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[2021] FCA 1634
Federal Court of Australia
2021-12-22
Beach J
Original judgment source is linked above.
BEACH J: 1 In a context that resonates with the festive season, I am in the pleasant position of having to determine who should be paid the surplus of the settlement fund in this representative proceeding. 2 The applicant seeks orders for the distribution of this residue from the settlement sum that I approved on 12 February 2021 pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth). At that time I approved the settlement on the terms set out in the deed of settlement and the revised settlement distribution scheme (SDS). 3 Now there has been no shortage of rapacious claimants and more than a little humbug. And each has sought to extol their virtue as deserving recipients. But in the result, I would give 56.5% to charity and 43.5% to the litigation funder. Both the claims of participating group members, who have been paid in full, and of the respondent to the surplus are to be denied. Let me elaborate. 4 The applicant commenced this proceeding on behalf of group members against the respondent seeking orders for the repayment of premiums paid for the NWC warranties and transaction costs, alternatively damages. 5 After the trial of a preliminary question, I determined that the promises in the NWC warranties were illusory (Evans v Davantage Group Pty Ltd [2019] FCA 884), but given the various matters raised in the respondent's defence I could not then determine whether the fact that the consideration was illusory rendered the NWC warranties void and therefore whether any group members were entitled to restitution. 6 Subsequently the proceeding was settled. The parties executed a deed of settlement and release, counterparts of which were exchanged on 5 October 2020, for the settlement sum of $9.5 million. 7 Now at that time it was not contemplated by the parties that less than 5% of group members would subsequently register such that all registered group members would be fully compensated and a surplus would exist. In that respect, of the approximately 28,000 group members, just 1,244 registered. 8 At the s 33V settlement approval hearing, I identified the prospect that there may be a surplus. Moreover, I recognised that the settlement deed and the SDS as then proposed might result in a windfall for the participating group members. Accordingly, I refused to approve aspects of the settlement and directed that the SDS be amended so that I had full control as to the distribution of any surplus. 9 Subsequently the SDS was amended and consequently I approved all aspects of the settlement (Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70). 10 From the settlement sum of $9.5 million, I approved deductions which included: (a) $2,439,978.63 for the applicant's legal costs and disbursements; (b) $608,287.50 for the costs of the litigation funder, Vannin Operations Limited; and (c) $2,733,266.13 as consideration for Vannin's funding of the proceeding. 11 The settlement administrator, FTI Consulting (Australia) Pty Ltd, has now distributed most of the settlement sum, but there is an undistributed remainder of $1,142,995.21. Recently the applicant proposed that various deductions be made, which I approved at the latest hearing. What is now left is a residual sum of approximately $680,000 which it is necessary for me to allocate. 12 Now in that respect, the applicant has identified three options for the distribution of the residual sum. 13 The first option is to make a cy-près type order invoking equitable principles or under s 33V(2), providing for the payment of the residual sum to an appropriate charity. 14 The second option is to make an order under s 33V(2) for the return of the residual sum to the respondent. 15 The third option is to make an order under s 33V(2) for the residual sum to be distributed to the applicant and group members who elected to participate in the settlement in a manner proportionate to the assessed value of their claims, with appropriate deductions to be made in respect of supplementary funding commission to then be paid to Vannin. 16 Now the applicant asserts that only the third option is suitable. Accordingly, the applicant says that an order should be made under s 33V(2) that the residual sum be distributed to the applicant and participating group members less an allowance for supplementary funding commission proportionate to that already approved by me. 17 Contrastingly, the respondent seeks an order pursuant to s 33V(2) that the residual sum be paid to it. 18 Vannin's position is to urge for the applicant's third option, namely rateable distribution of the surplus between it and the registered group members. It also floated another option of being paid all of the surplus, but this can be put to one side. 19 Let me at this point set out some further background. 20 The proceeding is a funded open class action which was settled for a sum reflecting the insurance cover available to the respondent. And a registration process was undertaken to determine which group members in the open class wished to claim a share of the settlement fund. But registrations were unexpectedly low. Accordingly, the assessed values of the claims of all registrants entailed that the fund available for distribution would, if wholly distributed, compensate the registered group members at a rate higher than 100% of their claim values. 21 Now at the time of the s 33V hearing, it was expected that deductions for costs and Vannin's commission would consume around 63% of the total settlement sum, which nevertheless represented a discount on the commission rate that Vannin had proposed earlier in the proceeding and which had been notified to group members. But as part of my approval orders, I significantly cut Vannin's commission. Let me explain that context a little more. 22 In August 2019 I made a common fund order, which was provisional in the sense of being subject to further order. Nonetheless the CFO was notified to group members to inform them about the likely range of costs and commission payments that might be deducted from any compensation otherwise recovered for them. The CFO provided that subject to further order, Vannin would be reimbursed for all Court-approved action costs and provided with remuneration, as consideration for the funding of the proceeding, to be calculated as the greater of: (a) 25% of the resolution sum; or (b) a 3x multiple of the aggregate action costs. 23 Now the conditional quality of the original CFO required me to revisit the question of Vannin's fair remuneration, albeit that by the time of the s 33V hearing it had been established that a further settlement stage CFO was permissible. I note that the settlement of the action post-dated BMW Australia Ltd v Brewster (2019) 269 CLR 574, which in any event did not deal with settlement stage CFOs. 24 Now at the settlement approval hearing, Vannin proposed a calculation of action costs that was a subset of the "Action Costs" as defined in the funding agreement and incorporated in the original CFO, as I discussed in my approval judgment. Further, in relation to Vannin's remuneration, in light of the modest settlement sum it did not seek the full amount that had been contemplated by the original CFO. That is, under the terms of the CFO its remuneration claim would have been: (a) if 25% of the resolution sum, $2.375m, which was lower than the 1x multiple it did propose; or (b) if a 3x multiple of the action costs, around $8.2m, which was almost $5.5m higher than the amount it proposed. 