B.7 Findings as to Shine's View of Recoverability
105 The next focus is ascertaining how Shine approached the recoverability of the relevant sum as part of any costs order that could be or was made in the proceedings.
106 It is here one sees contradictions and an apparent evolution in the approach of Shine. As noted above (at [92]), Shine expressly represented in its disclosure that it proposed to seek recovery of the interest as part of any costs order obtained. One assumes that was a view genuinely held at the time. This belief is consistent with the relevant sum being sought as part of the recovery sought before the Registrar (who, as explained above at [85]-[86], rejected the claim because it was an unreasonable sum; because it was not properly characterised as a "disbursement"; and, importantly, because Shine provided no assistance by way of authority to support a contention that they could recover interest on the disbursement funding facility on any legal basis).
107 The evidence is again lacking, but I suspect it is more likely than not those responsible within Shine continued to believe the relevant sum was recoverable from the respondents prior to the Registrar's determination. Given their later actions, I am unsure as to the actual basis upon which they formed that belief in the absence of any evidence of close consideration of the issue.
108 Interrupting my findings, it is convenient to note, that the recoverability argument was novel, but had real merit (that is, as a matter of legal argument). In short, if an applicant in a large class action being conducted on a speculative basis can prove the only practical way a defended proceeding could have come to a successful conclusion on common issues was for the applicant, acting reasonably and prudently, to incur a litigation expense such as a disbursement facility interest charge, there is no reason in law or logic why that sum ought not to be recoverable from a respondent whose unsuccessful defence of the class action caused the necessary cost to be incurred. This is little different to the position that has commended itself to judges in personal injury litigation in the United Kingdom, albeit under different costs rules. It is unnecessary to form a view as to the legal position for the purposes of this application but, in my view, the Court has ample statutory power under Pt IVA to make such an order if it was thought it in the interests of justice to do so. Doing the best I can with a counterfactual, as I will explain, the difficulty for Shine on any such application was less about power or legal argument, and much more about proving that in this case it had acted reasonably and prudently in entering into the bargains it struck.
109 It suffices to note that despite what previously had been expressly said to the clients and the extent of the sum being sought, no attempt was made, prior to the matter going to the Registrar, to develop an argument and explain to Katzmann J what had occurred, that the claim was a proper one as the litigation could not have been conducted without the charge being incurred, and asking her Honour to exercise her broad discretion as to costs or to make a bespoke order under a provision within Pt IVA or otherwise to allow recovery of this sum. There is no guarantee such a course would have been successful, particularly on the facts I now have before me, but what is important is it was legally open to argue but not attempted. Why Shine did not have the bottle to try to seek recovery in a determined way, exploring every power, is difficult to understand. It is too speculative to conclude Shine did not try because those acting recognised it did not adequately explore less expensive alternatives.
110 Moreover, following the Registrar's determination, no review was sought to allow development of the argument, on a proper legal and factual basis, in front of the judge. When and why was that view formed? The only explanation before me is because Shine considered a de novo review of all costs and disbursements allowed would be a dangerous endeavour because the extent of recoverability could conceivably come down following the conduct of a review. But the evidence is silent as to why Shine formed such a view. Assuming they had confidence in the overall amount claimed, presumably they thought the amounts claimed could be justified. Tellingly, the evidence does not even attempt to explain why they thought the downside risk outweighed any upside - particularly when it must be recalled this was the only chance to recover the relevant sum against the unsuccessful respondents, rather than Shine banking upon getting the amount back upon any eventual settlement out of the pockets of group members.
111 It also meant that from this moment on, Shine must or should have understood this facilitated the applicants necessarily being treated differently from those persons the applicants represented, being the group members. There could no longer be an equitable sharing of the impost. Having abandoned efforts to obtain a recovery against the respondents, it meant the applicants would receive their ordered judgment sums unencumbered by any proportional payment for the relevant sum, but those they represented remained exposed. In blunt terms, the group members, rather than those who were acting as their representatives, were now going to be left holding the bag.
