First Plaintiff v Defendant

2 My consideration of the proposed settlement requires an answer to three interrelated questions:

(a) Should the Court approve the proposed settlement under s 33V(1) of the Supreme Court Act 1986 (Vic) ('the Act')?;

(b) Are the proposed orders in respect of the distribution of the settlement sum appropriate? and

(c) Should the group costs order made on 26 November 2021 ('the GCO') be amended pursuant to s 33ZDA(3) of the Act?

3 The evidence before me comprises six affidavits of Emma Pelka-Caven, the general manager and head of class actions at Slater and Gordon, two of which are primarily directed to the question of the settlement approval and distribution, and four of which are directed primarily to the issue of whether the GCO should be amended.

4 For the reasons which follow the answers to the above questions are:

5 The plaintiffs, Paul Allen and Monika Allen, bring a group proceeding ('the class action') under Part 4A of the Act against G8 Education Ltd ('G8').

6 The group members on whose behalf the plaintiffs claim are all persons who:

(a) entered into a contract (whether by themselves or by an agent or trustee) to acquire an interest in fully paid ordinary shares in G8 ('G8 shares') during the period between 23 May 2017 and 23 February 2018 (inclusive) ('relevant period');

(b) have suffered loss or damage by reason of the conduct of G8 pleaded in the statement of claim;

(c) were not, during any part of the relevant period, and are not as at the date of the writ, any of the following:

(i) a related party (as defined by s 228 of the Corporations Act 2001 (Cth) ('Corporations Act')) of G8;

(ii) a related body corporate (as defined by s 50 of the Corporations Act) of G8;

(iii) an associated entity (as defined by s 50AAA of the Corporations Act) of G8;

(iv) an officer or a close associate (as defined by s 9 of the Corporations Act) of G8; or

(v) a Justice or the Chief Justice of the Supreme Court of Victoria, or a Justice or the Chief Justice of the High Court of Australia; and

(d) have not opted out of the proceeding.

7 At all material times, G8 was a provider of early childhood education and care, and was included in the official list of the Australian Securities Exchange ('ASX').

8 Any approval of the proposed settlement will bind the plaintiffs, G8 and the group members.

9 The class action is a shareholder class action which alleges that G8 breached its obligations of continuous disclosure under s 674(2) of the Corporations Act and that G8 engaged in misleading and/or deceptive conduct in contravention of s 1041H of the Corporations Act and s 12DA of the Australian Securities and Investment Commission Act 2001 (Cth) ('ASIC Act'). These contraventions are said to have caused loss and damage to the plaintiffs and group members.

10 The plaintiffs bring what is commonly described as a 'guidance case'.

11 This case arises from a series of announcements G8 made to the ASX regarding its earnings before interest and tax ('EBIT'):

(a) on 23 May 2017 that it had 'forecast underlying EBIT in line with market consensus forecasts for FY2017[1] of around mid to high $170's million';

(b) on 21 August 2017 that it maintained 'our guidance for full year underlying EBIT to be of mid-$170 million';

(c) on 4 December 2017 that it was forecasting 'an underlying EBIT of around 160 million for the FY2017 year'; and

(d) on 26 February 2018 that its final underlying EBIT for FY2017 was $156 million.

(a) $4.42 at close of trade on 1 December 2017 to $3.40 at close of trade on 4 December 2017; and

(b) from $3.15 at close of trade on 23 February 2018 to $2.90 at close of trade on 26 February 2018.

13 The plaintiffs allege that G8 did not have a reasonable basis for the forecasts in its May 2017 announcement and its August 2017 announcement and that for that reason in making and maintaining those forecasts throughout the relevant period G8 engaged in misleading and/or deceptive conduct within the meaning of s 1041H of the Corporations Act and s 12DA of the ASIC Act.

14 Two key reasons the plaintiffs say the May and August 2017 forecasts were not reasonable is that they failed to properly take account of:

(a) lower occupancy levels which were likely to adversely impact FY2017 EBIT (defined in the pleading as 'Lower Occupancy Financial Effects'); and

(b) a change in educator ratio requirements in some states which would result in increased operating costs and was also likely to adversely impact FY2017 EBIT (defined in the pleading as 'Educator Ratio Financial Effects').

15 The plaintiffs allege that the Lower Occupancy Financial Effects and the Educator Ratio Financial Effects meant that G8 was not able to, not likely to be able to or that there was a material risk it would be not able to achieve or come materially close to achieving its May 2017 forecast (described in the pleading as the 'CY17 Forecast Information'). A similar allegation is made with respect to the August 2017 forecast and described in the pleading as the '21 August Forecast Information'.

(a) the Lower Occupancy Financial Effects;

(b) the Educator Ratio Financial Effects;

(c) the CY17 Forecast Information; and

(d) the 21 August Forecast Information

was information which G8 should have disclosed to the ASX pursuant to its obligations under s 674 of the Corporations Act, but was not disclosed.

17 The pleaded contraventions are alleged to have created a situation where G8's share price was 'inflated' throughout the relevant period. The acquisition of G8 shares at an inflated price during the period is said to have caused the plaintiff and group members loss.

18 The proposed settlement is documented in a Deed of Settlement executed on 24 March 2024 ('Deed').

19 At the time of entry into the Deed, the parties had completed all interlocutory steps in the proceeding and the matter was fixed for trial before Osborne J, commencing 15 April 2024 on an estimated duration of seven to nine weeks. The proximity of the settlement to the trial means that the plaintiffs and G8 were each in a position to make a considered assessment of their prospects and risks should the trial have proceeded.

(a) The proposed settlement is subject to Court approval under s 33V(1) of the Act;

(b) The settlement is made without any admission of liability;

(c) Subject to the terms of the deed, G8 will pay a settlement sum of $46.5 million in full and final settlement of the plaintiffs and group members' claims;

(d) The plaintiffs and group members will provide releases to G8;

(e) The solicitors for the plaintiffs, Slater and Gordon, will prepare a Settlement Distribution Scheme detailing how the Settlement Sum (together with interest but after Court approved deductions) is to be distributed;

(f) The Settlement Distribution Scheme is also subject to Court approval; and

(g) Except as otherwise provided by the Deed, there is to be no order as to costs of the proceeding and no steps taken to enforce any outstanding costs orders.