25 Rather, Vannin proposed a reduced multiple of 1x the action costs, being around $2.733m, or using the other measure, 28.77% of the settlement sum. 26 In the result, I awarded remuneration according to the 1x multiple. Now the base figure for action costs included the ATE premium paid by Vannin, but this was neither here nor there because if the ATE premium had been omitted then Vannin would have sought a higher multiple of 1.3x. But I noted that even the 1.3x multiple would have been still well south of the usual 3x multiple and justifiable in any event. 27 Now relevantly for present purposes, the fact that there were any funds available for distribution to the group members was itself a result of Vannin neither seeking nor being awarded the full remuneration rate that had been contemplated as potentially reasonable earlier in the proceeding. Vannin quite properly proposed to me a revised remuneration rate that effectively preserved around one-third of the settlement fund for distribution to the group members. Vannin recognised that I would be concerned to ensure that at least some substantial portion of the settlement fund would be distributed to the group members. And it is clear from my approval judgment that that was my concern. 28 Now the residual sum appears to be around $680,000. If that amount is paid to the group members and Vannin in accordance with the third option, being 56.5% to participating group members and 43.5% to Vannin, then, added to the $2.733m that has been paid to Vannin as the 1x multiple of action costs, the total payable to it would become $3.032m or a multiple of 1.11x. And if the entire surplus was paid to Vannin, then the total would become $3.420m or a multiple of 1.25x, which is still slightly less than the 1.3x multiple that I noted in my approval judgment. 29 Having set out a little background, let me now say that for the reasons that follow I would reject the applicant's and the funder's third option. I would also reject the respondent's position. I would impose another option. 30 In my view, what is just is to impose a solution that takes the third option, but removes the group members from the first tranche of 56.5% and substitutes for such group members a suitable charity, leaving 43.5% for Vannin. To impose that solution entails that no participating group member will receive a windfall. It will also ensure that the respondent receives no more than it bargained for. And it will partly ameliorate the haircut that I gave to Vannin at the approval hearing concerning its funding commission.
Some questions of principle 31 Let me first say something about the cy-près doctrine which has been raised in the context of dealing with distribution surpluses. As explained by Dr Georgina Dimopoulos and Professor Vince Morabito in "Cy-près Remedies in Class Actions - Quo Vadis" (2021) 95 ALJ 710 at 712, the term "cy-prés" is taken to be a translation of the Anglo-French term, "cy-prés comme possible" which means "as near as possible". 32 Stripping away some of the frippery, it is sufficient to say that the cy-près doctrine originated to prevent a charitable trust from failing when a charitable objective was or later became impossible or impracticable to fulfil. Lee J in Simpson v Thorn Australia Pty Ltd t/as Radio Rentals (No 5) (2019) 141 ACSR 424 conveniently set out the historical antecedents of the doctrine and identified the conventional circumstances in which it may be appropriate to consider a cy-près scheme being, first, a case of initial impracticality or impossibility and either an out-and-out intention to benefit charity or a general charitable intention and a possible mode of effectuating that intention, second, a case of supervening impracticability or impossibility or, third, a case where a trust has exhausted its original purpose and a surplus remains. 33 I also discussed the matter briefly in Evans v Davantage (No 3) at [93] to [100]: So, it seems in these circumstances that there will be a surplus. How should I proceed? I have little doubt that I have power to make what has been described by others as a cy-prés type order under Pt IVA… Professor Rachael Mulheron described the cy-prés doctrine in her well known work on the topic (Mulheron, R, The Modern Cy-près Doctrine: Applications & Implications (UCL Press, 2006) 1) in the following terms: Traditionally, and stated in its simplest of terms, the cy-prés doctrine is the vehicle by which the intentions of a donor (settlor or testator) may be given effect 'as nearly as possible' in circumstances where literal compliance with the donor's stated intentions cannot be effectuated. Accordingly, in the law of charitable trusts, the cy-prés doctrine states that where a donor has directed a gift of money or property to a charitable object (purpose), but has expressed a general charitable intention that is impossible or impractical to effect, the courts will allow the intention to be carried out in an approximate fashion. But in addressing the question under s 33V(2) I am addressing what is "just" in terms of a potential further application of s 33V(2). I am unconstrained by old chancery notions or constraints. Further, the respondent's intentions (as a "donor" or "settlor" if you like) are not directly relevant. Further, I am not dealing with any analogue to the failure or frustration of any charitable intention. Let me then deal with two scenarios where a surplus may arise. First, say there has been a fund set up for group members by reason of either a settlement under s 33V or a judgment under s 33Z. But say that after group members have, in effect, proved against the fund, there is a surplus. Where does the surplus go? Does it get returned to the respondent? Does it get re-distributed to the proving group members, who may then get a windfall? Or does the Court then get the opportunity to make a cy-prés type order? Second, take the case where a fund has been set up but it is impractical or uneconomic to directly make payments to many group members directly, although assume for the moment that if one is talking about a fund created after a judgment, ss 33Z(1)(f) and 33Z(3) are able to be and have been triggered. Who is the money to be paid to? Back to the respondent? Or can a cy-prés type order be made? Now realistically, in the case before me the first scenario is likely to arise. Let me discuss some potential solutions to that scenario. 34 I also then went on to say at [101] to [107]: One solution is to apply the mechanical device of ensuring that the settlement distribution scheme deals with such an eventuality, so that there can never theoretically arise an unallocated surplus. All that is then necessary is to make an order under s 33V(2) at the time of the approval of the settlement to the effect that all funds be allocated and paid out under the settlement distribution scheme. This is the easy way out. No cy-prés type order need ever be made. Professor Vince Morabito briefly discussed this scenario in his fifth report concerning the empirical study of Australia's class action regimes (Morabito, V, The First Twenty-Five Years of Class Actions in Australia (An Empirical Study of Australia's Class Action Regimes, Fifth Report, July 2017)) … But he was being descriptive rather than extolling its virtues. Now in essence this is the solution urged on me by the parties and the funder in the present case. They assert that the SDS is so drafted such as to avoid the possibility of an unallocated surplus. But I would reject this solution as it could lead to a windfall by the participating