Haswell v Commonwealth of Australia

(Delivered ex tempore, revised from the transcript)

A INTRODUCTION AND BACKGROUND 1 This is an application under s 33V of the Federal Court of Australia Act 1976 (Cth) (FCA Act) for approval of a proposed settlement and the making of orders for the distribution of the settlement sum. 2 This class action is brought by the applicants on behalf of group members who owned land in or around seven Royal Australian Air Force bases throughout the Commonwealth. The land was contaminated as a result of the Commonwealth's use of Aqueous Film Forming Foam at those bases, containing per-fluoroalkyl and poly-fluoroalkyl substances (PFAS). PFAS are chemicals of concern, described as "forever" chemicals because of their persistence in the environment. 3 This litigation is closely connected to similar litigation that has already been resolved in this Court (see Smith v Commonwealth of Australia (No 2) [2020] FCA 837) (Earlier PFAS Actions), and to a further proceeding, Wreck Bay Aboriginal Community Council v Commonwealth of Australia (NSD 70 of 2021) (Wreck Bay Proceeding), the settlement of which has been approved, subject to the making of orders for distribution under s 33V(2) of the FCA Act: see Wreck Bay Aboriginal Community Council v Commonwealth of Australia [2023] FCA 660 and Wreck Bay Aboriginal Community Council v Commonwealth of Australia (No 2) [2023] FCA 811. 4 Following a mediation in April 2023 (conducted by an experienced mediator, the Hon Ray Finkelstein AO KC), the representative applicants and the Commonwealth struck a bargain to resolve the dispute. It was agreed a headline figure of $132.7 million would be paid in resolution of the claims of the applicants and group members. 5 3,893 group members have registered to obtain the benefit of any settlement reached. Out of these registered group members, approximately two-thirds have signed funding agreements with a litigation funder, LCM Funding Pty Ltd (LCM). Those funded, registered group members possess approximately three-quarters of the value of the claims made in the proceeding. 6 Before going further, it is important to clarify two matters as to the effect of any settlement. First, the proposed settlement will not only resolve the claims of registered group members, but also those persons who are group members but have not taken a step to opt-out of, or register in, the proceeding. Secondly, notwithstanding the first point, the proposed settlement does not affect any claim or potential claim that may be made on behalf of group members for personal injury damages associated with PFAS contamination.

B THE MATERIAL BEFORE THE COURT 7 I have had the benefit of a confidential opinion prepared by Mr Edwards KC and Mr May of counsel (confidential opinion). That document runs to some 103 pages. Although I usually discourage the practice of prolix confidential opinions being produced on settlement approval applications (see, recently, for example: Watson & Co Superannuation Pty Ltd v Dixon Advisory and Superannuation Services Ltd (No 3) [2023] FCA 988 (at [23])), this confidential opinion is a highly useful document. Moreover, it has not involved any real duplicative work because it adopts, in large part, a detailed advice upon prospects prepared ahead of the mediation. 8 As is the usual practice on applications of this kind, I have made a suppression order over the confidential opinion pursuant to Pt VAA of the FCA Act. I propose, however, to make a further order that group members who are interested in the reasoning by which counsel have recommended the settlement to the Court for approval have an opportunity to access it, subject to certain safeguards being put in place. Orders will be made to allow group members to inspect it, subject to the signing of an approved confidentiality undertaking.

C DISPOSITION 9 There is no need for me, yet again, to set out the relevant principles governing the determination of settlement approval applications pursuant to s 33V of the FCA Act. They are well known and I canvassed them in detail recently in Fowkes v Boston Scientific Corporation [2023] FCA 230 (at [32]-[45]). 10 In short, my job is to ensure the proposed settlement is fair, reasonable and in the interests of group members. This duty arises from the protective and supervisory role of the Court over group members who, although affected by any settlement, are not parties to the proceeding. 11 In the end, for the reasons set out in the confidential opinion, I have no doubt whatsoever the proposed settlement falls within the range of settlements capable of being described as fair and reasonable, particularly given the liability and quantum issues discussed at length in the confidential opinion. 12 The following section of these reasons draws out six matters which I consider to be of particular relevance, having regard to the submissions of the parties, the confidential opinion and the evidence before the Court.

