O'CALLAGHAN J:
1 This is an oral application by Galactic Seven Eleven Litigation Holdings LLC (Galactic), the litigation funder of the proceedings, for an interim distribution of legal costs and disbursements paid by it on behalf of the applicants, pursuant to s 33V(2), or alternatively s 33ZF of the Federal Court of Australia Act 1976 (Cth).
2 The hearing of the settlement approval application in these proceedings took place on 28-31 March, 22 April and 13 May 2022.
3 On 31 March 2022, I ordered pursuant to ss 33V and 33ZF of the Federal Court Act that the settlement of these proceedings as against 7-Eleven Stores Pty Ltd (7-Eleven), the then first respondent to the proceedings, be approved on the terms set out in the Class Action Settlement Deed dated 4 August 2021 and the Settlement Schemes attached to the orders. See Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 11) [2022] FCA 331.
4 Sub-sections 33V(1) and (2) of the Federal Court Act confer two distinct powers: first, to approve the settlement; and, secondly, if the approval is given, to approve the distribution of payments made under the settlement. See eg Davaria Pty Ltd v 7-Eleven Stores Pty Ltd (2020) 281 FCR 501 at 506-507 [23].
5 On 13 May 2022, I reserved judgment on the second question (the distribution approval application).
6 The 31 March orders also included an order that 7-Eleven pay the settlement sum of $98 million to a trust account nominated by the administrator of the Settlement Schemes, Mr S Nicols of the accounting firm Nicols & Brien.
7 That sum was duly paid by 7-Eleven to the administrator on 2 June 2022.
8 The proceedings were then dismissed against 7-Eleven by order of the court dated 10 June 2022.
9 At the hearing on 22 April 2022, senior counsel for Galactic, Mr SG Finch SC, said this:
Your Honour will no doubt cogitate about what to do in this matter for some time. Because of the amounts that our client has paid out, there is at least, we think, an irreducible minimum below which it is undeniable - that is, no party objects to the repayment to them in respect of costs. And we're asked to - for your Honour to consider making, at an early stage, an order of that irreducible minimum being paid out … where it's in the order of $18 million or so, that is the amount - or perhaps $17 million, where it's not in dispute, subject to any other wholesale reduction.
But what we were to ask that, in the event of the extent that the parties are not suggesting that we ought not to be paid back our costs, that we could be paid that out pursuant to your Honour's order, even before your Honour makes any final decision about any extra above that point. It's simply a matter that we ask your Honour to take into account, because of the costs of funding, and the fact that it's in a large amount, which can and should be repaid as soon as possible, if there's no argument about it.
10 On 2 June 2022, my Associate received an email from the solicitors for Galactic which, omitting formal parts, read as follows:
We act for Galactic Seven Eleven Litigation Holdings LLC (Galactic), the litigation funder for the Applicants in the above proceedings. The solicitors for the other parties to the proceedings, the Contradictor and his junior have been copied into this email and consent to it.
We note the settlement sum pursuant to Order 3 made on 31 March 2022 is due to be paid today (Settlement Sum).
Our client filed an interlocutory application on 22 October 2021 seeking, inter alia, a common fund order (CFO Application), which was heard by His Honour Justice O'Callaghan.
Due to the time that may lapse between when the Settlement Sum is received by the Administrator and when the final distribution orders are made pursuant to section 33V(2) of the Federal Court of Australia Act 1976 (Cth), our client is seeking an interim payment out of the settlement sum.
The interim payment to our client is to reimburse our client for part of the legal costs and disbursements paid by our client on behalf of the Applicants in the sum of $16,657,588.44 (or such other amount as the Court considers fair and reasonable). The figure of $16,657,588.44 that is proposed has been taken from the Fourth Report of the Costs Referee. The words in parentheses are intended to allow the Court to make a lesser interim payment than $16,657,588.44 if it considers a lesser interim payment to be fair and reasonable. The interim payment is not a final determination of, and is subject to, the amount that the Court considers to be fair and reasonable, and the parties are entitled to an adjustment to the interim sum on final determination of the CFO application.