group members. I will require the terms of the SDS to be modified to ensure that such a windfall does not occur. The next solution makes the assumption that there is an unallocable surplus which has not been defined away. In that eventuality, it would be necessary for the applicant and scheme administrator to return to the Court for directions. But in that eventuality, the Court could make a further order under s 33V(2). The issue then in terms of the further distribution would be what is "just" in the circumstances. Now in that context and as I have said, one would not be making a cy-prés order as such. One would be considering and applying the statutory framework and determining what was "just" (see Simpson v Thorn Australia Pty Ltd (t/a Radio Rentals) and Others (No 5) (2019) 141 ACSR 424 at [26] per Lee J). But I should flag that academic commentary suggests that it would be preferable not to rely upon any current powers under Pt IVA and that specific legislative change is desirable and perhaps even necessary (see Cashman, P and Simpson, A, Research Paper 6 - Class Action Remedies: Cy-prés; 'An Imperfect Solution to an Impossible Problem' (2020) UNSWLRS 67, 40 and Mulheron, The Modern Cy-prés Doctrine: Applications and Implications, 232). I do not agree. In my view, s 33V(2) is fit for the purpose. Returning then to s 33V(2), however broadly "just" was read, it hardly justifies giving the group members a windfall. Moreover, in terms of relative "justness", the return to the respondent of any overpayment as opposed to the alternative of giving the group members a windfall would be more just. And here I am assuming that the respondent's interest could be taken into account. But is there a third possibility, namely, giving the surplus over to an appropriate charity or other body? That avoids a windfall to group members. Moreover, the availability of that other option makes it less unjust to the respondent that the surplus is not being returned to it, particularly where the amount paid by the respondent was by way of satisfaction of restitutionary claims. 35 Now issues concerning the distribution of surpluses have arisen elsewhere. But in the United States and Canada there are express statutory provisions supporting orders for surplus distributions of class action settlement sums, unlike Australia. The main options for the distribution of surpluses under such regimes are: (a) further distributions to group members either who have not yet participated in the settlement or who have already participated in the settlement; (b) the return of any surplus to the respondent who paid it; or (c) a cy-près type distribution to an appropriate charitable organisation with interests and objectives which sufficiently align with those advanced by the litigation such that it may be said that group members would at least indirectly benefit from such distribution. 36 But the way in which those competing options have been considered and applied reflects the idiosyncrasies of the class action provisions and settlement practices in those jurisdictions. In those jurisdictions, the problem of any settlement surplus is addressed at one of two stages. It may be addressed prospectively when court approval of a proposed settlement is sought and the settlement proposal includes an agreed distribution regime for any surplus. Alternatively, it may be addressed retrospectively when no express and self-executing court approved regime for the distribution of any surplus is in place. Under either scenario, the general approach taken in such cases has been to search for a surplus distribution solution that best reflects the essence and purpose of the deal struck by the parties and approved by the court. 37 But of course the proper approach to surplus distribution in Australia must begin not with any automatic adoption of foreign methodologies, but rather with an analysis of my powers in respect of settlement sum distributions, and end with an examination of how those powers are to be exercised in the context of the particular settlement scheme before me. Let me then turn to Pt IVA. 38 Now there have been a number of class actions where some modest residue was unable to be distributed to group members in a cost-effective way, so that the expedient was adopted of paying the sum to some suitable charity (see G.Dimopoulos & V.Morabito, "Cy-près Remedies in Class Actions - Quo Vadis"). But this is the first case where there has been a substantial residue available after full satisfaction of the claims of participating group members, as assessed under the SDS. 39 There are two principal questions to consider on the present application. 40 First, what is the nature and scope of the statutory or other powers, including equitable jurisdiction, that the Court possesses in respect of the residual sum, and what are the conditions for the exercise of such powers? 41 Second, which distribution proposal, if any, best satisfies the conditions for the exercise of such statutory or other powers that I possess in respect of the residual sum? 42 Now the principal source of the Court's statutory power to make further orders with respect to the residual sum is the same as that which was exercised when the settlement was approved, namely, s 33V(2). 43 At this point, I should note that s 33ZF(1) is not an available source of power. In that respect, I have already synthesised in this proceeding what I would say concerning s 33ZF(1). In Evans v Davantage Group Pty Ltd (No.2) [2020] FCA 473 at [50] to [57], I said: The plurality in BMW v Brewster emphasised that whilst the power provided by s 33ZF(1) is wide, it is essentially a supplementary or gap-filling power. And as a supplementary source of power for Part IVA, it is not to be supposed that s 33ZF(1) was intended to meet the exigencies of litigation not adverted to at all by the provisions of Part IVA. So, s 33ZF(1) may not be "relied upon as a source of power to do work beyond that done by the specific provisions which the text and structure of the legislation show it was intended to supplement" (at [70]). Section 33ZF(1) "cannot be given a more expansive construction and a wider scope of operation than the other provisions of the scheme" (at [70]). And to do so "would be to use …s 33ZF … as a vehicle to rewrite the scheme of the legislation" (at [70]). Rather, s 33ZF(1) has the effect of "support[ing] any interlocutory procedural order necessary to ensure that the pleaded issues are resolved justly between the parties" (at [21]). Let me say something further about Nettle J's analysis so that I can then synthesise the common themes of the majority. It is useful to recall that the issue before the Court concerned the exercise of power under s 33ZF(1) to make a common fund order at an early stage of the proceedings. The issue did not concern any settlement approval under s 33V(1) or the exercise of any express power under s 33V(2), the latter of which provides: 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. Understandably then, Nettle J carefully expressed himself by reference to s 33ZF(1) and referred to "a common fund order ("CFO") of the kind in issue in these matters" (at [122]) and "the kind of CFOs sought in these matters" (at [125]). His context and kind was an early common fund order which he held was not empowered by s 33ZF(1) and was outside the legislative purpose; such a purpose "did not extend to addressing uncertainties on the part of litigation funders as to the financial viability of funding such proceedings" (at [126]). Contrastingly, s 33V(1) speaks to the other