21 In addition to seeking approval of the proposed settlement and the Settlement Distribution Scheme the plaintiffs seek a range of orders with respect to distributions from the settlement sum:

(a) Payment of the plaintiffs' costs calculated in accordance with the GCO;

(b) A payment to the plaintiffs of the sum of $25,000;

(c) Appointment of Slater and Gordon as the administrator of the Settlement Distribution Scheme; and

(d) Approval of settlement administration costs in an amount of up to $350,000.

(1) A group proceeding may not be settled or discontinued without the approval of the Court.

(2) If the Court gives such approval, it may make such orders as it thinks fit with respect to the distribution of any money, including interest, paid under a settlement or paid into court.

23 The principles applying in relation to an approval under s 33V are well established. The central question is whether the proposed settlement 'is fair and reasonable having regard to the claims of the group members who will be bound by it if approved'.[2]

24 The factors which may be taken into account in assessing that fairness and reasonableness have been extensively considered in other cases[3] and a number are listed in clause 16.6 of the Court's Practice Note SC GEN 10 Conduct of Group Proceedings (Class Actions) (second revision).

25 In the circumstances of this approval application, the matters I need to consider are:

(a) Whether the amount each group member will receive under the proposed settlement is fair and reasonable having regard to:

(i) A reasonable estimate of the value of their claims;

(ii) The risks in the proceeding; and

(iii) The benefits of certainty and payment earlier than proceeding to judgment;

(b) Whether the releases provided by the group members are appropriate;

(c) Whether the proposed Settlement Distribution Scheme is fair and reasonable;

(d) Whether Slater and Gordon should be appointed administrator of the Settlement Distribution Scheme;

(e) Whether proposed deductions from the settlement sum for legal costs, payments to plaintiffs and administration costs are appropriate;

(f) Whether a number of group members who failed to register in accordance with court orders and who now seek to be included as registered group members ('late registrants') should be permitted to participate in the settlement; and

(g) Appropriate orders to give effect to these reasons.

26 In forming a view as to the fairness and reasonableness of the settlement I may have regard to:

(a) the terms of any advice from counsel and/or experts; and

(b) the attitude of group members to the proposed settlement.

27 In this case I have had the benefit of a confidential opinion from counsel for the plaintiffs. I have taken the matters in that opinion into account and have found it helpful in forming my views as the proposed settlement.

28 A number of group members who failed to register in accordance with court orders seek to be included now as registered group members. Pursuant to the Notice of Proposed Settlement distributed to group members, unregistered group members who wished to apply for late registration were directed to file a Notice of Objection stating their reasons for seeking late registration. The only Notices of Objection received were filed by persons seeking late registration. I deal with the applications for late registration below.

29 In fact then, no group member contends that the settlement should not be approved. Whilst this does not relieve the Court of its obligation to act as a guardian of the interests of group members, it is nonetheless a factor to be taken into account that no group member has come forward to object to the settlement.

30 In considering the fairness and reasonableness of the quantum of the settlement sum, it is necessary to consider an estimate of the reasonably anticipated overall quantum of loss for the plaintiffs and group members should the proceeding be successful at trial and the risks which the plaintiffs and group members face in the litigation.

31 The confidential opinion provides a range of estimates for group member losses. The range takes into account various scenarios as to the appropriate counterfactual and various possibilities as to inflation per share. The estimates are provided for those group members who registered to participate in the settlement pursuant to court orders ('registered group members'). Group members who have not registered pursuant to those orders are not permitted to seek the benefit of the proposed settlement without leave of the Court. It is thus appropriate to estimate the quantum of loss for the purposes of assessing the settlement by reference to the losses of registered group members only.

32 All litigation has risks. All, or nearly all, class actions have a degree of uncertainty about the extent to which all members of the group will be able to prove their claims, making global estimation of loss inherently more uncertain than in traditional inter partes litigation. Guidance cases have particular risks for plaintiffs in establishing liability because they are about forecasts. Shareholder class actions have particular risks in relation to plaintiffs and group members establishing causation and loss. All of those general risks are present here. In addition, as would be expected, there are specific risks in this case for the plaintiffs and group members in relation to liability, causation and loss.

33 Counsel's confidential opinion candidly assesses the overall prospects of success in the proceeding taking into account both general and specific risks.

34 Having regard to the confidential opinion, I am satisfied that the settlement sum (after taking into account the deductions from it which I would allow) falls within the range of reasonableness having regard to the range of estimates of overall claim value and the general and specific risks for the plaintiffs and group members in the proceeding.

35 In addition, I am satisfied that approval of the settlement will provide the plaintiffs and group members with the benefits of certainty and the time benefit of money received much earlier than would occur if the matter proceeded to judgment and possibly following judgment to appeals.

36 The Deed sets out certain releases and covenants on behalf of the plaintiffs and group members. The scope of the claims released is defined as claims made against G8 in the proceeding and:

all common Claims that the Plaintiffs and any or all Group Members now have, at any time had, or may have or, but for this Deed, could or might have had arising out of, relating to or in any way in connection with or incidental to matters which were at any time the subject matter of the Proceeding or any part of the Proceeding.

37 Releases are given not just to G8 but to related parties as defined by the Deed.

38 I am satisfied that the scope of the claims released (including that they inure for the benefit of G8's related parties) is permissible having regard to the Court of Appeal decision in Laszczuk v Bendigo & Adelaide Bank Ltd ('Laszczuk').[4]

39 Notwithstanding that such releases are permissible, it seems to me that I still have to determine whether there is anything in their scope which bears on the fairness or reasonableness of the settlement. In the circumstances of this case, I am satisfied that the scope of the releases is fair and reasonable. The scope of the release against G8 is limited to common claims and has a sufficient connection to the subject matter of the proceeding. In light of the matters pleaded, the provision of releases to related parties is rationally and reasonably connected to the settlement of the claims in the proceeding and is likely to have no real practical impact on the rights of group members.

