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[2019] FCA 745
Federal Court of Australia
2019-05-28
Murphy J
Original judgment source is linked above.
MURPHY J: 1 In this application Mr Simon Braham seeks an award of the costs he incurred as a class member objecting to Court approval of a class action settlement. For the reasons I explain, I consider it appropriate to refuse the application.
The background 2 I have assumed a familiarity with my earlier judgments in these proceedings and the defined terms have the same meanings as in those judgments. The brief history to this application is that four overlapping class actions arising out of failed managed investment schemes in forest plantations managed by the Willmott Forests corporate group were brought by investors in those Schemes. Mr Braham suffered substantial losses in three of the Schemes and he was a class member in the 2007/08/09 Schemes proceedings. The parties reached in principle settlements of the class actions subject to Court approval pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act). Mr Braham objected to Court approval of the proposed settlements in the 2007/08/09 Schemes proceedings, along with 13 other class members who either objected to the proposed settlements in those proceedings or in the 2010 Scheme proceeding. 3 The applicants filed an application seeking Court approval of the in principle settlements, which application was supported by the respondents. Having regard to some unusual features of the settlements I concluded that a contradictor should be appointed to represent the interests of class members in the settlement approval application. I directed the appointment of Mr Lachlan Armstrong QC to the role of contradictor, and directed that the solicitors for the applicant, then known as Macpherson and Kelley (M+K), provide him with all necessary information in that regard. I directed that the costs of the appointment of the contradictor be shared between the parties to the proceedings: see Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323 (Kelly No 4) at [4]. 4 In the settlement approval hearing the applicants and the respondents argued for approval of the proposed settlements. Settlement approval was opposed by Mr Armstrong QC, the contradictor, and by senior and junior counsel for Mr Braham. The Court also took into account the objections by the other 13 objectors. I made orders refusing settlement approval, and requested any party or objector seeking an order for costs to file short submissions in that regard. Shortly thereafter Mr Braham filed submissions seeking his costs of objecting to the proposed settlements. 5 I reached the view that it was preferable not to decide the issue of costs at that stage, essentially because the case was not an end and I did not know what the eventual outcome would be. For example: (a) the settlement having been refused the proceedings might have gone to trial and been successful; (b) the proceedings might have gone to trial and been unsuccessful; or (c) the parties may later have been able to reach a revised settlement, which addressed the identified shortcomings in the earlier proposed settlement. I considered it likely that the outcome in the case would be relevant to whether to exercise the discretion to award costs to Mr Braham. Amongst other things, my view on the question was likely be affected by whether the applicant and class members received damages through any judgment or settlement. I decided it was appropriate to defer the decision on Mr Braham's application for costs until the result in the cases was known. 6 It was another eight months before the parties reached revised settlements and the applicant filed a fresh settlement approval application which included materials addressing the grounds upon which I had earlier refused settlement approval. The revised terms of settlement and the further materials addressed the concerns I expressed in refusing to approve the first proposed settlements, and I made orders approving the settlement: see Kelly v Willmott Forests Ltd (in liquidation) (No 5) [2017] FCA 689 (Kelly No 5). 7 Mr Braham did not file an objection to the revised settlements (most likely because in the interim he had opted out and was therefore not bound by those settlements), and he did not reiterate his earlier application for costs. I did not give further attention to the question of costs until Mr Braham's solicitors reminded chambers that the issue of Mr Braham's costs has not been dealt with. I now deal with that question.
The discretion as to costs 8 The Court has a broad discretion as to costs under s 43 of the Act. While Mr Braham is a class member and not a party to the proceedings, the discretion to award costs extends to costs against or in favour of non-parties: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192; O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [19]-[24] and the authorities there cited. In my view it plainly extends to making a costs order in favour of a successful objector. 9 I note also that, under s 33ZF of the Act, the Court may make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding. In Marks v GIO Australia Holdings (No 2) (1996) 66 FCR 128 at 140 Einfeld J said the Court may therefore make an order for costs aimed at ensuring that justice is done in the proceeding. The Full Court recently described the power in s 33ZF as "the widest possible power that extends to all procedures appropriate or necessary to deal with the matter or just basis": Westpac Banking Corporation v Lenthall [2019] FCAFC 34 at [86] (Allsop CJ, Middleton and Robertson JJ). Depending upon the circumstances a costs order in favour of an objector may be reasonably adapted to achieving justice in the proceeding.