The interim payment is being sought now as our client instructs us that it is incurring a significant amount of interest on the funds that have been sourced and advanced in these proceedings.
We attach a copy of the proposed Short Minutes of Order for the interim payment to our client. We confirm the Applicants consent to the Orders and that both the First Respondent and Contradictor do not consent or oppose the Orders being made.
We would appreciate it if the Orders could be made in Chambers.
Should you have any questions regarding this email, do not hesitate to contact us.
11 On 9 June 2022, my Associate received another email from the solicitors for Galactic which, omitting formal parts, read as follows:
We refer to our email of 2 June 2022 (below).
We note that some time has elapsed since providing you with proposed short minutes of order which, if made, would give effect to an interim payment to Galactic in respect of legal costs and disbursements Galactic paid on behalf of the Applicants in relation to the substantive proceedings.
We note that the proposed form of orders (copies attached again for convenience) are consented to by the Applicants and are neither consented to nor opposed by the Contradictor and the First Respondent.
We are instructed that Galactic is incurring significant interest costs and other charges each day and would therefore be grateful if the proposed orders could be made in Chambers as soon as practicable. Alternatively, if his Honour requires the matter to be relisted in order for the proposed orders to be dealt with then we would be grateful if the matter could be relisted at his Honour's convenience.
We confirm that the legal representatives of the other parties are copied to this correspondence.
12 As the solicitors for Galactic apparently recognised in that second email, it was (I would have thought self-evidently) obvious that in circumstances where the notion of an interim distribution of any sum to any party to the proceedings was nowhere mentioned in the Settlement Schemes and where judgment on the distribution approval application was reserved, the group members would not be expected to anticipate such an application and it would need to be heard and determined in the ordinary way, not decided on the papers in chambers.
13 Accordingly, I caused my Associate to respond to the parties in the following terms:
I refer to the email correspondence below from Mr De La Hoyde.
His Honour understands from that correspondence that Galactic makes an interlocutory application seeking orders in the form of the proffered short minutes of order. That application will be listed for hearing at 10:15am on Wednesday 15 June 2022.
It will be necessary for his Honour to conduct the hearing via Microsoft Teams from Melbourne, but a court room will be available in Sydney for counsel and their instructors.
14 The hearing took place on 15 June 2022.
15 Mr J De La Hoyde of Madison Marcus appeared for Galactic. Mr JA Redwood SC appeared in his capacity as a contradictor and to make submissions to assist the court. Mr PD Tucker of counsel appeared for the applicants. The administrator, Mr S Nicols, also appeared and confirmed that he had received the settlement sum of $98 million in cleared funds.
16 Mr Redwood and Mr Tucker, if I may say so with respect, both made helpful submissions in relation to the court's power to make an interim distribution order of the type sought by Galactic here.
17 Mr Redwood and Mr Tucker agreed that an application such as this is more appropriately dealt with under s 33V(2). I agree, and therefore need not decide whether s 33ZF confers a power to make an interim distribution.
18 So far as I am aware, the point has not arisen before but, in my view, s 33V(2) does confer power upon the court to make an interim distribution of any money paid under a settlement.
19 Section 33V(2) provides as follows:
If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.
