Regime for communication-offers of settlement generally
34 GIO seeks the opportunity to communicate with at least the unrepresented shareholders (though, as noted earlier, it also raised the possibility of communicating directly with all members of the representative group) with a view to settling individual claims. The general import of GIO's submission was to the following effect. The combined effect of Mr King commencing this proceeding and a significant number of individuals in the total shareholder group not opting out, is that GIO is facing claims, pursued in the proceeding, by almost 50,000 individuals. The course GIO wishes to follow involves, as I understand it, making offers of settlement which, if accepted, would result in an individual executing a deed of release. Perhaps some additional legal mechanisms will be conceived. However it is a course which is not intended to have any individual settlement sanctioned by the Court or perhaps even made public. One issue that immediately arises is whether this course is precluded, expressly or impliedly, by s 33V or Pt IVA more generally or should be prevented or limited by an order made under that Part.
35 The issue of the Court's role in the settlement of a representative proceeding was considered by Branson J in Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250. Her Honour said (at 258):
"Section 33V(1) of the Federal Court Act provides as follows:
'A representative proceeding may not be settled or discontinued without the approval of the Court.'
The purpose intended to be served by s33V(1) is obvious. It is appropriate for the Court to be satisfied that any settlement or discontinuance of representative proceedings has been undertaken in the interests of the group members as a whole, and not just in the interests of the applicant and the respondent. In my view, s33V proscribes not only complete settlement of proceedings without the approval of the Court, but also settlement of claims against a joint respondent, or settlement of any substantive claim against a respondent.
It was contended on behalf of the applicant that by approving the making of the consent order of 26 September 1996 in terms which included the above paragraphs, the Court impliedly gave its approval to the settlement purported to be achieved by the consent orders and the agreement which it noted. Nothing in the Court record suggests that the terms of s33V of the Federal Court Act were drawn to the attention of the judge who made the order of 26 September 1996, or that it was otherwise drawn to his attention that his approval of a settlement in terms of the agreement which he noted was required. In my view no approval can be implied from the terms of the order of 26 September 1996.
Unless and until the approval of the Court is sought and obtained in respect of the settlement agreement reached between the applicant and the third respondent, such agreement will, in my view, be without legal effect in these proceedings."
[Emphasis added]
36 Counsel for GIO appeared to submit in written submissions filed before the hearing, that s 33V prevented settlement with individual group members without Court approval and this was one feature of Part IVA that led to its invalidity. However during the hearing it was submitted on behalf of GIO that the reach of s 33V was more limited and a settlement with an individual group member did not require Court approval. Counsel for Mr King submitted it was difficult to see how s 33V prevented the settlement of one individual group member's claim as the section speaks of "settlement of a representative proceeding". Thus there appeared to be little, if any, difference between the parties on the reach of the section.
37 However, it is an important issue and I should be satisfied that this construction of the section is correct: see Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at 366 par 13 per Brennan CJ. Part IVA was enacted after the Law Reform Commission published Report No. 46 on "Grouped Proceedings in the Federal Court" in 1988, though the legislative scheme proposed by the Commission was modified by Parliament. The Commission recommended (par [218]) that Court approval should be required if the principal applicant sought to settle a group member's proceeding and that "a group member should be able, at any stage before judgment is given, without leave, to settle the group member's proceeding". This was reflected in cl 28(5)(b) of the draft Bill proposed by the Commission. However this recommendation was made in the context of a proposed statutory scheme which contemplated the Court being seized of proceedings brought by the "principal applicant" on his or her own behalf and proceedings brought by the "principal applicant" on behalf of each group member described as a "group member's proceeding". It is fairly clear, as I read the Report, that it was proposed a group member would be a party to a proceeding before the Court which, like any other proceeding, could (at least in principle) be settled.
38 However the model developed by the Commission was not reflected, in its entirety, in Pt IVA. Indeed in the second reading speech, it was acknowledged that the Government had "not adopted the Commission's 'grouped proceedings' approach" (Australia, Senate 1991, Parliamentary Debates (Hansard), Thursday 12 September 1991, at 1447). Thus Pt IVA does not, in terms, provide for a discrete proceeding, susceptible of settlement, concerning the claims of each group member.
39 It is sometimes said that group members are, in the context of Pt IVA, not parties to the proceeding for the purposes of costs or otherwise: see the observations of Merkel J in Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) 166 ALR 731 at [31] and Gaudron, Gummow and Hayne JJ in Mobil Oil Australia Pty Ltd v Victoria (supra) at [50]. That is not to say, of course, that a group member who has not opted out might not be bound by the judgment in the represented proceeding. Section 33ZB contemplates they will be.
40 However s 33V concerns the settlement of the "representative proceeding" which is defined in s 33A as meaning "a proceeding commenced under section 33C". That latter section concerns a proceeding commenced by one or more of the people who have claims against the same person. In my opinion, s 33V is directed to the settlement or discontinuance of that proceeding. That is, there can be no settlement or discontinuance of the representative proceeding without Court approval. Section 33V(2) confers on the Court the power to make orders to ensure that there is a just distribution to group members of any money paid under a settlement of that proceeding. This provision is consistent with the section being concerned, at least in part, with settlement of the proceeding in some aggregated or global way similar to an award of damages in an aggregate amount as provided by s 33Z(1)(f) and (3). Nonetheless a settlement of the representative proceeding might be on terms that agreed sums be paid to particular group members or sub-groups of group members.