Mr Braham's submissions 10 Mr Braham seeks an order that in the 2007/08/09 Schemes proceedings the settlement parties - the applicants and the respondents - should pay his costs of and incidental to his objection to the settlement approval application. 11 He argues that he did not make his objection as an intervenor, and the Court should not approach the question of costs on the basis that there is no usual practice of ordering costs in favour of an intervenor: see Ruddock v Vadarlis (2001) 115 FCR 229; [2001] FCA 1865 at [53]; Johnston v Cameron [2002] FCAFC 301 at [18]-[19]. 12 Mr Braham submits that the broad discretion to award costs under s 43 should be exercised in his favour as: (a) he was a class member, entitled to object to the proposed settlement, whose interests were affected by the proposed settlement; (b) he carried the burden of opposing the proposed settlement upon his grounds of objection, which the Court upheld; and (c) the notice of proposed settlement invited class members to seek legal advice and to raise any appropriate objections. It must have been appreciated that class members that objected would incur legal costs and disbursements in doing so. 13 He submits that the Court appointed Mr Armstrong QC as contradictor to deal with the limited issue of the authority of the applicants to enter into settlements which included binding admissions by the applicants on behalf of class members that class members' loan agreements with the Lenders were valid and enforceable (the binding loan enforceability admissions). He contends that it is significant that the Court did not decide the question of authority or power argued by the contradictor (see Kelly No 4 at [114]) and says that it follows that the Court refused to approve the settlements on the basis of the objections he advanced. 14 Mr Braham also notes that in refusing to approve the proposed settlement the Court said that: (a) the settlements included admissions by the applicants on behalf of class members about which the class members were not fully informed; (b) there were significant gaps in the preparation of the case and class members were not fully informed about these; (c) a number of conflicts of interest or conflicts of duty arose, which substantially affected the position of M+K; (d) there was a lack of justification for the substantial fees of $7.835 million incurred by M+K; and (e) gaps in the preparation of the case were revealed by the confidential Counsel's Opinion in support of settlement approval which meant that the Court could not be satisfied that the applicant's lawyers were in a position to appropriately inform the court about the prospects of success. He contends that each of those conclusions was broadly based on submissions he advanced. 15 Additionally, Mr Braham argues that had he not taken on the burden of arguing matters going beyond those argued by the contradictor, it is likely that the contradictor would have done so, which would have been at the expense of the settlement parties so there is no extra burden on those parties if they are ordered to pay his costs.
Determination 16 In my view the debate about whether or not Mr Braham should be treated as an intervenor is not really to the point: cf Tongue v City of Tamworth [2004] FCA 1050 (Tongue). He was a class member whose interests were directly affected by the proposed settlement, the notice of proposed settlement specifically invited class members to object if they had concerns about the settlement, and noted that they may wish to seek legal advice in relation to any affidavit they submitted. He was entitled to object to the settlement, and in the finish the Court concluded that the settlement was not fair and reasonable and should not be approved. 17 It is plain that the Court has power under s 43 and/or s 33ZF to award costs in favour of an objecting class member. The decision in Tongue (at [7]) does not propose a rule that objectors should pay their own costs of successfully opposing settlement approval, subject to the ability of the trial judge to later vary that order should the circumstances warrant. In Winterford v Pfizer Australia Pty Ltd (VID4/2010) Davies J made orders for the applicant to pay objectors their reasonable party/party legal costs. 18 There are also policy reasons for allowing an objector to recoup the costs incurred in successfully opposing settlement approval. It will depend on the circumstances and where the interests of justice lie but, where it protects class member's interests and assists the Court, it may be in the interests of justice in the proceeding that objectors are allowed to recoup the costs they incur and are not discouraged through cost from raising legitimate objections. 19 For the reasons I now explain, in the circumstances of the present case I am not persuaded that it is appropriate to make a costs order in favour of Mr Braham. 20 First, the primary burden of protecting class members' interests in the settlement approval application was carried by the contradictor. I appointed Mr Armstrong QC as contradictor because he is experienced in class action litigation and could be expected to discern and raise any material concerns about the proposed settlements. Although it became the focus of the contradictor's submissions, the appointment was not limited to questions of the applicants' power or authority to enter into the proposed settlements. 21 Second, Mr Braham overstates the position in submitting that the notice of proposed settlement invited him to seek legal advice and that he is therefore entitled to recover the costs of retaining solicitors and senior and junior counsel. All the notices relevantly said was if a class member wished to object to the proposed settlement he or she must file a notice of objection and an affidavit. It said: A proposed form of affidavit is included with this notice. However, you may wish to seek legal advice on the preparation of the affidavit. The notice also informed the class member that "[y]ou or your legal representative" may attend and make submissions at the settlement approval hearing. 