end of the time spectrum where the action is for all practical purposes over and no such in futuro "uncertainties" or "financial viability of funding" questions are in play. So, he was clearly contrasting "the broad generality of s 33ZF(1)" with "the detail and specificity of other provisions such as… s 33V…" (at [124]). But he accepted that s 33ZF(1) could be used as a supplementary power to do what was necessary or incidental to achieving the objectives of, inter-alia, s 33V itself. It would seem that Nettle J considered that his analysis was consistent with the plurality's views on the matters that I have just described (see his references at [122] and [128]). So, I will make that working assumption. And if you take the plurality's view together with Nettle J's view, then you can distil the following themes from the combination. First, s 33ZF(1) is a power only to be exercised in the context of how an action should proceed in order to do justice. Second, s 33ZF(1) can be used "to support any interlocutory procedural order necessary to ensure that the pleaded issues are resolved justly between the parties" (at [21]) or "to bring the matter to a fair hearing on a just basis" (at [45] citing the words of Tamberlin J). But s 33ZF(1) "is essentially supplementary" or "gap-filling" notwithstanding that it is broad (at [46], [60], [69] and [70]). So, and importantly, it was in the context of those observations that it was said that s 33ZF(1) could be used to "ensure that the proceeding is brought fairly and effectively to a just outcome" (at [47], [50], [51] and [54]). The concept of "just outcome" was not to be decontextualised and read up to be looked at from the perspective only of the applicant and group members. 44 Clearly, s 33ZF(1) can be put to one side. It is not a relevant source of power in the present case. Let me return to s 33V(2), which is not a "gap filling" power. Rather it is a broad discretionary power granted specifically in relation to the distribution of any money paid under a settlement. 45 Now s 33V(2) contains no express prescription or preclusion in relation to the recipient of money to be distributed. So, any guidance in that regard must be discerned by implication from the specific purpose for which the s 33V(2) power was conferred (Kuterba v Sirtex Medical Ltd (No 3) [2019] FCA 1374 at [6]). It is this purpose and the statutory context of s 33V(2) that inform how the power is to be construed and its content and boundaries. 46 The power conferred by s 33V(2), like other powers conferred under Part IVA, must be exercised consistently with the broad objective of Part IVA to promote access to justice and principally with regard to the interests of group members. It is through this prism that orders for the distribution of the residual sum must be assessed. But that does not entail that the promotion of windfall gains to group members should be favoured. 47 Now the test under s 33V(2) is that the Court should make such orders in relation to the distribution of the settlement fund as are just in all the circumstances of the case. Those circumstances include a consideration of the compensatory focus of the relevant provisions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) that were invoked in respect of the causes of action in the present case. Of course, that compensatory focus does not mean that the settlement fund can only be paid to the group members qua group members or that a cy-prés type order cannot be made. 48 In my view there must be some power to make a cy-prés type order under s 33V(2). How else can you do what is just in circumstances where, hypothetically, group members have not been fully compensated by the settlement sum, but it is uneconomic or impractical to distribute the surplus to them? It cannot be just in those circumstances to return the surplus to the respondent. Of course that is not the scenario in the present case. But it does demonstrate that some such power must exist under s 33V(2). So, the real question is not the existence of such a power, but the extent of the power and how it can or should be exercised in the particular case. 49 Now as I have indicated, the cy-prés doctrine derives from the law of charitable trusts in order to give effect to a settlor's intention to make a charitable gift, but where it becomes impracticable to apply property for the particular charitable purpose. But who is the settlor in the present case? The respondent? The group members who, in essence, converted their causes of action into cash which ultimately constituted the settlement fund? I should note that on the approval of the settlement, the trust fund created did not have the respondent as any residual beneficiary so to speak. Indeed, if the respondent had sought such a status, it should have negotiated it. Further, I do not see the respondent as being in the position of a settlor, let alone a settlor with a charitable purpose that has failed. But I do not need to linger on such matters. I am dealing with an analogue, rather than a plain vanilla cy-prés order. 50 Now Dimopoulos and Morabito point out that a justification for not including an express cy- prés provision in Pt IVA was because deterrence of illegal conduct by a respondent or the penalisation of its behaviour was not amongst the policy benefits sought to be served. Rather, compensation was the guiding theme, with an enhancement of access to legal remedies and the achievement of efficiency and economy in the use of resources the underlying objectives. But clearly there are no absolutes. And the absence of an express power does not entail that s 33V(2) is not fit for purpose. 51 Now of course I am not proposing a cy-prés type order to deter illegal conduct or to punish the respondent. Rather, I have a different emphasis. The respondent has already achieved the benefit that it paid for in compromising the proceeding. It should not receive the surplus as some windfall. The cy-prés type order here has no element of deterrence or punishment. The respondent paid the settlement sum as a compromise to avoid the risk. Once paid, it had no further interest in the surplus. That is borne out by the fact that it never received a copy of or was concerned in the SDS. Further, it never sought a ratchet down mechanism in the settlement deed. In essence the respondent by paying the settlement sum bought its way out of risk. It had no further interest or entitlement in how the surplus was or is to be dealt with. 52 Further, making a cy-prés type order will not take compensation away from group members. As I have explained elsewhere, they have already been fully compensated. 53 In summary, I have power to make a cy-prés type order under s 33V(2). But even if I lacked such a power under s 33V(2), in my view I would have such power in any event under and exercising the Court's equitable jurisdiction (ss 5(2) and 23). After all, the settlement fund is now a trust fund with, generally speaking, the group members as beneficiaries. I am presently dealing with that trust fund's administration. More broadly, Pt IVA does not oust such powers or jurisdiction, although s 33V(2) may partly constrain how the fund can be dealt with. That is, contrary to the applicant's assertion, I am not just dealing with a fixed trust to be administered solely in favour of the beneficiaries, but rather a trust that must be administered with regard to s 33V(2) and the terms of the SDS that envisages my continuing supervision and control of the allocation process. 54 Let me turn to the competing claims and begin with the respondent.