112 Further, the decision not the pursue the matter on review is more difficult to understand (on the evidence before me) because the overall extent of successful recoverability before the Registrar was, on any view, a proportionally modest one, given the amount claimed under, and the terms of, the cost order. Further, although it probably does not matter, even at this belated stage, there is no evidence a novel application to a judge was contemplated seeking to invoke a Pt IVA power, outside the formal review process (although given what had occurred this would likely have faced insuperable difficulties given the applicants had run the point, albeit superficially, in front of the Registrar).
113 Doing the best I can on the incomplete evidence, it is evident that at some time, something changed. Shine came to the view that its position on recoverability pursuant to the costs order against the respondents was different to what it had earlier told its clients. On this application, at the hearing on 13 June 2023, senior counsel for Shine was adamant about Shine's current position. He explained (at T21.9-14) that Shine's view was that the amount:
was sought to be recovered from the [R]egistrar and, on the authorities - not just in England, but in Australia - a review from the decision of the registrar would have been, in effect, hopeless. That's our submission; it just wasn't - it wasn't recoverable. It's not costs or disbursements. It's a - it's interest and interest is not recoverable. Interest on costs is not recoverable either in Australia or the UK.
114 It seems more likely than not that the position now adopted that "any review wouldn't have had any realistic prospects of success" is one, I infer, must have been reached at around the time a decision was made not to seek it.
115 In the light of all this, I had the following exchange with senior counsel (at T35.34-36.11):
MR LEOPOLD: … The registrar was correct.
HIS HONOUR: The registrar was correct.
MR LEOPOLD: … we could have gone backwards.
HIS HONOUR: So aren't we left with a bit of a moral hazard here, which I've never come across before, and that is, if you're right and it can never be recoverable against a respondent, there's a positive financial incentive on the solicitor to settle, rather than run the case to a conclusion, because you would never be able to recover that fund from the respondent? If you proceeded to judgment, you would never recover it because you say it's not recoverable as costs and disbursements - - -
MR LEOPOLD: Yes, well, I understand the - - -
HIS HONOUR: - - - whereas you can wet your beak and get it from group members if you settle; isn't that a moral hazard?
MR LEOPOLD: Well, it may well be described as a moral hazard, but the question is whether (a) the authorities we cited do stand for the proposition we say - well, the authorities we will cite do stand for the proposition we say, and if they don't, whether it was really a path forward whereby that could successfully have been argued before a single judge, that notwithstanding the authorities, the decision was reviewable.
116 This topic was also the subject of an later exchange (at T52.41-55.14), when senior counsel made the point that because of the way the legal costs were agreed to be charged, then unless an order was now made allowing a deduction of the settlement proceeds then because:
MR LEOPOLD: …they did it this way and took on a risk which, if it has come home to roost and they recover nothing, will leave them in a position where, over running this case successfully for the applicants and group members for 10 years and producing a settlement which your Honour says was reasonable, of $300 million, they will end up, in net terms, and we can demonstrate it, with almost nothing.
HIS HONOUR: But if that's the case, then how were they going to make money if they pushed it through to a judgment? They wouldn't be able to recover this, save a judgment, and why doesn't that create a real problem, because if the only way they could make money is forcing a settlement, that's a real problem, isn't it?
MR LEOPOLD: Well, I think they probably believed that it would be recoverable as part of the costs or whatever, and such an application was made to Registrar O'Connor, and she said that that was not recoverable.
HIS HONOUR: Yes, but it puts the solicitor in a very awkward situation in negotiating a settlement, in circumstances which, at that stage, they had Registrar O'Connor's determination, where look, we've got a - we can either make money by settling this case and getting a payment out of the settlement proceeds, or we will not make money if we run it through to a judgment. [That] certainly wasn't told to me on the settlement approval application. Was that told to the clients and the group members, that the only way we can make money is settling the case and getting an order under section 33V(2), because we won't make money if we run it?
MR LEOPOLD: Well, I don't think that was their understanding.
HIS HONOUR: But isn't that the logic of your submission?