40 As I discuss below, and consistent with Laszczuk, by approving the settlement in terms of the Deed under s 33V and ordering that the group members are to be bound by that settlement, G8 will have the benefit of the releases not just from the plaintiffs but also from the group members.

41 The proposed Settlement Distribution Scheme[5] is appropriate. Under the scheme losses are calculated using an inflation per share methodology and registered group members then participate in the distribution sum (being the settlement sum plus interest less allowable deductions) by reference to the proportion of their individual loss to the total loss. This is standard in shareholder class actions and perfectly appropriate as a mechanism for distribution.

42 Only a few features of the scheme warrant comment:

(a) The scheme excludes from participation those group members who have not registered in accordance with Court orders. This is appropriate given that is precisely what the orders contemplated;

(b) The scheme excludes from the distribution those registered group members whose calculated distribution entitlement falls below $20. That is appropriate given the likely disproportionate costs associated with the distribution of such amounts;

(c) The scheme provides registered group members with an opportunity to verify and correct data relating to their share trading, but does not provide any formal review process regarding the calculation of their distribution entitlement. The lack of a formal review process is not problematic in circumstances where the calculation of distribution entitlements is based on the application of a mathematical formula to the share trading data and group members have been provided with an opportunity to correct the inputs into that formula. In any event, should any issue arise a group member or the settlement administrator can raise it with the Court which retains overall supervision of the settlement;

(d) The work involved in shareholder class action administrations has sometimes been deprecated as the mere application of a mathematical formula. As the scheme here demonstrates the overwhelming bulk of the work relates not to calculation of entitlements (which is the application of a mathematical formula) but is in the processes of obtaining relevant information from group members and ensuring the proper distribution of funds; and

(e) The scheme provides for the plaintiffs to receive a payment of $25,000 for the duties and activities they undertook on behalf of the group in the conduct of the class action. The plaintiffs also seek an order under s 33V(2) to this effect. The proposed payment to the plaintiffs is within the range of reasonableness and is approved.

43 The plaintiffs seek orders that Slater and Gordon, their solicitors be appointed as administrator of the Settlement Distribution Scheme. Slater and Gordon estimate that the costs of the settlement administration will be approximately $300,000 but seek approval for administration costs of up to $350,000.

(a) Slater and Gordon have already collected and verified much of the share trading data through the various registration processes;

(b) The amount proposed for the settlement administration costs is fair and reasonable;

(c) A properly run tender process for another scheme administrator would incur substantial costs in the tender process, additional costs in the handover from Slater and Gordon to any other administrator (if one were appointed) and delay the distribution of the settlement; and

(d) The quantum of the proposed administration costs is such that any benefits to be gained by a tender process are likely to be far outweighed by the costs of any tender process, the costs of handover and the delays occasioned to the distribution.

45 If a person other than Slater and Gordon were appointed administrator there would be no doubt that administration costs fall outside the GCO. The situation is no different if Slater and Gordon is appointed to administer the Settlement Distribution Scheme.

46 Section 33ZDA of the Act provides for an order which provides a method for the calculation of 'the legal costs payable to the law practice representing the plaintiff and group members'. 'Legal costs' in s 33ZDA has the same meaning as in the Legal Profession Uniform Law (Victoria) ('LPUL'). Section 6 of the LPUL relevantly defines legal costs as amounts charged by a legal practice or payable by a person for the provision of legal services.

47 Under the Settlement Distribution Scheme, the administrator will administer the scheme as an officer of the Court in priority to any obligation owed to the plaintiffs and group members. In its function as administrator Slater and Gordon will not be 'representing the plaintiff and group members'. The administration costs are not amounts charged to or payable by the plaintiffs and group members - they are a deduction from the settlement sum approved by the Court. Properly construed an order under s 33ZDA does not extend to administration costs.

48 In her evidence Ms Pelka-Caven fairly and properly drew my attention to the terms of a class closure notice sent to group members in September 2022 which said:

This means that Group Members will share between them, at minimum, 72.5% of the proceeds of any monetary compensation paid by G8 in this class action and the maximum amount that Slater and Gordon can be paid is 27.5%.

49 That notice did not alert group members to the possibility of further deductions from the settlement sum for administration costs or any payment to the plaintiffs.

50 However, in the notice of the proposed settlement distributed in May 2024, group members were expressly told of the quantum of all proposed deductions from the settlement sum.

51 I am satisfied that, notwithstanding the terms of the notice sent in September 2022, it is fair and reasonable to authorise further deductions from the settlement sum for administration costs and payments to the plaintiffs because those matters were specifically notified to group members in May 2024 and, in the context of the settlement overall, the quantum of those amounts is properly regarded as modest.

52 Section 33ZDA of the Act relevantly provides as follows:

(1) On application by the plaintiff in any group proceeding, the Court, if satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding, may make an order -

(a) that the legal costs payable to the law practice representing the plaintiff and group members be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceeding, being the percentage set out in the order; and

(b) that liability for payment of the legal costs must be shared among the plaintiff and all group members.

(3) The Court, by order during the course of the proceeding, may amend a group costs order, including, but not limited to, amendment of any percentage ordered under subsection (1)(a).

(1) Pursuant to s 33ZDA of the Supreme Court Act 1986;

(a) the legal cost payable to the solicitors for the plaintiffs and group members, Slater and Gordon Lawyers, be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceeding, that percentage being 27.5% inclusive of GST (subject to further order); and

(b) liability for payment of the legal costs pursuant to order 1(a) be shared among the plaintiffs and all group members.

54 The GCO was made upon the provision by the plaintiffs of an undertaking not to apply for an order under s 33ZDA for any percentage greater than 27.5%.