The respondent's claim to the surplus 55 Now in Evans v Davantage (No 3) at [98], I identified three potential payees: (a) the respondent; (b) registered group members; or (c) a charitable entity under a cy-prés type order. 56 And further to such possibilities, the applicant and Vannin seek orders that the surplus be divided between the applicant and registered group members on the one hand, and Vannin on the other, in the proportions 56.5% and 43.5% respectively. 57 But according to the respondent, the default position is that any surplus should be repaid to the respondent, save in limited circumstances that are not presently relevant. It says that it is just that the surplus be repaid to it because it has fully compensated all registered group members and at all times continued to pay out claims on NWC warranties according to their terms, without reliance upon the contractual discretion. And as to this latter aspect, it intends to continue to do so for the term of all NWC warranties. 58 It says that no power contained in or philosophy underpinning Part IVA provides a proper basis for giving group members something beyond what the true value of their claims are worth, such that it will never be just for the purposes of s 33V(2) to distribute any residual in a manner that results in a windfall for registered group members. 59 Further, it says that there is no basis to apply the surplus to the funder, in circumstances where the funder's entitlement has already been considered and determined by me. 60 The respondent says that the default position is that any surplus should be repaid to it, and that this reflects the policy enshrined within the terms of Part IVA. Surprisingly, it also prayed in aid material published by the Australian Law Reform Commission which in my view is not of much assistance given that the ALRC's observations were more focused on what is now ss 33Z and 33ZA. Let me explain. 61 In its report on Grouped Proceedings in the Federal Court, Report No 46 (1988) the ALRC considered the issue of what should happen to any unclaimed surplus in the context of any exercise of power to make an aggregate assessment of damages. 62 In the ALRC's summary of the main report, it said (at [24]): Surplus or residue. Aggregate assessment of damages will determine the respondent's liability in relation to all group members whether or not they have been identified. Some may not come forward to claim their money even if notice is given. The respondent is able to apply for the repayment of any amount not required for payment to group members who do not come forward within the time prescribed by the Court. Returning any unclaimed money to the respondent is in keeping with the primary aim of the procedure, which is to compensate individuals in an efficient and cost effective manner, not to penalise respondents. The basic rule is that the residue is to be returned unless it would be unjust to do so because, for example, exemplary damages have been awarded. Given the fact that an aggregate assessment will be appropriate only in limited circumstances and that failure to return any residue to the respondent will be the exception rather than the rule, the occasions on which there is an unreturned residue are likely to be very few. 63 The main report included the following discussion (at [239]): …The grouping procedure is not intended to penalise respondents or to deter behaviour to any greater extent than provided for under the existing law. Any money ordered to be paid by the respondent should be matched, so far as possible, to an individual who has a right to receive it. If this cannot be done, there is no basis for confiscating the residue to benefit group members indirectly, or for letting it fall into Consolidated Revenue, simply because the procedure used was the grouping procedure. It would be a significant extension of present principles of compensation to require the respondent to meet an assessed liability in full even if there is no person to receive the compensation. Any such change would be in the nature of a penalty, and would go beyond procedural reform. It has nothing to do with enhancing access to the courts. While the aggregate assessment itself is a useful way of determining the limit of the respondent's liability, proper provision should be made for the reduction of the total aggregate liability or return of any residue if payment has already been made. 64 It also recommended in relation to any surplus (at [240]): Recommendation: return to respondent. The respondent should therefore be able to apply for the repayment of any part of the fund not required for payment to group members after a date fixed by the Court, and the Court should be able to make any just order for repayment, taking into account, in particular, any relevant costs. The discretion may also be needed in cases where it would be impractical to return the residue, for example because the respondent is no longer in business or where it would be contrary to the law to do so. Returning any unclaimed residue to the respondent in this way is in keeping with the primary aim of the procedure, which is to facilitate remedies for individuals by improving access to the courts and to achieve judicial economy by conducting similar or related claims together… 65 The respondent says that that policy was enacted as s 33ZA(5), which provides that on application by the respondent, the Court may make such orders as are just for the payment from the fund, which is a reference to the Court's power under s 33ZA(1) to provide for the constitution and administration of a fund consisting of the money to be distributed, to the respondent of the money remaining in the fund. 66 The respondent then says that the principles under s 33ZA(5) are applicable by analogy to s 33V(2) where a fund has been established for group members by a settlement under s 33V. It says that the analogy is strongest where a respondent has settled on an assumed number of registered group members, but it transpires that after settlement far fewer have registered. It says that applying this policy to s 33V(2), it would rarely be just to make orders for the payment of any unpaid residual otherwise than to the respondent. 