MR LEOPOLD: No, because I think they believed that if they were successful - if they were successful, it would be recoverable; if they weren't successful, it would be recoverable from the - as deduction from the settlement fund.
HIS HONOUR: But how could they - how could they be of that view when Registrar O'Connor had already said that it wasn't recoverable and you said that an argument to the contrary would be hopeless?
MR LEOPOLD: I am saying that now. That was not the view taken at the time. I'm saying that on a review of the authorities, that it would not be - it would not have succeeded if they challenged it.
HIS HONOUR: All right. Just pardon me just a moment.
MR LEOPOLD: I mean, on the judgment, if you - I should have said, in answer to your Honour, that they could have got, out of the judgment, the sum, we say, pursuant to any of 33ZF, ZJ, ZA or Z.
HIS HONOUR: Well, if they could have, I don't understand why they say they couldn't have got it - they couldn't have got it as part of the costs order that they got against the respondents - there's just an inconsistency in what you say.
MR LEOPOLD: Because it - because the deal was taken it wasn't - - -
HIS HONOUR: Whatever way I look at it, there's an inconsistency.
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HIS HONOUR: …there does seem to be an inconsistency at the heart of the argument, Mr Leopold. This amount was either recoverable from the respondents or not recoverable from the respondents. You seem to be saying that …it wasn't recoverable against the respondents and was never able to be recoverable against the respondents, because it's not within the definition of cost. It's only recoverable against the group members. Now, that seems to me to create a real moral hazard, because it's a real incentive for a … publicly- listed company to settle litigation, rather than running it through to a conclusion, because the only way [it] can make a profit and secure a return to [its] shareholders is by settling, rather than running the litigation. Because that seems to be the logic of what you're saying.
MR LEOPOLD: But, no, because if you run - if you run the litigation, you get an order under 33Z, ZF, ZJ, ZA. If you don't run the litigation, you - - -
HIS HONOUR: All I'm saying if that's the case - if that's the case, they could have got it on behalf of the applicants in the costs order.
MR LEOPOLD: But they thought they did have it in the - there's no evidence about this, but one would think that the costs order - costs may have covered it. The registrar ruled otherwise. The view was taken we shouldn't take it any further. It turns out that that view was probably well-founded, although your Honour has pointed to some possible contrary authority. But once one is looking at a review from a registrar, the position is quite different to what would be the position if you ran the case and won and sought a costs order. They're two differently separate situations, governed by different regimes.
117 For present purposes, the point to be made from the above is that it is evident Shine had to consider the prospect of entry into a disbursement funding arrangement, particularly of this nature, prudently and reasonably. If it was proceeding on the basis the relevant sum would be recoverable pursuant to a favourable costs order, then it needed to form a view as to recoverability on reasonable grounds and if, as I find, there was some legal basis to advance an argument, ensure there was a record, demonstrable by way of evidence, that there was no better option. It needed to explain the situation transparently and fairly to its clients, group members and the Court, in particular, its intention to seek payment of the relevant sum from either the respondent (in case of judgment) or any amounts payable to group members (if the case settled). Armed with this record, if there was a costs order, it then needed to pursue the application to recover the relevant sum properly and provide the necessary assistance to the Court, by reference to any existing authority and also by way of analogy, as to why the relevant sum should be recoverable.
118 In summary, the facts as revealed in the evidence do not establish to my satisfaction that Shine took the necessary steps to: (1) plan for the increasing disbursements that would likely occur prior to trial in anything like a timely fashion; (2) explore all available options for accessing other sources of funds or securing financing at a better rate in the interests of group members; (3) maximise the chances of recovery of the relevant amount against the respondents; (4) provide sufficient and accurate disclosure to group members of an intention to seek to recover funds otherwise payable to group members at any stage of the process; and (5) recognise that any conflict arose between the interests of their clients and group members in relation to entering into the arrangement which led to the relevant sum accruing and then recovery being pursued only against the group members, particularly in the context of later engaging in settlement discussions (a matter to which I will return below).