55 Justice Nichols' reasons for making the GCO emphasised the following matters:

(a) The certainty provided to the plaintiffs and group members regarding the proportion of any settlement or judgment sum expended on legal costs;[6]

(b) The simplicity and transparency of the GCO funding model;[7]

(c) The likelihood that if a GCO were not made the proceeding would be funded by a third-party litigation funder and the likelihood in that scenario that the deduction of legal costs and funding commission would significantly exceed the 27.5% proposed under the GCO;[8]

(d) The fact that under a no win, no fee ('NWNF') arrangement (which was not the most likely alternative to a GCO arrangement) the GCO provided better outcomes for group members in scenarios where there were settlements or judgments for relatively low amounts with the situation reversed for settlements or judgments for higher possible amounts;[9]

(e) The proposed rate of 27.5% (inclusive of GST) was reasonable;[10] and

(f) The Court had the power to amend the GCO under s 33DZA(3).

56 In relation to the question of a review of the rate under s 33ZDA(3), her Honour said:

As I said in Fox/Crawford, considerations of proportionality and reasonableness will assist in answering the statutory question raised by s 33ZDA, and because the statutory model engages with both risk and reward, it invites the question whether the costs allowed are, among other things, proportional to the risk undertaken by the law firm in funding the proceedings. That question is likely to assume significance on any review under s 33DZA(3).

Although it is appropriate to fix the proposed rate it by reference to the presently available measures, the plaintiffs and their solicitors in particular, must be mindful of the need to assist the Court when the occasion arises for scrutinising the appropriateness of the rate now fixed, in the future. When that occasion arises, other measures and other paradigms beyond the general evidence of the kind led on this application (determined as it is at an early stage in the litigation), might well be informative. As I said in Fox/Crawford (by way of example) an insurance-based actuarial calculation might assist in assessing why a proposed return is likely to be reasonable for an investor with the particular funder's characteristics.

The plaintiffs' solicitors should be mindful of the need to facilitate any future assessment on questions concerning the appropriate reward for the assumption of risk, which is by its nature a forward-looking decision made now, but which might be later evaluated by reference to the facts and assessments that informed the decision to assume the risk, made at this point in time. There may well be other measures of reasonableness and proportionality which will require reference to what will be past events, at the time at which any s 33ZDA(3) question arises.[11]

57 The legal costs payable to Slater and Gordon under the GCO are therefore $12,787,500 (being 27.5% of $46.5 million) unless it is amended under s 33ZDA(3).

58 The GCO in this case was the first GCO made under s 33ZDA. This case is also the first occasion on which the Court has had to consider the exercise of any power under s 33ZDA(3) in the context of an approval of a settlement. In the circumstances of it being the first occasion to consider the possible amendment of the GCO order in a settlement context, Justice Nichols made orders for the appointment of a contradictor on the issue of any amendment. Slater and Gordon Limited were given leave to intervene on the question of whether the GCO should be amended.

59 Each of the plaintiffs, Slater and Gordon and the contradictor made submissions on this issue. I have found those submissions helpful in my consideration of the matter.

60 In Mumford and EML Payments Limited[12] Delany J made the following observation:

It is important to note that s 33ZDA(3) allows the Court to ensure that, once information informing proportionality becomes available, a review of the GCO percentage can be undertaken. That is so as to ensure that the percentage that I have determined pursuant to s 33ZDA(1) remains appropriate.

The s 33ZDA(1) task is a separate and distinct task to the s 33ZDA(3) task. However, whatever the percentage fixed at this time, it creates a default position from which there will be at least be a practical onus upon those who urge departure on either settlement approval or following the conclusion of the proceeding to displace the s 33ZDA(1) percentage.[13]

61 Here, no one submits that I should amend the percentage in the GCO. The plaintiffs do not seek to vary it, Slater and Gordon contends it should remain and no group member has objected to the application of the percentage despite having been given notice of it. In its written submissions, the contradictor indicated that it did not 'consider that there are strong grounds to reduce the GCO rate of 27.5% in the settlement approval on the facts of this case'. In fact, at the oral hearing in response to a question from me, senior counsel for the contradictor accepted that on the facts of this case there were no grounds to reduce the GCO rate.

62 The absence of any party or contradictor contending for an amendment of the rate does not relieve the Court of its burden in a settlement approval context to consider whether or not the GCO should be amended. It is a factor however, which weighs significantly in the balance in favour of leaving the GCO percentage unamended.

63 Having regard to the submissions before me, it seems that in considering whether to exercise the power under s 33ZDA(3) the following principles emerge:

(a) The power to amend a group costs order only arises in circumstances where the court was satisfied that it was 'appropriate or necessary to ensure that justice is done in the proceeding' to make the original order.

(b) The consideration of whether to exercise the power under s 33ZDA is not an occasion for a hearing de novo regarding the appropriateness of the group costs order.

(c) Rather, the power to amend should only be exercised if the court is satisfied that circumstances now mean that an amendment is appropriate or necessary to ensure that justice is done in the proceeding. Whilst the language of s 33ZDA(3) contains no express limitation, such a limitation arises by necessary implication from the structure of s 33ZDA and the conditions on the original exercise of power under s 33ZDA(1).

(d) Close attention should be paid to the reasons for the original group costs order.

(e) The court should ensure that costs payable to the lawyer under the group costs order remain proportionate in that they continue to represent an appropriate reward in the context of the effort and investment of the legal practice, the duration of the proceedings and the risks which were undertaken under the group costs order.

64 It is important to say more regarding this last point. Group costs orders tend to be made at an early stage in the proceeding on a forward-looking basis. Inevitably, this means that they are made on the basis of imperfect information, where there is considerable uncertainty about the course of the proceedings and the time and expense involved in providing representation to the plaintiff and the group members. At the time of making the order the outcome of the proceeding cannot be known and a range of outcomes ranging from the proceeding being dismissed with costs through to the plaintiff and group members enjoying complete success are open.

