ASSESSMENT
11 Without repeating all the matters raised orally and in the materials, I am satisfied on the basis of the evidence, including Counsel's Opinion, as to the following matters:
12 The proceedings are complex - both factually and legally. They encompass factual issues concerning pharmacological matters, United States law and regulatory processes, and legal issues concerning the scope of liability of directors and advisors under the law of statutory knowing involvement, together with 'market based causation'. The last issue was one which was likely to be highly contentious at trial, and which typically involves evidence concerning the efficiency of the market in aid of the proposition that the share price was inflated by non- disclosure of material information. The nature and complexity of such evidence is demonstrated in the relatively recent decision of this Court in TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited [2019] FCA 1747, delivered after the mediation of this matter. A review of the reasons of Beach J in Myer indicates the complex nature of these proceedings (see, for example at [1514]-[1537]), as well as providing an indication of the time and expense that would have been involved in taking them to trial.
13 With the prospect of appeals and the individual determination of Group Members' claims, assuming success at a trial on common issues, the applicant and Group Members would be unlikely to have received any money from the litigation until 2022 at the earliest.
14 Very detailed attention was given and disclosed confidentially by counsel as to the applicant's prospects on liability, causation, loss and damage.
15 As to the reasonableness of the settlement sum of $7 million in the aggregate, the American Law Institute has noted the following in its Principles of the Law of Aggregate Litigation (2010) s1.04 (Comment f):
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, the ideal is rarely achieved. Rough justice is normal in aggregate proceedings.
(see also: M. Legg, 'Class Action Settlement in Australia: Compensation on the Merits or Rough Justice', UNSW CLE: Class Actions: Case Management, Mediation and Settlement Distributions in Focus, 15 March 2016 (at 9-10).
16 At the time of the final mediation in August 2019, the solicitors for the applicants had in their possession claims data in respect of the 628 Original Registered Group Members and the claims of an additional 10 persons who had sought to register after the expiry of the initial registration deadline on 16 November 2018. It is appropriate in assessing the estimated aggregate value of claims to have regard to the totality of registered data, and not just the claim values known at the initial cut-off period. The mediation, however, did proceed on the basis that what was being negotiated was a settlement sum that would go only to Original Registered Group Members, and that persons who had not registered by this point in time would not participate.
17 A difficulty (one of a number) arose however, following the decision in BMW Australia Ltd v Brewster; Westpac Banking Corporation v Lenthall [2019] HCA 45, which was delivered on 4 December 2019. BMW concerned a challenge to the power of courts to make a 'common fund order' pursuant to s 33ZF of the FCA and s 183 of the Civil Procedure Act 2005 (NSW). The High Court considered that s 33ZF did not authorise the making of such an order, and in so doing it articulated a narrower understanding of the ambit of s 33ZF than had previously been understood. Section 33ZF of the FCA had been the source of power by which the Federal Court had regularly made 'class closure' and 'registration' orders, and was the juridical basis of the Full Court's decision endorsing such orders in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (2017) 252 FCR 1 - an order of that kind was made in these proceedings on 13 September 2018.
18 In the wake of BMW, a challenge was mounted to the making of such orders in the Supreme Court of New South Wales under the cognate legislation to s 33ZF (s 183 of the Civil Procedure Act). That question was referred to the Court of Appeal of the Supreme Court of New South Wales in Haselhurst v Toyota Motor Corporation Australia [2020] NSWCA 66, where a five judge bench of that Court held that such 'class closure' orders were beyond power on the basis that they effected a contingent extinguishment of group members choses in action. That decision was handed down in April 2020.
19 The Court of Appeal subsequently reiterated its position in Wigmans v AMP Ltd [2020] NSWCA 104 and expressed the view that a number of decisions of this Court that had sought to distinguish Haselhurst were incorrect (see Fisher (trustee for the Tramik Super Fund Trust) v Vocus Group Ltd (No 2) [2020] FCA 579 per Moshinsky J and Inabu Pty Ltd as trustee for the Alidas Superannuation Fund v CIMIC Group Limited [2020] FCA 510 per Jagot J with both cases following the approach taken by Beach J in Newstart 123 Pty Ltd v Billabong International Ltd [2016] FCA 1194). Further, on 1 June 2020 (three days before the handing down of Wigmans), this Court followed Haselhurst and cast doubt on the statements made about the breadth of s 33ZF in Melbourne City Investments and noted that that decision must now be approached with caution after the High Court's decision in BMW: The Owners - Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748 per Wigney J (at [185]-[186]).