67 The respondent says that the general rule is that any residual sum should be returned to the respondent, save in very limited circumstances. But it says that if other considerations are relevant to whether it is just that the surplus be repaid to the respondent, then it makes two points. 68 First, each group member who has registered has been fully compensated. This is in contrast with the circumstance where each group member who has registered is partially compensated, but it is uneconomic to distribute the residual sum to those group members. Put another way, the respondent says that the Court is exercising its power under s 33V(2) in relation to the resolution of the controversy between the applicant and each group member on the one hand, and the respondent on the other hand. But once the respondent has satisfied the applicant's and each registered group member's claim for loss and damage, it will never be just for any residual sum to be paid to any person other than the respondent. 69 Second, it says that the respondent has continued to pay out claims on NWC warranties according to their terms, without reliance upon the contractual discretion that I dealt with on the separate question, and intends to continue to do so for the term of all NWC warranties. It says that this situation is different from the usual course, as the claims here hinge upon the effect of the contractual discretion. I would say now that this second point has little to do with the matter in terms of the proper application of s 33V(2) and what is just. 70 I would reject the respondent's claim to any surplus. 71 First, as Vannin has correctly submitted, which I will come to shortly, the relevant surplus only came about because it took a haircut on its commission. So viewed, the respondent's claim to be entitled to the residual sum is audacious to say the least. 72 Second, the respondent's so called analogy with how a surplus might work concerning s 33ZA is inapposite. Such a s 33ZA fund is set up by Court order, in essence under compulsion to deal with any award of damages. Its only purpose, which is the Court's purpose, is compensatory. It is not something volunteered by the respondent. Moreover, there is no element of compromise in the amount involved. Contrastingly, the respondent under a settlement is agreeing to pay a fixed amount to buy off future risk. In a sense its dominant purpose in agreeing to pay the settlement sum is not the same as the Court's purpose under s 33ZA. Further, given the separate context of s 33ZA, the ALRC's analysis is of little assistance. But even under s 33ZA there is a discretion as to whether any surplus should be returned to a respondent. It is not mandated even in that context. In summary, s 33ZA can be put to one side. It is a distraction. 73 Third, it was open for the respondent to negotiate the inclusion of provisions in the settlement deed prescribing how the settlement fund was to be distributed, capping the benefit provided to the applicant and group members at their assessed claim values and requiring any residual sum to be returned to the respondent. But the respondent did not so negotiate or procure such a result. Instead, the effect of the settlement deed agreed by the respondent was from its perspective to irrevocably confer the benefit of the settlement funds upon the applicant and group members. 74 The respondent's concern was to obtain certainty and finality in respect of its exposure in the proceeding. It agreed to a settlement sum on the basis of its own risk assessment of potential exposure and without knowing, or presumably caring, how many group members would participate in settlement. It expressed no interest in the manner of distribution of the settlement sum or indeed concerning the terms of the SDS. 75 Fourth and relatedly, the settlement deed provided the respondent with no ability to approve or disapprove of the manner in which the settlement funds were to be distributed. Indeed, despite the terms of the settlement deed making express reference to the SDS, the terms afforded the respondent no visibility over the drafting of the SDS. No draft SDS was included as a schedule to the settlement deed, and nor was a draft provided to the respondent prior to the settlement deed's execution. The method of distribution was left entirely to the applicant, subject to the Court's approval. 76 In my view, there is no proper basis for me to endorse a departure from the respondent's contracted position by ordering that the residual sum be returned to it. That would give it more than it bargained for. 77 Moreover, there is an asymmetry in the respondent's position. It says that it should get a refund as less group members than anticipated have participated. But what if the numbers had gone the other way? It would not have paid or been required to pay more to adjust upwards the settlement fund for the under-estimation. So, such an asymmetry would be all in its favour. In my view, the respondent has already been given what it bargained for. It would not be just to give it more. And its distracting references to the compensatory principle take it nowhere. Moreover, such references also ignore the partly restitutionary focus of some of the remedies sought on the applicant's principal case on behalf of group members in any event. 78 In summary, I reject the respondent's ambitious assertion of entitlement. 79 Let me turn then to the position of: (a) the participating group members; (b) as an alternative to (a), the possibility of a cy-près type order; and (c) Vannin.