65 Often, as in this case, the plaintiffs or their solicitors will have provided the court with estimates of a range for:

(a) the costs and resources which the law practice anticipates will be expended in the course of the proceeding;

(b) the duration of the proceeding;

(c) an estimate of the total damages;

(d) the quantum of exposure to adverse costs if the case is lost; and

(e) a potential range of settlement outcomes.

66 At the finalisation of the proceeding (whether by settlement or judgment) the uncertainty about cost and duration has resolved and the range of possible outcomes has narrowed to one. This provides the Court with an opportunity to consider whether the remuneration under the group costs order is proportionate in light of known facts.

67 However, the Court should not approach the crystallisation of a favourable outcome for the law practice as an occasion of itself to amend a group costs order. As has been repeatedly emphasised in the context of common fund orders, a court needs to avoid a hindsight bias in this regard.[14] Where the outcome of a proceeding falls within the range of estimates relied upon by the legal practice in support of its application for the original group costs order or where the outcome falls outside those estimates but not substantially so, this will weigh against amending the group costs order percentage on account of a lack of proportionality.

68 As noted above, this is the first occasion the Court has been called upon to consider the power to amend a group costs order in a settlement context. Over time the Court will be faced with numerous such applications and, as with other areas of the law, it will assist courts to be able to compare the outcomes of different cases as an aid to deciding whether the power to amend should be exercised.

(a) provided evidence of its input costs (that is its actual labour costs and overheads, disbursements and funding costs) and the resources it had devoted to the proceeding; and

(b) provided on a confidential basis its return on investment ('ROI') as a basis for comparison with ROI figures for other known classes of investment and in particular for a comparison with the listed funder Omni Bridgeway.

70 Slater and Gordon did not initially provide its professional costs calculated on an hourly rate basis nor a calculation of its internal rate of return ('IRR') for its investment in the proceeding. In the case of the former, it said that any comparison with its professional costs on an hourly rate basis was unnecessary because parliament had, in enacting s 33ZDA, created a different basis for the determination of a law practice's costs and would be misleading because Slater and Gordon had not intended to run the proceeding on a NWNF basis. In the case of the latter, it said utilisation of metrics such as an ROI or IRR might lead to error because it might lead to false comparisons with other forms of investment which bear no meaningful relationship to this particular group proceeding. Ms Pelka-Caven's second affidavit of 24 June 2024 said the ROI and IRR measures did not take into account the timing of cashflows. This is true of the ROI but incorrect when it comes to an IRR.

71 The contradictor submitted that evidence of Slater and Gordon's professional costs would be useful in a consideration of proportionality and correctly pointed out that an IRR calculation does take account of the timing of cashflows and suggested that the ROI and IRR measures would provide a useful basis of comparison across proceedings. The contradictor did not say that evidence regarding those matters was necessary for me to form a view in the proceeding as to whether to amend the GCO or not.

72 In reply Slater and Gordon maintained its submissions that evidence regarding its costs on an hourly rate basis would be neither relevant nor useful and said that ROI and IRR comparisons with non-funded proceedings would invite error. It said that in circumstances where the contradictor said the evidence was unnecessary, there was no reason Slater and Gordon should provide it.

73 Against the possibility that I concluded that provision of the costs on an hourly rate basis and an IRR would be relevant and useful, I asked Slater and Gordon to provide that evidence, which it did in the fifth affidavit of Emma Pelka-Caven of 1 August 2024.

74 I have concluded that in this case it is appropriate to take into account the evidence of the costs on an hourly rate basis and each of the ROI and IRR metrics.

75 In relation to provision of a law practice's costs on an hourly rate basis:

(a) I accept that parliament in enacting s 33ZDA has enacted a new method for calculation of costs. It is inherent in that choice that costs under s 33ZDA will sometimes be substantially more than those calculated on an hourly basis and sometimes substantially less (including where a proceeding is lost and the law practice has to pay the costs of the defendant).

(b) In many North American jurisdictions, costs on an hourly rate basis are considered by courts approving contingency fees as a 'cross-check' on the reasonableness of the percentage fee.[15] It is important to note that in jurisdictions where this occurs, courts accept that it is appropriate that, on occasion, a percentage fee will be several multiples (in some cases greater than 4) of the hourly rate fee, though the mean and median multiple is generally in the range of 1.4 to 1.8.[16]

(c) Further, some academic literature from the United States suggests that there is no statistical difference in the percentage fees awarded to attorneys in class actions where hourly rate fees are used as a cross-check and those where they are not.[17] If the cross-check makes no difference, this begs the questions as to whether it is really a cross-check at all and whether the time and expense associated with the provision of hourly rate data is warranted.

(d) It is too early to tell whether courts in this jurisdiction will find the hourly rate fees a useful cross-check in the way that they are used in North America. Characterising a percentage fee as a multiple of the hourly rate fees of the law practice is a conceptually similar task to calculating the ROI. It may be that Australian courts will gravitate towards the latter rather than the former, the former rather than the latter or use both. Neither party provided detailed submissions or evidence regarding the North American practice and Slater and Gordon submitted it was unlikely to be useful in the task before me.

(e) In this case Slater and Gordon has provided a comprehensive ground-up calculation of its actual costs for labour and overheads. In many instances though, a less costly and time consuming method to arrive at a calculation of actual costs for labour and overheads will be to calculate the professional costs on an hourly rate basis and remove the practice's average profit margin.

(f) Notwithstanding the above, in this case Slater and Gordon's professional fees on an hourly rate basis do provide a useful cross-check in that together with the figure expended on disbursements they allow a calculation of the effective cost of the provision of 'litigation funding' in the case. This litigation funding cost can be directly compared to funding commissions in the existing third party litigation funding market.

76 Slater and Gordon submitted that the utility of ROI and IRR calculations depended on 'a richer dataset of reasonably comparable funded group proceedings than is currently in existence'. That dataset will only come into existence if law practices provide the information on approval applications like these.