C.1 Prospects of Success 13 On any view of it, this was not a straightforward case. Indeed, at the hearing, very real issues would have arisen as to the knowledge of the Commonwealth at various times, which would have impacted upon the ability to hold the Commonwealth responsible for the admitted contamination of the land. 14 For the purposes of this judgment, I need not be more specific than to say there is no reason to doubt the considered approach taken in the confidential opinion to the difficult issues of foreseeability and causation. Counsel pointed to the statement of the American Law Institute in its Principles of the Law of Aggregate Litigation (American Law Institute, 2010) (at s 1.04(f)) that: Ideally, the amount of compensation a claimant receives should reflect the merits of the claim itself, including the likelihood that the claimant would prevail at trial and the amount the claimant would win. In practice, this ideal is rarely achieved. Rough justice is normal in aggregate proceedings. 15 There is some truth in this proposition and I am satisfied the amount of compensation a claimant will receive roughly reflects the merits of the claims.

C.2 The Settlement Distribution Scheme 16 The orders sought on the application proposed a settlement distribution scheme (SDS) which resembles the schemes in the Earlier PFAS Actions. During the course of argument, various minor changes were suggested to the SDS. Beyond these changes, it is evidently a sensible scheme, and the capped administration costs proposed are appropriate in the circumstances.

C.3 The Proposed Deductions 17 There are various deductions proposed prior to distribution of the residual settlement to group members. 18 First, there are the applicant's legal costs and disbursements in the amount of $16,590,984.34. This reflects an amount regarded as fair and reasonable by the costs referee appointed in this matter. Secondly, it is proposed various reimbursement payments be made, not only to the representative applicants, but also to sample group members and one group member who has played a particularly active role in the conduct of the class action. Thirdly, beyond the administration costs I have already mentioned, there are also approval costs from the date on which the proposed settlement agreement was struck until today. Fourthly, an amount is sought on account of funding costs. I will return to this issue below in Section C.6. 19 I am satisfied these are just deductions from the settlement fund, considering the scale of the action, the costs referee's report, my comments below in Section C.6 and the efforts of counsel and the solicitors for the applicants to keep costs down in the settlement approval process.

C.4 Communications to Group Members 20 The proposed settlement was the subject of considered communications to group members, including the provision of an estimate of the likely recovery by each group member. I consider estimates of this kind to be the most important information a group member can be provided where the settlement of a proceeding is proposed, and I am left in no doubt an accurate picture has been conveyed to group members.