20 Although the final mediation took place in August 2019, the Deed was not entered into by the parties until February 2020 due to the sudden and unexpected death of one of the respondents. This most unfortunate delay in the chronology of this case explains the relevance of the recent decisions outlined above. The settlement reached at that time was on the basis of aggregate assessments of the claims only, and the assumption that orders requiring registration or 'class closure orders' made at an early stage in the proceeding were within power. These recent decisions cast doubt on the validity of the registration order made on 13 September 2018 in this proceeding which purported to bar members from participation in the settlement who failed to register. In Wigmans, however, the Court of Appeal left open the following:
We can also envisage cases where there has been an in principle settlement, after which group members are notified, and given the opportunity to participate (it might be expected that such notification would advise the quantum offered to group members and the mechanism by which their claims would be assessed), and if what Beach J [in Newstart] has written about unregistered group members being given adequate opportunity to participate is understood in that sense, then to that extent there is no difficulty with the reasoning.
In reliance on this passage, when the present application was initially brought before Yates J, an additional registration process was ordered, allowing group members to register to participate in the settlement up until 18 September 2020. Counsel then confidentially explains his approach to considering what, if any, impact the addition of new members could have on the overall fairness of the settlement.
21 There is also a confidential analysis as to the consideration of the Settlement Sum on a risk-weighted basis, the risks of maintaining the proceeding and the apparent ability or otherwise of the respondents to withstand a greater amount in judgment.
22 There is then an analysis of the consideration of the fairness and reasonableness of the releases required to be given by group members pursuant to the Deed. Of course, the release does not extend beyond the claims the subject of this proceeding. As Lee J said in Smith v Commonwealth of Australia (No 2) [2020] FCA 837 (at [145]):
… the reason why settlements of class actions work is that the claim as between the applicant and the respondent is settled in accordance with usual principles that attend settlement of litigation between parties. The reason why there is a settlement and quelling of the claims as between the group members and the respondent, is that by a combined operation of ss 33V and 33ZB a "statutory estoppel" is created. That is why it is important for a s 33ZB order to accompany a s 33V order. This reflects the fact that orders are being made which bind persons who are not parties to the proceeding.
23 To the extent the definition of 'Claims' in the Deed extends beyond the claims the subject of the proceeding, the applicant cannot bind group members, and the Court cannot make s 33ZB orders binding on group members. One would necessarily construe the definition of 'Claims' in the Deed as limited in this sense, and on that basis make the orders (if the Court is otherwise inclined to approve the settlement). The practice of the Court in like situations has been to expressly note in the orders that 'Any releases, or covenants not to sue given by group members are restricted to the claims the subject of these proceedings': see Santa Trade Concerns Pty Limited v Robinson (No 2) [2018] FCA 1491 per Lee J (at [23]). On this basis, it is fair and reasonable and in the interests of Group Members to give the releases as the price of obtaining the settlement offered, and for the s 33ZB order to bind them to such releases in the manner described above.
24 The SDS provides the mechanism for equalising the position of all Group Members inter se, so far as the deduction of various categories of costs is concerned:
(1) legal costs, both paid and unpaid;
(2) ATE costs, paid and unpaid;
(3) the applicant's reimbursement payment;
(4) costs of the additional registration process; and
(5) administration costs.
25 It is proposed that a partner of KPMG, accountants, be appointed as the administrator of the SDS. That large firm has provided a capped quote for such services and has familiarity with the role by reason of work done during the litigation on claim assessment and quantification.
26 The SDS contains other provisions regulating the role of the administrator and the administrator's role and immunities, including as to creation of a database, the provision of notices of estimated distribution and verification of claims, the mode of distribution and provision of distribution statements, the application of interest and determination of any trust income, dispute resolution processes in orthodox form and the reporting of conclusion of the administration to the Court.