20 Provisions such as this are to be construed broadly. As Murphy J said in Uren v RMBL Investments Ltd (No 2) [2020] FCA 647 at [51]-[52]:
It should be kept in mind that:
(a) section 33V(2) is not a "gap filling" power. It is a broad discretionary power granted to the Court specifically in relation to the distribution of any money paid under a settlement or paid into Court. It contains no express limit on the identity of the recipient of money so distributed, and any implied limit arises only from and is bounded by the purpose for which the s 33V(2) power was conferred: see Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374 (Kuterba) at [6] (Beach J);
(b) the words of s 33V(2) are not qualified in any way that can be regarded as analogous to the words of limitation in s 33ZF - that the order is "appropriate or necessary to ensure that justice is done in the proceeding" (emphasis added) - which the plurality in [BMW Australia Ltd v Brewster (2019) 269 CLR 574] emphasised (including at [19], [21], [46] and [50]). The only precondition to the exercise of power under s 33V(2) is that the Court considers the relevant order to be "just" with respect to the distribution of money paid under a settlement or paid into Court;
…
In the absence of express words of limitation, s 33V must be construed according to the language that is used, free of any presumptions imported across from other provisions like s 33ZF. The majority in Brewster corrected what they found to be an overly expansive construction of s 33ZF, but the decision did not displace the established principle that the words of s 33V(2) should not be read down by making implications or imposing limitations which are not found in their express words, construed according to their natural meaning and in their proper context …
21 In my view, consistent with that approach to the construction of the power, the power to order a distribution includes an interim distribution.
22 Mr Redwood also submitted that the court's power is expressed in sufficiently broad terms to allow orders outside, but not inconsistent with, the terms of the Settlement Schemes. I agree, and note that there is no inconsistency.
23 The question that next arises here is whether it is appropriate to exercise the power in the circumstances of this case.
24 The gist of Galactic's submission in support of its application for an interim distribution order is that it has been incurring, and continues to incur, significant interest charges on funds that it borrowed to fund the proceedings that were the subject of the settlement, and that an interim distribution order in respect of costs and disbursements would be just in circumstances where it may be some little time before I decide the distribution approval application. Galactic relied on the following evidence of Mr Fredrick Schulman, the Managing Director of Galactic and the Principal of Galactic Litigation Partners LLC (GLP) (Galactic's parent company), in his affidavit dated 1 February 2022 at [64]-[70]:
Since Galactic was incorporated, it has borrowed money to finance these proceedings. The funds were borrowed from GLP and collateralised (or secured) by the expected proceeds of various legal proceedings which were funded by litigation special purpose vehicles. Galactic is one of the litigation special purpose vehicles. As set out above, it is GLP's general practice that once it agrees to fund proceedings, a separate entity is incorporated for the purpose of being the litigation funder.
In order for GLP to provide funds to Galactic, it borrowed funds from institutional lenders …
Initially GLP borrowed the funds at rates exceeding 18% per annum. This includes interest plus points and fees. GLP is currently incurring interest at rates between 12% to 16% with a 2% fee for each advance, plus fees.
As at 15 November 2021, GLP had borrowed from a financier and lent Galactic the sum of $23,574,000 AUD (Borrowed Funds) in respect of the Proceedings. Of the Borrowed Funds, the sum of $18,805,615 (Borrowed Funds Portion 1) has been borrowed at a rate of 12% per annum plus 2% per annum by way of advance fees. The balance of the Borrowed Funds, in the sum of $4,768,384 (Borrowed Funds Portion 2) has been borrowed at a rate of 16% per annum plus 2% per annum by way of advance fees.
Based on my calculations, I estimate the total cost of capital for GLP to be $3,491,095.37 per annum AUD or $290,925 per month AUD. My calculations are set out below:
(a) (Borrowed Funds Portion 1 * 12% per annum) + (Borrowed Funds Portion 1 * 2% per annum advance fee) = $2,256,674 + $376,112 = $2,632,786 (Interest 1).
(b) (Borrowed Funds Portion 2 * 16% per annum) + (Borrowed Funds Portion 2 * 2% per annum advance fee) = $762,941 + $95,368 = $858,309 (Interest 2).
(c) Interest 1 + Interest 2 = $3,491,095 (Annual interest).
(d) Annual Interest / 12 = $290,925
As at 21 January 2022, GLP owes its Financier the sum of $14,292,268 USD ($19,580,407 AUD) in respect of the Proceedings. The total unpaid accrued interest as at 21 January 2022 is $534,461 USD ($732,212 AUD). This brings the total amount presently owed by GLP for these proceedings to $14,826,729 USD ($20,312,619 AUD).
