", or a "pre-existing condition", or were under the age of 25. 4 The relief claimed by the applicant, Ms Clark, on her own behalf and on behalf of group members, related to the premiums paid under each policy, together with interest charged by NAB on those premiums, less any amount received by the customer from NAB under a remediation programme. 5 The proceeding has been long and hard fought and was settled relatively soon before an initial trial was due to commence late last year. The implementation of a settlement distribution scheme presented significant challenges, given the scale of the class action. This can be illustrated by the fact that the first notice was sent out to 330,000 people. Out of the people who received the notice, 58,000 applied to register and 49,000 were then regarded as being eligible for registration as falling within the group definition. On any view of it, identifying and communicating with the group members in this case has been a substantial logistical undertaking. 6 Perhaps the most weighty factor weighing in favour of the approval of the settlement is that notwithstanding the fact that notices have been sent out providing an estimated distribution to group members, only four group members have foreshadowed an objection and only three, as at the date of the hearing, have maintained an objection. 7 I do not propose to identify them individually, but one objection was withdrawn when it became evident that the relevant group member had not paid a premium during the relevant period; one group member's concerns can be accommodated by allowing the group member to register late; a further group member who had claimed a higher entitlement will also be able to register late and will not be barred from making a separate claim against NAB; and a final objector, who provided an objection to the Court on the day of the settlement approval hearing, appears to be eligible under one of the two policies that he held (and will be accommodated in the settlement by being able to register in relation to that policy). 8 Whatever concerns one might have about the extent of compromise made to strike a settlement sum, they are very considerably assuaged by the fact that those most directly affected, the group members, have not reacted adversely to the prospect of their claim being resolved for the amount that has been communicated to them. I mention this fact because the settlement does involve substantial compromise. 9 The figure for the "headline" aggregate claim of group members at the time of any initial trial would have been somewhere in the region of $109 million, inclusive of interest. The agreed terms of settlement which are recorded in the settlement deed executed in November last year provide for the payment to group members of $49.5 million in exchange for a release of the claims the subject of the class action. It follows, using a broad brush, that the applicant's counsel and solicitors have formed the view that a settlement discount of over 50 per cent to the headline aggregate figure of group members' claims is fair and reasonable in the interests of group members. 10 Given this matter was closer to an initial hearing than others in my docket, I had the opportunity of reviewing the evidence that was to be adduced at trial in more detail than is the case in most s 33V applications. Intuitively, I would have thought that a settlement discount of the type proposed was at the higher end of the discounts that would have been thought to have been appropriate to have been applied to the aggregate claims of group members. That is, I would have thought the settlement sum would likely to have been higher. But it is important to recognise, as Wigney J did in Stanford (at [116]), that a "settlement must be viewed as a pragmatic compromise to the relevant claims" and the applicant group members are clearly in a better position to appreciate the risks of the litigation than a judge with an imperfect understanding in the absence of full appreciation of the matters that could have emerged at trial. There is no "correct" figure of a settlement of this type, and given reasonableness is a range, even if the Court considers a better settlement might have been achieved, that is not the test. 11 What is evident is that the approach to the case by the applicant's solicitors and the barristers has been anything but superficial. I was provided with, and have had the benefit of reviewing, in some detail, the Opinion. With respect to those preparing it, it is both comprehensive and closely reasoned and provides a rational basis for why the settlement sum has been regarded by counsel as being appropriate. It further provides a rationale, which I regard as fair and reasonable, for the distribution of the settlement sum between the group members inter se. The confidential exhibit containing details of that weighting, together with the confidential material in an affidavit affirmed by the solicitor for the applicant, is on file and reveals the relevant process of reasoning. 12 There are only five matters that I wish to touch upon briefly. 13 First, extensive material was put before the Court on the settlement application, which was said to be confidential. At the risk of sounding like a broken record, I have tried on a number of occasions to send the message to the profession that given the fact that the primary objective of the administration of justice is to safeguard the public interest in open justice, and that open justice is fundamental to the operation of the judicial power of the Commonwealth (particularly in circumstances where one is dealing with the extinguishment of rights of non-parties to the litigation), it is fundamental that any confidentiality orders made pursuant to Pt VAA of the Act be calibrated to ensure that only confidentiality orders that are necessary be made. 14 As the High Court explained in Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 (at 654 [30]), the word "necessary" is a "strong word". The threshold for an order to be made has been made deliberately high, but again and again material is proposed to be the subject of confidentiality orders on settlement applications which, on any view of it, includes information that has already been revealed in public, is anodyne, or is otherwise able to be revealed without any real prejudice to the administration of justice. This unfortunate approach of overreach can be seen in this case by reviewing the so-called "confidential affidavits" that were not redacted. 