77 I am satisfied that ROI and IRR calculations provide a court with useful numerical calculations which may assist in the task of assessing the ongoing proportionality of a group costs order. The advantage of a calculated ROI and IRR is that they provide quantitative metrics that can be used as a basis for comparison across cases.

78 The ROI (return on investment) is simply the profit or return from the investment divided by the cost of the investment. The IRR (internal rate of return) is, in effect, the annual rate of return expressed as a percentage that an investment generates. More strictly it is the discount rate which makes the net present value of the project cashflows (outgoing cashflows in the form of expenses and incoming cashflows in the form of revenue) zero.

79 Like all metrics, the limitations of an ROI and IRR need to be taken into account. An ROI does not take account of the time over which an investment occurs and so an apparently high ROI might nonetheless represent a relatively poor investment outcome for a law practice if a case has run for many years. Conversely an apparently lower ROI might represent a windfall if the investment window is very short. Nonetheless, because of its widespread use by litigation funders in particular as a measure of their outcomes, it is of some utility in this context. Broadly speaking an IRR allows more meaningful comparisons across cases than an ROI because it factors in the time value of money.

80 It is important to note that in 'good' settlements the calculated ROI and IRR will tend to be relatively high.

81 First, in accordance with general investment principles the greater the risk associated with an investment the higher the reward. A law practice takes on significant risk under a group costs order.

82 Secondly, a class actions law practice will have a portfolio of cases. The overall portfolio will inevitably have an ROI or IRR which takes into account cases which lose and result in significant negative returns, those which settle on unfavourable terms and those which settle favourably. A comparison of an ROI or IRR in a good settlement with an average portfolio metric should be approached with caution because it will inherently tend to be greater than the average.

83 Thirdly, the ROI and IRR in a 'good' settlement will tend to be higher than any probability weighted average at the outset of a proceeding which will have factored in the possibility of negative returns and settlements on unfavourable terms. However, where a range of ROI and IRR figures are provided at the time a group costs order is made it will be possible to assess the actual ROI and IRR by reference to those ranges.

84 Notwithstanding, the limitations which exist regarding their use, over time the comparison of the ROI and IRR for a particular proceeding with other comparable proceedings may provide a useful check on proportionality for the Court.

85 I found the evidence tendered by Slater and Gordon was of assistance in determining whether to amend the GCO. As the Court develops its jurisprudence regarding the circumstances in which it is appropriate to amend a group costs order it will generally be of assistance for the law practice, where it can, to provide evidence of that kind, that is:

(a) Information regarding the hours worked by the legal practice on the proceeding;

(b) The actual costs incurred by the firm for labour, overheads, disbursements, financing costs and insurance (if any);

(c) The costs which would have been charged by the firm on an hourly rate basis;

(d) Appropriate financial metrics including the ROI and IRR;

(e) Comparisons with other funded proceedings; and

(f) How the settlement or judgment sum compares to any realistic settlement range estimated at the time of making the group costs order.

The rate is reasonable having regard to the effort and the risks

86 The evidence shows that Slater and Gordon devoted appropriate resources and effort to the proceeding.

87 The total hours worked by Slater and Gordon staff on the matter are considerable, being just shy of 13,000 hours. The confidential materials provide a breakdown of those hours by reference to stages of the proceeding. That breakdown shows a commitment of hours commensurate with the importance of the relevant stages. The proceeding settled shortly before trial and the work performed by Slater and Gordon is commensurate with that stage of the proceeding.

88 Slater and Gordon's input costs (labour costs, overheads, disbursements and financing costs) are confidential but an indicator of the significance of the resources devoted to the proceeding can be gleaned from the fact that Slater and Gordon's professional costs on an hourly rate basis inclusive of GST (without any allowance for uplift on any deferred professional costs) would have been approximately $5.8 million inclusive of GST and the quantum expended on disbursements was approximately $3.3 million inclusive of GST.

89 I have described in broad terms the risks associated with the proceeding above. Under the GCO Slater and Gordon hazarded its own costs and disbursements and took on responsibility for the payment of any costs awarded to G8 if the proceeding was unsuccessful. The risks associated with non-recovery of costs and disbursements and the possibility of payment of an adverse costs order were real. Ms Pelka-Caven estimates that at settlement G8's costs on a solicitor and client basis were likely to be between $10 million and $12 million. It can safely be said that had the matter proceeded to an unsuccessful trial for the plaintiffs, Slater and Gordon faced a potential costs order in excess of $5 million.

90 Under the GCO Slater and Gordon will receive approximately $12.8 million. In other words, under the GCO Slater and Gordon receives approximately $3.7 million or 7.9% of the settlement sum for the risks it undertook in the proceeding. On the face of it this is a reasonable and not disproportionate reward for the effort and risk undertaken. As will be seen below it compares very favourably to rates of litigation funding commission from third party litigation funders.

91 When the GCO was made, the Court paid regard to modelling provided by Slater and Gordon of various settlement or trial outcomes. Having regard to the materials before the Court on the making of the GCO, nothing in the level of actual costs expended by Slater and Gordon, the duration of the proceedings or the quantum of the settlement sum provides a basis to amend the GCO percentage.

92 Before turning to some of the other specific considerations which underlay the making of the GCO it is appropriate to observe that the GCO percentage in this case is what might be described as a mid-range group costs order percentage. At the time the GCO was made it was the first. Since that time the Court has made a number of group costs orders. The percentage here (27.5%) is above the median of 24.5%[18] but is still aptly described as mid-range. A mid-range percentage is less likely to call for amendment than one at the higher end of the range of such percentages.

93 In making the GCO, the Court placed considerable weight on the benefits of certainty and transparency to group members. That certainty and transparency would be undermined if courts too readily exercised their power under s 33ZDA(3) to amend a group costs order.