As set out above, GLP has a $100 million USD line of credit with the Financier. When this credit was applied for, GLP informed the Financier that it would be re-paid within 3 months of a settlement being reached. This meant the interest rate was quite high compared to other facilities in the market. The delay in these proceedings being finalised has meant GLP has been delayed in repaying its Financier.
25 I was told by Mr De La Hoyde at the hearing that that evidence, or part of it, was subject to a claim for confidentiality. In circumstances where the evidence is the foundation for this application, Mr De La Hoyde agreed that the claim for confidentiality could no longer be maintained.
26 Galactic seeks an interim payment of $16,657,588.44. This is the sum assessed by Ms Elizabeth Harris, the expert costs consultant, as representing the reasonable costs of the proceedings up to 4 August 2021 (the date the proceedings settled), excluding some additional subpoena costs of approximately $87,000.
27 The contradictor's position at the settlement approval hearing was that in the exercise of its protective jurisdiction, the court should not merely adopt Ms Harris' reports. The contradictor was concerned that the court should scrutinise the proportionality of the costs, the adequacy of costs disclosure and whether legal costs were appropriately monitored throughout the proceeding. Having regard to those considerations, Mr Redwood submitted that a further 10-15% reduction beyond the specific deductions made by Ms Harris would be appropriate.
28 At the hearing on 15 June, Mr Redwood submitted that the "irreducible minimum", the phrase coined by Mr Finch at the hearing on 22 April, would be in the order of $10 million to $12 million.
29 In a note provided at my request to chambers that day, Mr Redwood, among other things, submitted that "an 'irreducible minimum' of legal costs of no more than $10 million might be regarded as 'just'".
30 In other words, on any view of the world, Galactic will be entitled to an award of its costs and disbursements of at least that amount.
31 It is, of course, no part of the court's function on an application such as this preliminarily to decide any question that will fall to be determined in the reasons that will be given in respect of the distribution approval application.
32 At the hearing, Mr De La Hoyde agreed with the proposition that I put to him that in fixing any sum to be paid by way of interim distribution, it is necessary for the court to be conservative in its approach, precisely because the court is not to be drawn into any preliminary examination or determination of the issues to be resolved in the distribution approval application, including those issues raised by the contradictor described above.
33 It is unfortunate that no provision was made in the Settlement Schemes for the making of an interim distribution, especially when it was amended for other purposes as recently as 31 March 2022. It might also be said that any interregnum between the reserving of judgment and the making of orders in relation to the distribution approval application was inevitable, and simply part of the commercial risks that Galactic assumed at the outset, and that it should not thus be accorded a form of preferential treatment (over the group members).
34 On the other hand, as the contradictor submitted, the interests of the group members in ensuring a transparent process are protected in circumstances where the hearing of the application is conducted in public (albeit on this occasion via Microsoft Teams) and where the court provides reasons for its decision. So the absence of some provision in the Settlement Schemes is not ultimately significant.
35 I have also given consideration to the fact that, for various reasons which are no one's fault, the hearing of the settlement approval application and the distribution approval application were delayed more than might be thought desirable. This was due to a number of circumstances, including my own availability, the availability of all counsel from time to time and the fact that the hearing occupied more time than was initially expected and was thus heard in three tranches. Again, I stress, I make no criticism of any party or practitioner in that regard.
36 Having weighed the various factors that I have mentioned in the balance, I am satisfied in the particular circumstances of this case, including the onerous burden of interest charges deposed to by Mr Schulman, and the delay to which I have referred, that it is just to make an interim distribution to Galactic in the sum of $10 million. That sum is the lowest of the range of figures initially suggested by the contradictor, but for reasons that I have explained, and which are obvious enough, it is wiser to err on the side of caution.
37 Accordingly, I will order that as an interim payment out of the Settlement Sum pursuant to the Settlement, pending the Distribution Orders, the Administrator procure payment to Galactic of the legal costs and disbursements paid by Galactic on behalf of the Applicants in the sum of $10 million within two business days. Costs will be reserved.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.