Gill v Ethicon Sàrl

Federal Court of Australia|2023-03-16|Before: Betts J, Lee J

THE COURT ORDERS THAT:

All applications for intervention by the existing tenderers in relation to administering the just distribution of payments from the settlement fund approved in these proceedings be dismissed.
The proceedings be listed for case management to make orders as to the determination of just distributions from the approved settlement fund, including as to unpaid costs and disbursements and further, as to the appointment of a referee to conduct an inquiry and report into the appointment of a scheme administrator on a date to be fixed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

A INTRODUCTION 1 This judgment follows from my judgment in Gill v Ethicon Sàrl (No 10) [2023] FCA 228, in which I set out my reasons for approving the settlement of two open class representative proceedings (Gill & Ors v Ethicon Sàrl & Ors (NSD 1590 of 2012) and Talbot v Ethicon Sàrl & Ors (NSD 310 of 2021)) pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and the consequent creation of a settlement fund. 2 In that settlement judgment, I explained (at [15]-[16]) why it was necessary to bifurcate the settlement approval process such that, following any approval, it would be necessary to determine subsequently the just distribution of funds paid under the settlement pursuant to s 33V(2) of the FCA Act. 3 Hence the question now becomes: how does one go about determining what payments out of the approved settlement fund are just? 4 I was not satisfied as to the justness of the proposal put forward by the solicitors acting for the applicants without further close examination. As noted in Gill (No 10) (at [6]-[15]), over the opposition of the applicants, I made orders on 21 December 2022 providing for a tender process to take place to enable consideration of alternative settlement schemes and alternative settlement administrators. The next step in furtherance of the overarching purpose and recognition of the Court's supervisory and protective role in Pt IVA proceedings is to make further orders as to creation of a settlement scheme and the appointment of a person or persons to administer that scheme. As I explained when the parties were last before me, I have concluded the best way of reaching a conclusion as to these issues is the appointment of an experienced referee to inquire into and review the tenders received and provide to the Court an independent report.