15 In a sense, one cannot be overly critical of practitioners in circumstances where it appears that mixed messages may have been received by differing approaches being adopted by the Court to making confidentiality orders on these applications. But one hopes that recognition of the importance of the primary objective of the administration of justice and the need to ensure transparency (particularly in relation to Pt IVA proceedings) will find wider acceptance and be reflected in a more careful approach to seeking such orders. 16 Secondly, there have been some minor aspects of the settlement that have caused some concern. The first is that I had initially understood that there were a large number of group members who had policies which were alleged to be worthless (in that they fell within an exception to the policy) who were still subject to a contractual obligation to pay ongoing premiums. This issue has been the subject of prolonged debate since the conditional settlement was struck, but has been resolved by an appropriate communication being made to group members. During the course of submissions as to the terms of such a communication, it became clear that the problem was nowhere near as widespread as I had initially feared. 17 The second issue, which is again minor in the overall scheme of the class action, is not unrelated and concerns the allegation that non-residents within the group obtained insurance in relation to policies in circumstances where their non-residency meant that they were excluded from cover under the policy. Those persons who paid premiums during the relevant period have received an amount with regard to their claims for premiums paid in that period, which I am satisfied is fair and reasonable. 18 But as I have made clear on a number of occasions, a class action relates to a group of persons not a group of claims. Those persons in this category are within the class action because they paid premiums within the relevant period, but an aspect of their claim (to use that word in the statutory sense) relates to premiums paid prior to the commencement of that period. No account has been made in the settlement for any worth to be given to those claims. The reason is that no attempt was made to plead relief (for example, as a restitutionary remedy by an action for money had and received) by reason of the payment of money by way of a mistake which, depending upon the particular circumstances of an individual claimant, may not be statute barred. 19 Having said this, given the sheer scope of this class action, despite my concerns that a potentially viable cause of action may exist and will be extinguished by the settlement, the number of group members affected is quite low and the quantum (although not quantified by those acting for the applicant) is unlikely to be significant in the overall scheme of things. I must keep, as my lodestar, the notion that I am required to make an assessment as to whether the settlement is fair and reasonable in the interests of all group members, and despite my misgivings about this aspect of the settlement, it is not determinative of this broader assessment. 20 Thirdly, an amount of $20,000 was claimed for Ms Clark's compensation for the time and expenses she incurred in fulfilling her role as a representative applicant on behalf of group members, and an amount of $3000 is identified to be paid to each of a number of sample group members. Given the evidence of the solicitor for the applicant in relation to the involvement of those parties in the conduct of the litigation, I think those amounts are clearly within the appropriate range for recompense of the work of those persons in making the conduct of the class action possible. Consumer class actions of the present type cannot be conducted without individuals being prepared to do work which, to an extent, is not to their own personal benefit. It seems to me appropriate that when a settlement sum is realised, it is just (see s 33V(2) of the Act) for such an order to be made out of the settlement sum to compensate for the exertions of persons acting in a representative capacity (leaving aside any equitable power to make a similar order on the basis that it would amount to unjust enrichment for the group members to have the benefit of such work without bearing a burden of the cost of the work being performed). 21 Fourthly, as part of the bargain struck, the parties by consent seek an order pursuant to various sections of the Act, the Federal Court Rules 2011 (Cth), or the Court's implied jurisdiction that the proceeding is dismissed with no order as to costs with all previous costs order vacated, with the effect that they seek the following order: Pursuant to ss 22, 23 or 33ZF of the Act or FCR 1.32 and/or the Court's implied jurisdiction, the proceeding is dismissed with no order as to costs and with all previous cost orders vacated, with effect from the date on which the final distribution of the Settlement Sum (including the Residual Distribution Sum) occurs under the Settlement Distribution Scheme, on the basis that the dismissal is a defence and absolute bar to any claim or proceeding by the Applicant or any Group Member with respect to this proceeding. 22 Such orders have previously been made by the Court at the time of approval, that is, prior to the distribution of the settlement sum occurring in accordance with orders made under s 33V(2). I raised with the parties whether such an order is necessary or appropriate, at least at this time. When one considers what is occurring in the settlement of a class action, it is apparent that it is fundamentally different to the resolution of inter partes proceedings. In an ordinary case, an applicant and respondent have resolved their controversy and, subject to a party being an infant or suffering an infirmity, that compromise is not the subject of consideration by the Court. 23 Part of such a compromise will often involve the proceeding immediately being brought to an end by either the discontinuance of the claim or the dismissal of the claim with or without contractual releases. The law in relation to how this prevents re-agitation of claims need not be gone into in this judgment, as it is very well known. I raise it simply to illustrate the difference from what is happening here. What is being resolved in a class action under Pt IVA is really two things: first, an action at law between two parties to the litigation, which is closely analogous to inter partes litigation; and, secondly, a series of claims which exist separately to the proceeding and which are the property of non-parties. 24 Those non-party claims are "settled" not through the operation of common law principles upon dismissal of a proceeding, but through the operation of statute. The reason why the group members although non-parties are bound to the s 33V settlement order is by the making of a s 33ZB order, which means the settlement order binds group members who did not opt-out. 25 The practice of dismissing a class action contemporaneously with the making of a s 33V order, in circumstances where an administrator has been appointed by the Court and is, subject to the supervision of the Court, to effect the distribution of funds in a way required by s 33V(2) or otherwise, does not seem to me to be a sound practice. 