22 Mr Braham was, of course, entitled to retain lawyers to make submissions on his behalf. But in circumstances where the Court had already appointed a contradictor to represent class members' interests, and directed that the contradictor's fees be met by the applicants and respondents, I am not persuaded that the applicants and respondents should be visited with the further burden of Mr Braham's costs. In my view, consistently with the overarching purpose in s 37M of the Act, Mr Braham should have relayed his concerns to the contradictor rather than separately instructing solicitors and counsel. 23 Third, Mr Braham overstates the significance of the submissions made on his behalf to the decision to refuse settlement approval. The primary reason for refusing settlement approval was that the settlements purported to include binding loan enforceability admissions which constituted a significant detriment for some class members, with little or no counterbalancing benefit, and that class members had been given no notice that this might occur. The contradictor made persuasive submissions on this issue and Mr Braham's submissions did not take the matter any further. 24 Fourth, Mr Braham overstates the extent to which the Court accepted the submissions made on his behalf. While I accepted some of his submissions they were not central to the decision, and I found a number of his other submissions lacked force. For example, I did not accept Mr Braham's submissions that approval should be refused because: (a) the proposed settlement involved a loss of class members' rights to make a claim against M+K: see Kelly No 4 at [349(c)]; (b) M+K's legal costs are unreasonable. The question as to whether M+K's costs were unreasonable was put off to allow the firm to put on evidence from an independent costs assessor or a Registrar undertook a costs assessment: Kelly No 4 at [343]. Ultimately I accepted that the firm's costs were reasonable: see Kelly No 5; (c) the settlement in the 2007/08/09 Schemes proceedings is significantly less advantageous than the settlement in the 2010 Scheme proceeding and inconsistent with it: see Kelly No 4 at [349(a)]; and (d) class members preferred that the proceedings go to trial on the basis that their claims were likely to be successful and that the settlements were essentially a capitulation. Ultimately I concluded that the applicants had limited prospects of success in proceeding VID 1485 of 2011 and were unlikely to be able to establish their case in proceedings VID 1483 and VID 1484: see Kelly No 5 at [55]-[64]. 25 Relatedly, I did not accept Mr Braham's submission that the fact that the pleadings were prepared by senior and junior counsel and M+K certified that the facts and available legal material provided a proper basis for each allegation showed that the proceedings had merit and were not bound to fail: see Kelly No 4 at [278]. Nor did I accept that my assumption (when dealing with the security for costs application) that the proceedings had a reasonable prospect of success because the claims were prima facie regular on the face of the pleadings and disclosed various arguable causes of action, showed the 2007/08/09 Schemes proceedings had realistic prospects of success: see Kelly No 4 at [279]. 26 Fifth, looking to Mr Braham's contention that the applicants should pay part of his costs, the revised settlements in the 2007/08/09 Schemes proceedings did not create any pool of settlement monies from which the applicants might do so. The applicants and class members were unsuccessful in the litigation and the only settlement monies they received covered approximately half of the legal costs they paid to M+K. I see no good reason to exercise the discretion in relation to costs so that the applicants (and/or class members) suffer further losses through a requirement to also pay Mr Braham's costs. I am not persuaded that it would be in the interests of justice in the proceeding to make such an order. 27 Nor do I consider it appropriate to order M+K to pay Mr Braham's costs. The firm entered into the proposed settlements on the instructions of the applicants and consistently with counsel's advice. There was a serious problem with the proposed settlements, and some significant gaps in the material before the Court, but I am not persuaded that the costs of objecting to the settlement should be met from M+K's pocket. 28 Moving to Mr Braham's contention that the respondents should pay part of his costs, he did not articulate why they should meet his costs of objecting to what he considered to be an unfair settlement when, unlike the applicants, they did not owe fiduciary obligations to class members and were entitled to reach the most favourable settlement that was available (from their perspective). Particularly given that the respondents have already been required to share in meeting the contradictor's fees I am not persuaded that it is appropriate to direct that they also pay part of Mr Braham's costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.
SCHEDULE OF PARTIES VID 1485 of 2011 Applicants Second Applicant: MARGARET KELLY (NEE ILACQUA) Respondents Second Applicant: JONATHAN DAVID MADGWICK Third Applicant: MARCUS DERHAM Fourth Respondent: JAMES WILLIAM ANTONY HIGGINS Fifth Respondent: HUGH THOMAS DAVIES Sixth Respondent: RAYMOND MAXWELL SMITH Seventh Respondent: BIOFOREST LTD (IN LIQUIDATION) (ACN 096 335 876)
VID 1483 of 2011 Applicants Second Applicant: MARGARET KELLY (NEE ILACQUA)
Kelly
Willmott Forests Ltd
(1992) 174 CLR 178
(1996) 66 FCR 128
(2001) 188 ALR 143
(2001) 115 FCR 229