B THE COURT'S SUPERVISORY ROLE 5 Such a course is appropriate in these cases because the obligation of the Court to protect the interests of class members and facilitate the overarching purpose (being the just, inexpensive and efficient resolution of these proceedings) does not end with settlement approval. 6 In this case, Shine Lawyers (Shine) seeks costs in the range of $34,860,750 to $36,860,750 for distribution of the settlement sum. This is a very large sum (indeed, over 10% of the total settlement sum) which involves a margin of profit for a listed commercial enterprise. 7 Central to the Court's duty to protect the interests of class members is judicial oversight of legal costs and disbursements. The Court must satisfy itself of the reasonableness of the amounts charged and proposed to be deducted from the settlement sum, the rationale being that the settlement power in s 33V must be interpreted and applied in promotion of the overarching purpose of civil litigation in this Court. The Court must account for a peculiar "asymmetry" in the relationship between the applicant's solicitor and members of the class, as explained by Murphy J in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; (2018) 132 ACSR 258 (at 277 [88]). Class members are commonly ill-informed as to the accumulation of costs, yet are commonly made liable for a share of the costs. It is often only in the context of a settlement approval that class members are informed as to the true costs of the class action. 8 The Court must satisfy itself of the proportionality of the legal costs expended, assessed in view of "the nature of the context, the litigation involved and the expected benefit": Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs and mgrs apptd) (in liq) (No 3) [2017] FCA 330; (2017) 343 ALR 476 (at 521 [181] per Beach J). Costs which are high in absolute dollar terms or high as a percentage of the total recovery should not distract from the nuance required in this proportionality analysis: Blairgowrie (at 521 [181] per Beach J). As Beach J put it in Blairgowrie (at 521 [181]), "spending $0.50 to recover an expected $1.00 may be proportionate if it is necessary to spend the $0.50." As such, the ultimate task in fastening upon a just sum to be deducted for costs is not in any sense a "taxation"; a "broad brush" approach is required. I will hear further from the applicants and the contradictors, at a future case management hearing, as to what steps should be taken to facilitate a "broad brush" and just assessment of the large amount of past unpaid costs the applicants seek to be deducted from the settlement fund, but the balance of these reasons concern proposed further costs and deductions relating to the administration and distribution of the settlement fund. 9 At least in very large settlements, it seems to me we have reached the stage where it is incumbent upon the Court to examine closely process and administration costs, which appear to be burgeoning, and to be open to innovative ways in which the interests of group members may be protected at all stages of the settlement process. It is easy to spend other peoples' money, even when solicitors administering a fund act conscientiously and remind themselves of their duties. Class actions necessarily throw up conflicts between interest and duty. The Court relies upon practitioners to manage those conflicts appropriately and (save for some notable and rare exceptions) close attention by practitioners to managing conflicts appropriately has been a hallmark of the Australian class action experience over the last thirty years. But it must be recognised that the Court demands a great deal of solicitors, no doubt often vexed by billing targets (a fortiori employed solicitors of listed companies with announced revenue forecasts), to ensure they put the minimisation of costs at the forefront of undertaking work for the benefit of non-clients, including administering schemes for the distribution of funds. 10 Creative thinking employed to contain process costs is not new. Courts have been known to monitor the progress of settlement administrations in large scale class actions. For example, in Matthews v AusNet Electricity Services Pty Ltd (Ruling No 40) [2015] VSC 131, Forrest J took the view that the settlement administration of the class action arising from the Kilmore East Kinglake bushfire warranted especial Court supervision, including requiring the administrator to attend regular case management hearings "[g]iven the unprecedented size of the settlement sum, and the vast number of claimants" so as to "ensure that the settlement distribution process [was] undertaken in a timely, efficient and cost-effective fashion" (at [14]). The appointment of referees and independent costs assessors to assess the costs of a settlement distribution scheme is also a commonly taken course: see, for example, Rowe v Ausnet Electricity Services Pty Ltd (No 9) [2016] VSC 731; Dorajay Pty Ltd v Aristocrat Leisure Limited [2009] FCA 19; Downie v Spiral Foods Pty Ltd (Ruling No 2) [2016] VSC 675; HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in Liq) (No 3) [2017] FCA 650. 11 A competitive tendering process is another mechanism apt to reflect the Court's protective and supervisory role, and to provide checks and balances on the "asymmetry" between group members and solicitors for applicants in class actions. While it is accepted that the Court may put the administration of a settlement out to tender (see Recommendation 9 of the Australian Law Reform Commission report Integrity, Fairness and Efficiency - An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report 134, December 2018) (at [5.35]-[5.39])), it remains a road less travelled by (or, more accurately, a road which has not been travelled by at all, with the present exception). 12 It might be thought that there is a degree of unease in the exercise of judicial power being involved in a commercial tender process. This sense of unease can be reduced by the adoption of a non-judicial reference process subject to later judicial oversight but, speaking generally, the commercialisation of the law is a reality which this Court and others need to confront. This is especially true in the context of representative proceedings, an area which is constantly in flux and already imbued with legal entrepreneurism: Grave D, Adams K and Betts J, Class Actions in Australia (3rd ed, LawBook Co, 2022) (at [1.240]-[1.250]). 13 The conduct of settlement distribution schemes can be a commercial opportunity of some real value and should not just be presented on a platter, without appropriate scrutiny, to the solicitors who have acted for the applicant. 14 As noted above, the Court has a duty to remain alive to the fundamental precepts of Pt IVA at all points in the lifecycle of a class action, and to take post-settlement steps to realise the best and fairest outcome for group members. One does not need to be an uncritical adherent of the oeuvre of Adam Smith to form the view rationally that competition, in principle, is a good thing, provided there is supervision and a framework that promotes fairness and prevents rapacity and unjust outcomes. There is no doubt in my mind that competition by way of a Court supervised competitive tender process is likely to produce a better outcome for group members when it comes to price and assist in identifying the optimal way of distributing funds. 15 This conclusion has been borne out by recent developments in these proceedings.

C.1 The Inception of the Tender Process 16 In this case, the Court was assisted by experienced contradictors, Mr Matthew Darke SC and Ms Rachel Francois, who were instructed by William Roberts Lawyers, a firm of solicitors experienced in class actions. 17 Pursuant to orders I made instating a tender process in the days before Christmas, the contradictors' solicitors published a tender notice in the Australian Financial Review, compiled request for tender forms and provided those forms to the Court along with written submissions as to which tender response should be chosen upon approval of the settlement. 18 That tender process, although the first of its kind, and despite the fact it occurred over the summer holiday break, exceeded my expectations. A total of sixteen bids were obtained. The vast bulk were comprehensive, submitted by solicitors and other organisations that have deep experience in dealing with the settlement of class actions. 19 The contradictors identified five tenders as scoring the highest on the assessment criteria developed by the contradictors, and a further tender response which could be considered if the Court were to contemplate permitting a further refinement of the tender responses.