27 Counsel then analyses in detail the deductions of various costs and expenses including legal costs on which further independent expert advice has been provided by the expert costs consultant, Mr Matters. The amount of costs which the applicant now seeks the Court to approve is less than the full amount incurred, less than the amount considered by Mr Matters to be reasonable (noting Corrs' decision to limit its professional fees to 75% of its incurred and invoiced professional fees), and also less than the amounts that were notified to Group Members in the s 33V notice issued pursuant to the Court's 10 August 2020 orders.
28 As to costs paid directly by the Funder, the applicant seeks the Court's approval via the SDS for reimbursement to the Funder of the paid component of certain ATE insurance premiums, together with the costs of procuring deeds of indemnity from the insurer to satisfy orders that were made for security for costs. Counsel gives a detailed explanation as to his view that the deductions of ATE insurance premiums from the settlement sum is reasonable on the basis of recognised legal authority. The ATE Policy provided some indirect benefit to the applicant and all Group Members by giving the applicant an additional source from which to cover any adverse costs exposure beyond the Funder's financial capacity (if that were to become an issue) up to the limit of cover, and this in turn facilitated them conducting the proceeding as representatives on behalf of the group more generally,
29 The SDS makes provision for a further deduction from the settlement sum, namely a reimbursement payment to the applicant of $4,500. It is a relatively small sum supported by affidavit verifying that the applicant has spent considerable time acting on behalf of Group Members.
30 There are also registration costs and administration costs. The (capped) costs of administering the settlement should be borne by the settlement amount. KPMG has agreed not to charge anything beyond its initial estimate notwithstanding that additional work has been necessitated by the number of New Registered Group Members.
31 There is a funding equalisation order proposed. It is only to operate in respect of costs incurred, and not in respect of any Funder's commission, as no commission is proposed to be charged in this settlement. This latter caveat is important because much of the debate, and change in the law in this area has related to the sharing of commission, not costs. Counsel explains in a very detailed way the background and history of orders of that nature in this Court. I will not repeat the analysis which is part of the public record. This case was commenced in November 2015 on an 'open class' basis, but also on the basis that a number of Group Members had signed litigation funding agreements, with the former Funder (Litman), as continued by the current Funder (JustKapital) in 2016. The key consideration on this approval application is that no commission is sought, and the equalisation order now sought is to ensure an equal distribution amongst the Group Members when factoring in the costs burden.
32 More will be available to Group Members than was notified to them in the s 33V notice. When the notice of proposed settlement was sent to Group Members it advised that, following the proposed deductions, the net amount available to Group Members would be approximately $1,930,967.35, being approximately 27.5% of the $7 million settlement sum. The proposed deductions have been reduced by the fact that Corrs has agreed to limit its professional fees to 75% of its incurred and invoiced professional fees. The evidence now is that the net amount of the settlement available to Group Members will be approximately $2,340,837.60, being approximately 33.44% of the $7 million settlement sum.
33 The percentage of the settlement which will be available to Group Members if the deductions are approved as set out above is not high, but has been increased by Corrs' approach to its fees. While in other cases courts have approved settlements which resulted in relatively low percentages of the settlement going to group members such as Santa, (where group members received approximately 30% of the settlement sum), and Petersen Superannuation Fund Pty Ltd v Bank of Queensland (No 3) [2018] FCA 1842, (where ultimately 33% of the settlement sum was available for distribution to group members) and Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 (where the proportion of the settlement sum available for distribution following approved deductions was approximately 31%), it is still the case that the net amount proposed to be available to group members from this settlement is towards the low end of the range which courts have been prepared to approve. It is, however, within the range which the Court has historically been prepared to approve, due largely to Corrs' reduction of professional fees. Further, if the deductions are properly to be assessed individually as fair and reasonable, the mere fact that they consume a high proportion of the settlement is not a basis for denying them. This is especially so where the legal practitioners have voluntarily written down, and not sought to recover, fees which they have incurred to try and advance the claims of the applicant and Group Members and produce a resolution of them and in circumstances where the settlement can otherwise be regarded as fair and reasonable.
34 No objections of substance to the proposed settlement have been received, and no Group Members have indicated a desire to be heard.