94 Certainly, it would generally seem antithetical to a rationale of providing the plaintiffs and group members with certainty regarding legal costs to amend a group costs order percentage by increasing it. Similarly, it will generally be a factor militating against amendment of a group costs order at settlement that the plaintiff and group members have had the benefit of that certainty and transparency throughout the proceeding.

95 This is not to say of course that, if other circumstances warrant it, the power under s 33ZDA(3) will not be exercised. However, it will not be appropriate or necessary to ensure that justice is done in the proceeding for group members to have had the benefit of transparency and certainty, merely to discard it at the end of a proceeding only because the lawyers would like more or because the plaintiffs and group members would prefer to pay their lawyers less.

96 In this case the plaintiffs undertook not to seek a variation of the GCO percentage upwards and Slater and Gordon have not sought such an amendment. No group member contends for a variation of the percentage downwards and neither does the contradictor.

97 This factor does not support any exercise of the power of amendment.

98 Two key underpinnings of the GCO in this case were the finding that if a GCO were not made, it was likely that the proceeding would be funded and the evidence that a GCO at 27.5% was likely to produce a greater return to group members than the combination of litigation funding and the payment of legal fees.

99 The evidence on this settlement approval application is, if anything, even stronger in this regard.

100 The evidence at the time the GCO was made was that the median total combined costs for legal costs and funding commission in proceedings funded by third party litigation funders was 46% of settlement sums and the mean 44%. Data in the period since the GCO evidence was prepared shows a median total combined costs in proceedings funded by a third party litigation funder of 52% of settlement sums with a mean of 53%. The GCO percentage of 27.5% falls very significantly below these figures.

101 As the above discussion shows, under the GCO Slater and Gordon effectively receives approximately 7.9% of the settlement sum for the provision of those services which would have been provided by a third party litigation funder. This compares favourably with average litigation funding commissions which, both at the time the GCO was made and since, are in the 23% to 24% range. Group members in the proceeding have had the benefit of litigation funding from Slater and Gordon at about one third of the rate of a third party litigation funder.

102 The evidence regarding the comparison with litigation funding is a very strong factor militating against any exercise of the power of amendment in this case.

103 Under the GCO Slater and Gordon receive somewhat more than they would have if the proceeding had been run on a NWNF basis. This provides no basis to vary the GCO in this case.

104 First, Slater and Gordon rightly say that the comparison with a NWNF arrangement is of relatively little utility in circumstances where the evidence at the time of making the GCO was that if a GCO were not made it was more likely the proceeding would be funded.

105 Secondly, at the time the GCO was made it was accepted that in some settlement outcomes the amount under a GCO payable to Slater and Gordon would be higher than the amount payable under a NWNF arrangement. Having regard to the materials before the Court on the GCO application, nothing in the actual settlement outcome warrants a reconsideration of the GCO percentage on the basis of any comparison with the amount which would have been payable if the matter had been conducted on a NWNF basis.

106 Slater and Gordon has provided calculations of its ROI and IRR utilising input costs and the amount it will receive if the GCO is not amended. The calculations and the ROI and IRR figures they produce are understandably and appropriately confidential. These reasons will be published with a confidential appendix containing reference to the range of likely settlement outcomes advanced by the plaintiffs when the GCO was made, Slater and Gordon's input costs, the ROI and IRR. The confidential appendix will be available to Slater and Gordon, the contradictor and to other judges of this Court in subsequent settlement approvals.

107 The evidence establishes a range of ROI values depending on whether input costs take into account financing costs and whether GST is payable on the receipt under the GCO.

108 In its materials Slater and Gordon compares its ROI to the multiples which third party litigation funders seek and to Omni Bridgeway's published multiple on invested capital ('MOIC').

109 Litigation funders generally seek funding opportunities at a multiple of at least two to three times, equating to an ROI of 2.0 or 3.0. Actual ROI's for litigation funders are presumably less, because some cases will not produce those returns but nonetheless it provides a point of comparison for Slater and Gordon's ROI in this proceeding. Slater and Gordon's calculated range for its ROI for this proceeding is reasonable and appropriate having regard to that evidence.

110 Omni Bridgeway, an ASX listed litigation funder, publishes data regarding its MOIC which is the total amount it receives (including any return of its investment amount) divided by the amount invested (but not including finance costs). In other words, the MOIC is the ROI plus one if finance costs are excluded. The evidence shows that Omni Bridgeway's ROI on all completed cases (including those on which it loses some or all of its capital) is 1.2 and approximately 1.9 on those cases which did not produce a negative return. Approximately 15% of its cases have an ROI exceeding 4.0, with some cases having an ROI exceeding 9.0. Slater and Gordon's calculated range for its ROI excluding finance costs is reasonable and appropriate having regard to that evidence.

111 Slater and Gordon's IRR will also be different if GST is payable on the amount it receives under the GCO or not. Slater and Gordon provided me with two calculations one assuming no GST is payable and another assuming that GST is payable on the whole amount. The evidence does not allow me to compare those calculated IRR figures with other comparable IRRs but, in light of all the other factors I have considered, I am satisfied that the IRR in this proceeding (whichever figure is utilised) represents a reasonable return to Slater and Gordon for the resources it devoted to the proceeding, the duration of that commitment and the risks that it undertook under the GCO.

112 Finally, and with the caveat I have noted above that it may not ultimately be a useful metric to consider, the amount Slater and Gordon receives under the GCO is 1.4 times the amount it would have received for costs on an hourly rate basis together with disbursements. This is at the bottom end of the median range in the US and considerably less than multiples which have been accepted as reasonable in some cases.

113 For all of the above reasons, I have concluded that there is no basis to exercise the power under s 33ZDA(3) to amend the GCO. I should say that I am comfortably satisfied that this is so. In other words, based on the evidence available and the predicted range of settlement outcomes at the time the GCO was made there are substantially higher settlement outcomes which would similarly not have warranted the exercise of any power of amendment.

114 An order should be made under s 33V(2) specifying the precise amount in dollar terms which is payable to Slater and Gordon from the settlement sum.