C.2 The Contradictors' Criteria 20 The contradictors, in developing criteria, took some guidance from those considered when the Court is asked to resolve the issue of a multiplicity of class action proceedings. In Perera v GetSwift Ltd [2018] FCA 732; (2018) 263 FCR 1, I relevantly summarised those factors as follows (at 48-49 [169]): (a) the experience of the legal practitioners involved in each of the actions (see Bellamy's at [71(a)]); (b) the resources made available by each firm of solicitors and their accessibility to clients (see Bellamy's at [71(d)]); …. (d) the position offered by each funder on security for costs and the resources available to fund the costs of the applicant and adverse costs (so as to provide certainty for group members) (see Bellamy's at [71(h)], [74]); … (j) the estimated costs deposed to by each of the applicants' solicitors (see Bellamy's at [71(b)]); (k) proposals made or adopted by the applicants to reduce and control costs, including "caps" … 21 The final criteria developed by the contradictors and their instructing solicitors were as follows: Criteria Weighting Price 20% Capped costs 10% Duration 15% Electronic claims assessment and distribution platform 12.5% Group member communication 10% Experience handling personal injury and negligence claims, qualification and availability of assessors 10% Experience handling mass assessment of claims Experience handling mass distribution of claims 7.5% Experience in engaging third parties and group members in relation to statutory repayments 5% Data security 5% Capacity to carry unpaid administration costs for a prolonged period (size of organisation) 2.5% Value added services for group members 2.5% Weighted Total Score 100%

22 As is evident, price and duration were given the most weight. It is said that this, in part, reflects the main concerns of the women who have contacted the solicitors for the contradictors to express their views about Shine's proposed settlement. Those two issues are also at the heart of the overarching purpose of the civil practice and procedure provisions in Pt VB of the FCA Act. 23 The process by which scores were allocated for each of these criteria is set out at length in the Affidavit of Mr Robert Ishak sworn 11 February 2023 (at [45]-[52]).

C.3 Applications for Leave to Intervene in the Settlement Approval Hearing 24 When the matter returned before me following the long vacation, a number of those who submitted tenders sought to intervene in the settlement approval hearing. Those tenderers raised concerns as to the transparency of the tender process, as the criteria ultimately applied was not made known to those who tendered. The Court is new to this process and the life of the law is experience. If I had my time again, I would have appointed a referee at the beginning to conduct the work thus far undertaken by the contradictor, and then conduct an analysis of the bids. The tender process initially ordered has been a very useful one and has fortified my intuition that competition for the administration role is a sound idea, and there will be sufficient interest and likely real savings from the estimates initially proposed. But a reference process is the best way to facilitate this end. 25 Further, I have determined to refuse all applications for intervention. The role of an intervener is to represent the intervener's own legal interests in proceedings. None of these organisations seeking leave to intervene have, at this time, the necessary legal interest at this stage of the proceedings to justify intervention. They are commercial tenderers, not persons with a presently accrued interest. 26 After hearing further from the applicants and the contradictors, the best course forward seems to me to be to set out objective criteria, drawing upon the work the contradictors have already done. I will then identify a set of questions and appoint an appropriately qualified referee to inquire into and report upon to those questions pursuant to ss 37P(2) and 54A of the FCA Act and Div 28.6 of the Federal Court Rules 2011 (Cth). This will ensure procedural fairness is provided to all persons who participate. The referee can then report back to the Court as to the best candidate to conduct the settlement distribution scheme, and the recommendation can then be considered at an adoption hearing. 27 Given the work to date, it is sensible and cost-effective to restrict those who can participate to those who responded to the initial tender. I wish to avoid any arguments as to procedural fairness and hence I do not propose to restrict those with whom the referee can deal to only those who the contradictors deemed to be "preferred" tenderers.

C.4 The Role of the Contradictors Going Forward 28 The contradictors, as might be expected, have been critical of some aspects of Shine's work in this matter. As noted above, it makes sense that the referee should be independent of the contradictors and approach the task tabula rasa.

D CONCLUSION AND ORDERS 29 The orders made today reflect the onerous duty on the Court to ensure not only that the headline settlement is fair and reasonable as between group members, but also that a focus on what orders as are just with respect to deductions is maintained until the end of the settlement process. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.

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