The participating group members' claim to the surplus 80 The applicant says that the only distribution of the residual sum that would be just and fair and reasonable in the interests of group members as required by s 33V(2) would be distribution to participating group members. 81 First, it is said that orders to that effect would be consistent with the terms of the settlement deed and the SDS which have already been approved as fair and reasonable. 82 Second, it is said that there is no basis for concluding that this outcome would deliver a windfall to participating group members. 83 Third, it is said that as all group members have had ample opportunity to participate in the settlement, there could be no unfairness as between participating and non-participating group members. It is said that it was always contemplated that not all group members would choose to participate, and those who chose not to participate will lose nothing by virtue of an additional distribution to those who chose to participate. 84 Fourth, it is said that should the residual sum be returned to participating group members, the residual sum should be apportioned between such group members and Vannin as follows: (a) 56.5% to participating group members; and (b) 43.5% to Vannin. 85 Now I note that such percentages have been calculated reflecting the proportion of the settlement sum net of all deductions which was paid to participating group members and Vannin respectively in accordance with my earlier orders. In other words, the proposed apportionment of the residual sum reflects the already approved apportionment of the settlement sum. I will return to Vannin later, which I would agree should receive 43.5%. 86 Now the applicant says that an order imposing a cy-près type scheme is not fair and reasonable for group members and nor is it in their best interests or protective of them. 87 First, the applicant says that the settlement fund was created solely for the benefit of group members. It is said that an order transferring a sizeable portion of that fund to a third party which has not and will not provide any commensurate benefit to the group members deviates significantly from the Court's orthodox practice in approving deductions from settlement sums in respect of legal, funding and settlement administration costs, which have a direct nexus with the procurement and distribution of the fruits of litigation to group members. It is said that a donation of group members' funds cannot in any sense be aligned with the interests of group members or protective of them, as s 33V requires. But I would say now that it can be in the broad sense that there is an indirect benefit. 88 Second, it is pointed out that by the terms of the settlement deed a trust has been declared over the settlement sum in favour of only group members. The applicant says that the power conferred under s 33V(2) to make such orders as are just is not an authority to alter substantive rights, and in this case to divert the beneficial interest the group members hold in the residual sum. But, of course, as I have already indicated, the settlement fund is subject to the SDS and s 33V(2) under my control. I am not dealing with a private fixed trust exogenous to any statutory framework. 89 Third, the applicant says that a cy-près type order would have the effect of altering the commercial bargain that has been struck by the parties. By the terms of the settlement deed the parties agreed that the respondent would pay the settlement sum for the establishment of a settlement fund for the benefit of the applicant and group members in exchange for the resolution of the applicant's and group members' claims against it. But the settlement deed contains no provision prescribing how the settlement fund is to be distributed apart from incorporating the SDS. Nor does it contain any provision which seeks to limit or cap the benefit provided to the applicant and group members. The applicant says that I have no jurisdiction to unilaterally vary the settlement deed. 90 Fourth, it is said that the only factor which may be said to be supportive, although not determinative, of a finding that it is just to order a cy-près scheme would be if there existed a risk of otherwise providing a windfall to group members. But the applicant says that there is no such risk of a windfall here. The terms of the commercial agreement embodied in the settlement deed provide that the settlement funds are for the group members' benefit. In other words, there can be no windfall if all that is occurring is the distribution of settlement funds in accordance with the contractual agreement. 91 And in any event, it is said that the manner in which the group members' claims were assessed involved a degree of approximation. In particular, the loss assessment formula contemplated the application of a nominal interest formula to the claims of participating group members who indicated that they purchased their warranties using loan finance. A nominal interest calculation of 5.45 years at a rate of 11.635% per annum was applied to those group members' claims. These nominal figures were adopted after calculating the average interest rate and loan duration from a sample of participating group members. This approach was adopted on the basis that to perform calculations for each group member's claim for interest would have substantially increased the distribution costs. Now because the nominal interest claims were calculated in this way, group members who purchased their warranties at higher interest rates have not been fully compensated for some interest losses that they incurred. Accordingly, there are likely to be group members who have not received the full value of their claims. I might say that this possibility is highly unlikely if not bordering on the spurious. And it is most unlikely that I would have ever awarded to any group member rates beyond 11.635% per annum. 92 More generally, the applicant says that if the express statutory power in s 33V(2) does not support a cy-près type order, equity will not intervene to secure an inconsistent result. In any event, the applicant says that even if equity could supply an alternative source of power, the conditions for its intervention would not exist in the present case. 93 First, there was no initial impracticality or impossibility in the distribution of the settlement proceeds. But for the residual sum, the $9.5 million settlement sum has successfully been distributed. The only reason for the existence of the residual sum is the unexpectedly low participation rate from group members. 94 Second, no supervening impracticability has arisen following the distribution of the majority of the funds. The participating group members remain identifiable and there is no practical impediment to their receipt of further funds. Further, the cost to distribute the residual sum is only a fraction of that amount. 95 Third, it cannot be said that the settlement funds have exhausted their original purpose. All monies in the settlement fund were to be held on trust for the respondent until "Final Settlement Approval", which has occurred, and thereafter on trust for the applicant and group members until all of the funds in the settlement fund have been distributed in accordance with the deed and the SDS. The settlement fund was created for the benefit of the applicant and group members in order to quell the aggregate of the controversies between them on the one hand, and the respondent on the other hand. That purpose may still be furthered by the distribution of the residual sum to participating group members. 96 I reject the applicant's submissions in part, including those parts which largely ignore my earlier reasons for the settlement approval (see Evans v Davantage (No 3) at [101], [104] and [110]). 97 Now the applicant had originally drafted the SDS to ensure that there was no surplus. But I stated at [104]: …But I would reject this solution as it could lead to a windfall by the participating group members. I will require the terms of the SDS to be modified to ensure that such a windfall does not occur. 