115 One final matter to note regarding the GCO is that Slater and Gordon submitted there may be some difficulties in circumstances where not all group members receive a benefit under the settlement or judgment but s 33ZDA(1)(b) says the costs of the proceeding are to be shared among the plaintiff and all group members. I do not see how this is so. The law practice has an entitlement to receive a percentage of any award or settlement recovered in the proceeding, it has no entitlement to recover anything beyond that. If a group member receives zero their share of the liability for costs is the percentage fixed by the group costs order times zero, in other words their share of the costs is zero. In this way the costs of the proceeding are shared between all group members.

116 I am satisfied that it is appropriate to permit the late registrants to participate in the settlement. Individually and in aggregate their impact on the returns to existing registered group members under the settlement is negligible. No party opposed orders permitting their participation.

An order pursuant to section 33ZF of [the Act] that the Plaintiffs be authorised nunc pro tunc to enter into the [Deed] on behalf of each group member in the proceeding.

('the nunc pro tunc authorisation order')

118 Such an order is in in my view unnecessary and arguably beyond power. G8 in its submissions argued that I need to make the order to ensure that group members were bound by the releases. This is not so. It is plain that when I make an order under s 33V(1) of the Act approving the settlement in the terms contained in the Deed and describe pursuant to s 33ZB the group members who will be bound by my judgment, that those group members so described become bound by the terms of the releases in the Deed.[19] In circumstances where there are specific provisions of Part 4A which bind the group members to the terms of the proposed settlement and in light of the High Court's characterisation of s 33ZF as a 'gap-filling power' in BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall ('Brewster')[20] it is not plain that s 33ZF provides power to make the nunc pro tunc authorisation order.

119 There is authority in this Court however which specifically approves the making of the nunc pro tunc authorisation order. Two of those authorities, Byrne v Javelin Asset Management Pty Ltd ('Byrne')[21] and Bendigo & Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd ('Pekell'),[22] pre-date Brewster and at least arguably rest on a conception of the power under s 33ZF which was rejected by the High Court. Laszczuk post-dates Brewster but as appears from footnote 133, the decision in Brewster was handed down after submissions in that case and whilst the Court of Appeal's attention was drawn to the High Court decision, no party sought to make further submissions on it. In Laszczuk the Court of Appeal cites with approval those passages of Byrne and Pekell which accept that a nunc pro tunc authorisation order may be made under s 33ZF.[23] In the circumstances, I regard myself as bound to accept that s 33ZF provides power to make a nunc pro tunc authorisation order.

120 Even accepting there is power under s 33ZF to make such an order, I ordinarily would not make it in circumstances where for the reasons I have stated I regard it as unnecessary. Here however, the parties in the Deed have provided that in the event the Court 'finally declines' to make the Settlement Approval Orders as defined by the Deed, which include the nunc pro tunc authorisation order, the Deed will automatically terminate, unless the parties agree in writing that the Deed will continue. It would not be appropriate to create uncertainty regarding whether the settlement will terminate where I have found it is fair and reasonable. Notwithstanding the fact that I regard the nunc pro tunc authorisation order as unnecessary, I will make it.

121 Having regard to all of the above matters, I will make orders:

(a) approving the proposed settlement;

(b) approving the settlement distribution scheme;

(c) appointing Slater and Gordon as Administrator of the settlement distribution scheme;

(d) approving payments;

(i) to the plaintiffs of $25,000;

(ii) to Slater and Gordon of $12,787,500 for the plaintiffs' costs, being the amount payable under the GCO; and

(iii) for administration costs of up to $350,000;

(e) deeming the late registrants as registered group members;

(f) making the nunc pro tunc authorisation order; and

(g) dealing with various other consequential matters.

[1] G8's financial year was 1 January to 31 December. G8's announcements tended to use FY2017. The plaintiff's pleading uses CY2017 (for calendar year 2017). In practice the two are the same.

[2] Iddles & Anor v Fonterra Aust Pty Ltd & Ors [2023] VSC 566, [24].

[3] Ibid [25]-[27]; Williams v FAI Security Pty Ltd (No 4) (2000) 180 ALR 459, [19]; Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663, [43].

[4] (2020) 61 VR 1, 14-17 [51]-[62] (Whelan, Hargrave and Emerton JJA) ('Laszczuk').

[5] Exhibited at pages 6 to 43 of the exhibit bundle EPC-SG-007 to the fifth affidavit of Emma Olivia Pelka-Caven affirmed 1 August 2024.

[6] Allen v G8 Education Limited [2022] VSC 32, [33]-[40].

[12] [2022] VSC 750.

[14] Money Max Int Pty Ltd v QBE Insurance Group Ltd [2016] FCAFC 148; (2016) 245 FCR 191, 208-9 [80]; Galactic Seven Eleven Litigation Holdings LLC v Davaria (2024) 302 FCR 493, 517 [91]-[95].

[15] William B Rubenstein, Newberg and Rubenstein on Class Actions (Thomson Reuters, 6th rev ed, 2022) s 15:89 ('Newberg and Rubenstein on Class Actions'); Law Commission of Ontario, Class Actions: Objectives, Experiences and Reforms (Final Report, July 2019) 75-76.

[16] Newberg and Rubenstein on Class Actions s 15:89.

1. [17] Lynn A Baker, Michael A Perino and Charles Silver, 'Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions' (2015) 115 Columbia Law Review 1371, 1417.

[18] See R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89, [113].

[19] Laszczuk 14-15 [52], 16-17 [60]; Byrne v Javelin Asset Management Pty Ltd [2016] VSCA 214, [58] (Hansen, Ferguson and McLeish JJA).

[20] [2019] HCA 45; (2019) 269 CLR 574, 605 [69], 606 [70], 631 [145], 632 [147].

[21] [2016] VSCA 214.

[22] [2017] VSCA 51; (2017) 118 ACSR 592 (Santamaria, Ferguson and McLeish JJA).

[23] Laszczuk 14-15 [52], 15-16 [58].