41 This construction of s 33V gains some further support from s 33W which, in contrast, speaks of the settlement of an individual claim (of the representative party) for which leave must be sought. It is probable that when Branson J spoke, in the preceding passage, of "any substantive claim against a respondent", her Honour had in mind "a claim" maintained by the representative party on behalf of the representative group which might be one of a number of claims of the type comprehended by s 33C. It is to be recalled that the word "proceeding" is given a fairly wide meaning in s 4 of the Act and, consistent with that definition, could include part of a proceeding: see, for example, a discussion of the meaning of "proceeding " in an earlier judgment in this matter [2001] FCA 1773 at [11] and [12]. That is, the expression "representative proceeding" could include an element in, or part of, such a proceeding.
42 The construction adopted by Branson J is consistent with what I understand to be the purpose of s 33V, namely to ensure, by Court scrutiny, that a settlement acceptable to a representative party accommodates the interests and circumstances of group members having regard, inter alia, to issues raised in the proceedings and, if issues have been determined (such as liability) the results of that determination. While, as discussed earlier, the terms of s 33V concern only the settlement of the representative proceeding, and GIO's proposal involves settlement of individual claims, the proposal could, if given effect to in particular way, have the effect of settling the whole of the representative proceeding itself. If, for example, GIO itself directly made an offer of settlement to all group members and Mr King (as noted earlier, a matter canvassed in the evidence of Mr Burns) and they all accepted the offer and signed releases, it could effectively settle the representative proceeding without Court involvement and in spite of s 33V. Even in this example, Court approval might be required in relation to the settlement with Mr King: see s 33W. However if offers to all group members were accepted, GIO may well have achieved indirectly what is prohibited directly by s 33V. If so, the section might be construed so to preclude the achievement of the prohibited conduct by indirect means: see Australian Building Construction Employees' and Builders Labourers' Federation v Master Builders' Association of New South Wales (1986) 18 FCR 18 at 27 per Beaumont J. I should add, parenthetically, that it would be an unusual situation where an offer likely to be accepted by all group members would be viewed by the Court as one for which approval should not be given.
43 It may be thought that the objectives sought to be achieved by s 33V could have no relevance to a settlement agreed to by an individual group members whose decision (other than in relation to costs) would not impact, at least in any direct sense, on the interests of other members of the representative group. But the nature of representative proceedings are such that individual group members may well be unaware of the issues raised, their legal significance, whether and on what terms issues had already been resolved and what might be, at any particular point in the proceedings, a reasonable basis for settling. While some group members may wish to settle for reasons which do not involve consideration of these matters, the proposal advanced by GIO, although in very general terms, would, in the absence of any Court direction or control, potentially effectively deny all individual group members (other than MBC clients) the opportunity of considering them. The observations of Brennan J in Carnie v Esanda Finance Corporation Ltd (supra) at 408 bear repeating at this point:
"….it is precisely because of the flexible utility of the representative action that judicial control of its conduct is important, to ensure not only that the litigation as between the plaintiff and defendant is efficiently disposed of but also that the interests of those who are absent but represented are not prejudiced by the conduct of the litigation on their behalf."
44 Accordingly, while I will make an order requiring MBC to provide GIO with the client lists, I will also make a direction, pursuant to s 33ZF, that subject to further order, no offer of settlement be sent to any group member without the leave of the Court. In framing the direction in this way I am leaving open the possibility that GIO may wish to argue that the direction should not operate in relation to a particular communication concerning settlement. I have in mind that an application that the operation of the order be modified or limited would not be the same as an application for the grant of leave. The former may entail a submission that, as a matter of principle and not by reference to the particular terms of the communication, GIO should, in particular circumstances and for identified reasons, be able to communicate with group members or particular sub-groups. Otherwise leave would have to be sought and granted by reference to the terms of any particular communication.
45 It will be possible, in the context of any application for leave or any application to vary the order, to assess the reach of the implied prohibition, if any, referred to earlier, in the context of what is actually been sought to be done by GIO. It will also be possible, in that context, to assess whether what is proposed might adversely impact on the interests of unrepresented shareholders or, on the other hand, sufficiently protect them. Section 33V, in terms, concerns the approval of a settlement, which presupposes offer, acceptance and agreement. However, for reasons discussed earlier in the context of communications with members of the representative group more generally, there is a real potential for confusion and uncertainty if an offer was made by GIO and accepted but was in terms which might not ultimately receive Court approval. For this reason I have adopted a regime which, at least initially, operates on offers of settlement and not settlements.
46 I should mention that this Court has had recourse to American authorities concerning class actions in giving content to the Pt IVA: see e.g. Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925 especially at [19] notwithstanding significant differences between the scheme in that Part and methods of litigating group or class issues in the United States. I am aware of American authorities, to which counsel for Mr King has referred, concerning settlement with members of a class without proper legal advice: see Re General Motors Corporation Engine Interchange Litigation 594 F.2d 1106 (7th Cir 1979). It may be that any offer of settlement that GIO is given leave to make, may have to refer to legal advice. However that is a matter that can be considered if leave is sought.
47 While this conclusion again enlivens the challenge by GIO to the validity of Pt IVA, that issue has, in my opinion, been resolved by the decision of the Full Court in Femcare Ltd v Bright.