98 I continued at [105] that in the eventuality that there is a surplus: …it would be necessary for the applicant and scheme administrator to return to the Court for directions. But in that eventuality, the Court could make a further order under s 33V(2). The issue then in terms of the further distribution would be what is "just" in the circumstances. 99 So, I did not approve the settlement insofar as it provided for a windfall to the applicant and participating group members, and left open how s 33V(2) should be applied in relation to any undistributed funds. 100 Further, to the extent that the applicant submits that I lacked power or now lack power to prevent the participating group members getting a windfall, that submission is not palatable. 101 Further, to the extent that the applicant says that I must now find a power to vary unilaterally the settlement deed in order to do other than to give the surplus to the applicant and participating group members, that submission is misconceived. Nothing further need be done to the settlement deed for me to exercise my powers under s 33V(2) to direct payment of the surplus in a manner that I think fit, including by way of a cy-près type order, so long as I do what is just. No variation to the settlement deed or the SDS is required. Indeed, the SDS has now been modified, as I required, to enable me to now do what I previously foreshadowed. 102 Further, on no view would it be just or permissible to allocate the unclaimed surplus to the participating group members once they have been fully compensated. To allocate the surplus to group members who have been fully compensated would be inconsistent with the purpose of Part IVA. In Kuterba v Sirtex Medical Ltd (No 3) at [19] I said: No power contained in or philosophy underpinning Part IVA provides a proper basis for giving group members something for what turned out to be nothing or to give them something beyond what the true value of their claims are worth, reflecting the product of the face value times the probability of success times the probability of recovery… 103 Now the applicant submits that there is no risk of any windfall here because the manner of the assessment of group members' claims involved a degree of approximation. But that submission lacks any proper evidential foundation. 104 Generally, as I have said, I have power to make a cy-prés type order. 105 Now this Court has approved a number of settlements that have included a mechanism for any modest surplus to go to in essence a charity. But in the present case there is no default mechanism set out in the SDS which permits any surplus to be distributed to a charity or other body. That is in contrast with the settlement distribution scheme that I approved of in Farey v National Australia Bank Ltd (VID 1459/2011) involving one of the bank fees penalty cases, which provided that the surplus could be distributed to the Consumer Action Law Centre, in circumstances where it was uneconomic to distribute the surplus to the many thousands of group members. On 1 September 2021 I made an order on the papers giving effect to a distribution of the surplus in favour of the Consumer Action Law Centre. 106 Let me say something about the notion of an indirect benefit. Now the concept of providing indirect benefits to the group members through the making of a cy-prés type order is a tricky one. And if a charity is being proposed, what is the nexus required with the group members, their claims and the nature and context of the rights that they have sought to vindicate? And does such a charity have to provide some indirect benefit to group members? If so, what does indirect entail? I would take a broad and pragmatic approach to such questions, and I see no need to drill down on their detail for present purposes. 107 To avoid a windfall being conferred upon participating group members, I would suggest that the Consumer Action Law Centre be the recipient as to 56.5%. There are a few things to be said in its favour. 108 First, that recipient is my nomination rather than the nomination of the applicant or the applicant's legal representatives. 109 Second, the objectives of that recipient are not unrelated to the types of issues and rights that the group members sought to vindicate in the present proceeding. 110 Third, I have considered and accepted their suitability as a recipient in another context. 111 In summary, of the 56.5% component of the residual sum that the applicant says should be allocated to the participating group members, I will instead make a cy-prés type order in favour of the Centre. 112 Let me now turn to the position of the funder.
The funder's claim to the surplus 113 In my view 43.5% of the residual sum should be paid to Vannin. There are three reasons. 114 First, the surplus owes its existence to Vannin's concessional proposal at the settlement approval hearing and my orders based on that proposal, but on any view directed at facilitating the Court's role of safeguarding the interests of group members. Neither Vannin's proposals nor my orders were or are directed at assisting the respondent to escape the proceeding at least cost. The respondent paid a lump sum in settlement of the universe of claims that could have been made against it arising out of its conduct and products that gave rise to the proceeding. That is the benefit to a respondent in resolving an open class action. It was prepared to pay the settlement sum of $9.5m in full and final settlement of that universe of legacy claims. And regardless of the destiny of the residual sum, it will retain that benefit. But if the surplus is refunded to it, the consequence is that it would get the same benefit but at a cheaper price, which would be at Vannin's expense. 115 Second, Vannin agreed to fund the proceeding for the benefit of the applicant and the group members pursuant to the litigation funding agreement, which contemplated a much higher remuneration than Vannin ultimately proposed and that I ordered. Of course the bargain was always subject to my approval at least to the extent that a CFO was sought. 116 Third, Vannin at the approval hearing adopted the commendable position of proposing a commission arrangement in connection with the settlement that facilitated the objective of maximising the feasible return to group members. It did not do so for the purpose of conferring on the respondent a discount on its liability. Moreover, if the effect of a funder proposing a discounted commission rate is to allow a respondent to claw back some of the settlement payment that it agreed to pay in discharge of its liabilities in the proceeding, then it may be expected that funders in the future may be reluctant to adopt the facilitative approach that Vannin did in the present case. Indeed, one might well ask whether Vannin would have been likely to have offered the discount, if I had invited it, for the purpose of providing a refund to the respondent. The answer is self-evident. 117 Finally, one might well ask whether the total payment now proposed to be made to Vannin, that is, the 1x action costs plus the surplus, would have been regarded as just if the same remuneration had been ordered at the time of the settlement approval. The proposed total is equal to a 1.11x or 1.25x multiple depending on whether the surplus is applied rateably between Vannin and the group members or entirely to Vannin (a possibility advanced at one stage but only to be dismissed). I noted in the approval judgment that many cases have indicated that the market rate is something nearer a 3x multiple. In such circumstances, a 1.11x multiple would reflect what is just. 118 In summary, in circumstances where the residual sum owes its existence to Vannin taking a reduced commission, the just course in all the circumstances is to allocate the suggested 43.5% of that sum to it.
Conclusion 119 I will make orders to accord with these reasons, but stay the operative allocation orders for 28 days to enable any disappointed claimant to any part of the residual sum to challenge my ruling if that is their wish. I certify that the preceding one hundred and nineteen (119) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach.
Evans
Davantage Group Pty Ltd