26 The proceeding remains on foot and provides a mechanism by which the administrator can exercise liberty to relist the proceeding if there is some matter which needs to be drawn to the attention of the Court in relation to the distribution. In particular, it is commonly the case that a small residual sum is left following distribution pursuant to a settlement distribution scheme, and I have already explained why in those circumstances it would be appropriate for an administrator to make an application in the proceeding to seek any relief in the nature of some form of Cy-près order in relation to the residuum. 27 It seems to me that there should usually be no dismissal of the class action until all steps are taken pursuant to the orders of the Court, including payment of any monies required by orders made under s 33V(2). The present order is more justifiable than some that have been made, because it means the dismissal only takes effect at a time after that task has been completed. This does not mean that after settlement but prior to dismissal there is any risk for a respondent. It is inconceivable to me as to why an individual proceeding commenced by a group member post-settlement would not amount to an abuse of process because the making of the s 33V order itself (accompanied by a s 33ZB order) quells the controversy between an individual group member and a respondent (not the dismissal of the class action). 28 Having said that, as far as I am aware, this matter has not been the subject of any considered discussion by the Court. The respondents, in the absence of such consideration by the Court, were no doubt acting prudently and in the interests of their clients by seeking to make assurance doubly sure by seeking that such an order be made now, and as noted above, it is expressly part of the bargain that has been agreed. 29 Fifthly, part of the orders sought on the settlement are that pursuant to s 33V(2) the Court approve distributions of money under the settlement for an amount of $3,441,927.11 for the applicant's legal costs and disbursements to 30 April 2020. This is a case where the amount required to be deducted from the settlement sum is very significantly below that approved in other class actions. That is to be commended and is a result of the solicitors for the applicant, in the time honoured common law tradition, being prepared to conduct the case on a speculative basis. It is not apparent to me whether funding was sought and was refused or a decision was made to proceed on a speculative basis without seeking funding, but either way the result has been a return significantly higher than would have been the case had a funder been involved. 30 Indeed, if a funder had been involved in the circumstances of this case, it may have been more difficult to have settled the case. Additionally, having some familiarity with the complexity of the case, I am comfortably satisfied that the fees charged are reasonable for the work that was required to be done. 31 In a sense, my opinion of the reasonableness of the charges that have been incurred to date informs my consideration of the future costs that are proposed to be retained out of the initial distribution to group members. An amount of $350,000 to $650,000 was estimated: $250,000 to $470,000 for the professional fees of the applicant's solicitors; $60,000 to $100,000 to a company for their assistance in the development of a "web portal", through which group members who no longer bank with NAB can provide alternative bank details and payment instructions to the administrator; $20,000 to $50,000 in counsels' fees; and $20,000 to $30,000 in tax advice to the administrator in respect of the distribution of the fund and the filing of a tax return for the fund. 32 Given the very extensive work that has already been done, this estimate seemed to me to be extremely high. My concerns are alleviated somewhat when one recognises that costs of $142,600 have not been yet charged and form part of what is perhaps inaccurately described as "future costs". The transcript records extensive discussion of these matters, and I was provided at my request with an explanation of the administration costs estimate over the luncheon adjournment. Although I recognise that $650,000 is only 1.3 per cent of the settlement sum, and if this amount proved to be more than necessary, the remainder or any other approved amount could be distributed to group members on a second round distribution, I am anxious to ensure that group members, a number of whom may, given the prevailing circumstances, be encountering some economic difficulty, receive the maximum they can in any first round distribution. 33 I have no doubt that the estimate that I have been provided was prepared conscientiously, but it was also prepared highly conservatively. I have every confidence that the administrator will act appropriately in relation to the settlement distribution scheme and costs will be incurred responsibly, but the Court has seen on a number of occasions that the administration of settlement schemes involve a disproportionate amount of costs being incurred for the benefit received by group members. This is a case where the group members have already received an indication of their likely distribution and I very much doubt, given the fact that only three group members maintained an objection (all of which seem to me to be easily resolvable) that there will be anything like any significant disputation. 34 Given the sheer number of group members, I recognise that there are not only a large number of unresolved queries, but there are likely to be further queries. It is a question of balance and it seems to me that it will be appropriate for the very lower end of that range to be held back. Even then, I think that is being overly cautious, but I will approve an amount of $350,000 being kept in reserve until a second distribution, to cover any contingencies that may arise. 35 For the reasons I have explained, I consider the settlement to be fair and reasonable in the interests of group members. In those circumstances, I propose to make the orders sought by the parties, other than an order, which I have previously described as unnecessary, that is an ex post facto authorisation of an applicant to enter into a settlement deed in circumstances where the settlement has subsequently been approved. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.