C.5 Objections by Group Members 21 A number of objections were received, all of which I have read. Nine group members made oral submissions at the hearing. It is well to recount four. 22 Two group members, Mr Michael Howard and Mr Luke Kneebone, captured, in their helpful individual presentations, an apparently widely held misapprehension as to the amount individual group members would obtain under the settlement. They explained the disconformity between the estimated amount they are to receive and the extent of the pain and hurt they subjectively feel by reason of the contamination of their land. Mr Howard put it well when he indicated that, in his view, the level of "deterrence" occasioned by the proposed settlement is out of proportion to the amount of damage caused by the contamination of PFAS. This is a very understandable point, but is not directly relevant to the issue of whether or not the proposed settlement is fair and reasonable. 23 After an exchange with Mr Howard, I am satisfied he understands the differences between what he might subjectively regard as "fair" and the need to take a pragmatic approach to the resolution of claims on an aggregate basis. 24 Mr Kneebone was in a similar position. He felt his life had been placed "in limbo" since he purchased his property in 2015. He had intended to sell the property and move to another home within a relatively short period, with his two (soon to be three) children. Again, I had the opportunity of explaining to Mr Kneebone that although I understood he was dissatisfied with the amount he was likely to recover, a benefit of settlement is the prevention of a prolonged dispute and the possibility of further litigation. Settlement provides valuable certainty of outcome. As I said to Mr Kneebone, the saying "a bird in the hand is worth two in the bush" has some resonance in cases such as this. 25 Two further group members who made oral presentations, Ms Lina Gilmour and Mr Mark Masetto, were highly critical of the settlement. 26 Ms Gilmour had been engaged in an extended exchange with Shine Lawyers, the solicitors for the applicants, and was particularly concerned about what she considered to be a maladroit approach to the issue of valuation. I am satisfied the valuation process undertaken was a sensible one. I indicated to Ms Gilmour that in cases of this kind, there is understandably a limited amount of time that can be spent analysing individual claims. 27 Mr Masetto was particularly critical of the proposed settlement and stated that, in approving it, I was "hiding behind the law". As I attempted to explain to Mr Masetto, my role is to exercise the judicial power of the Commonwealth in accordance with my judicial oath. In the context of an application pursuant to s 33V of the FCA Act, this involves considering the proposed settlement as compared with the risks associated with running headlong into the brume of a lengthy, costly and fiercely contested trial. 28 Mr Masetto was not at all assuaged by my comments. I encouraged him to obtain independent legal advice and stated that if he remained dissatisfied after obtaining such advice, he could bring an interlocutory application seeking leave to opt-out of the proceeding notwithstanding the close of the opt-out period. This is not a course I would usually take, but given the strength of Mr Masetto's view, I will make orders facilitating this course. He can either proceed to participate in the settlement distribution scheme or commence his own proceeding against the Commonwealth, with all the attendant risks. 29 I hasten to add that should such an application be made, prior to granting leave to opt-out, I would, of course, hear from the parties to form a view as to whether or not such an order should be made (even if Mr Masetto had been advised to bring such an application). 30 Having cogitated upon all of the objections, they do not detract from my conclusion that the views expressed in the confidential opinion as to the fairness and reasonableness of the settlement are anything other than correct.

C.6 Funding Costs 31 The funder was separately represented at the settlement approval hearing. As I have already noted, LCM entered into funding agreements with approximately two-thirds of the group members. 32 The primary position of LCM is to seek a funding commission of 25 per cent of the settlement sum, being some $33.175 million. A former claim for some additional amounts is not pressed. 33 This funding commission is sought in circumstances where the funded group members are contractually obliged to pay a funding fee, and to reimburse LCM for certain costs (including costs associated with obtaining after the event insurance) recoverable pursuant to the terms of the funding agreement. In broad terms, an amount payable pursuant to the proposed settlement common fund order (CFO) is little different to the amount that would be payable if one was to approach this matter on the basis of a funding equalisation order. 34 In the Earlier PFAS Actions, the funder recovered 25 per cent. In my view (and leaving aside the Wreck Bay Proceeding which was not the subject of a funding agreement and which case presented even more legal difficulties), this case was significantly more complex than the Earlier PFAS Actions. 35 I do not propose in this judgment to explain why I have previously taken the view that the making of a settlement CFO is licit as a matter of power. My views about this matter are set out in Davaria Pty Ltd v 7-Eleven Stores Pty Ltd [2020] FCAFC 183; (2020) 281 FCR 501 (at 514-515 [57]-[59] per Lee J, with whom Middleton and Moshinsky JJ agreed). There is a certainty as to precise quantum that exists in the making of a settlement CFO now that would not be present if a funding equalisation order was made. To take such an approach in this proceeding has the virtue of consistency with the way in which the other, similar class actions have been resolved. Accordingly, I am satisfied it is just for such a payment to be made out of the settlement fund.

D CONCLUSION AND ORDERS 36 For the above reasons, I propose to approve the settlement and make the ancillary orders discussed during the course of the day with counsel for the applicants and LCM. 37 I congratulate the parties on reaching this settlement. Group members may feel that their fondest hopes may not have been realised, but hopefully there is some comfort that their worst fears also may not have been realised, being the prospect of prolonged litigation which may have meant they took nothing home at the end of the day. 38 All I can do is indicate to them that, having analysed the confidential opinion very carefully, I consider the settlement is fair and reasonable, in view of my duties to ensure the interests of group members are adequately protected. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.