King v GIO Australia Holdings Ltd

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT: 1 The proceedings pending before the primary Judge are a class action under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("the Act"). The applicant alleges that conduct on the part of the respondents during the recent takeover bid by AMP Insurance Investment Holdings Pty Ltd ("AMP") for shares in GIO Australia Holdings Ltd ("GIO") was negligent, misleading or deceptive, in consequence of which the applicant and group members suffered loss and damage. An outline of the applicant's case appears in the report of another interlocutory judgment in the proceedings: King v GIO Australia Holdings Ltd (2000) 100 FCR 209. The relief sought by the applicant includes damages under s 82 of the Trade Practices Act 1974 (Cth) and in respect of negligence under the general law. 2 The group members to whom the proceedings relate are identified in the current pleadings, subject to certain immaterial exceptions, as: "all persons who were registered as owners of shares in GIO continuously between 25 August 1998 and 4 January 1999…and who did not accept the takeover offers for those shares made by [AMP]…by reason of the conduct alleged…of the Respondents and who suffered loss as a consequence". 3 In a judgment delivered on 20 December 2000, the primary Judge made orders pursuant to s 33J of the Act fixing 4.00 pm on 23 February 2001 as the date by which a group member may opt out of the proceedings: King v GIO Australia Holdings Ltd [2000] FCA 1869. His Honour approved, for the purposes of s 33Y of the Act, the form and content of the notice set out in schedule 1 to that judgment. Consequential orders were also made, including directions for service of the notice. The form of notice approved by his Honour is reproduced in the schedule to these reasons for judgment. 4 Section 33Y(1) of the Act is concerned with notices under s 33X. Section 33X provides as follows: "33X(1) Notice must be given to group members of the following matters in relation to a representative proceeding: (a) the commencement of the proceeding and the right of the group members to opt out of the proceeding before a specified date, being the date fixed under subsection 33J(1); … (2) The Court may dispense with compliance with any or all of the requirements of subsection (1) where the relief sought in a proceeding does not include any claim for damages. … (5) The Court may, at any stage, order that notice of any matter be given to a group member or group members. (6) Notice under this section must be given as soon as practicable after the happening of the event to which the notice relates." Section 33Y provides: "33Y (2) The form and content of a notice must be as approved by the Court. (3) The Court must, by order, specify: (a) who is to give the notice; and (b) the way in which the notice is to be given; and the order may include provision: (c) directing a party to provide information relevant to the giving of the notice; and (d) relating to the costs of notice. … (8) The failure of a group member to receive or respond to a notice does not affect a step taken, an order made, or a judgment given, in a proceeding." 5 GIO, which is the first respondent to the proceedings, has applied by motion for leave to appeal from the orders made by the primary Judge. The amended notice of appeal identifies the following grounds upon which GIO wishes to rely should leave be granted. "1. His Honour erred in holding that the Opt-Out Notice should not contain any statement (other than a statement that a group member who did not opt-out would be bound by any judgment made in the proceedings) explaining the consequences of not opting-out of the proceedings. 2. His Honour should have held that the Opt-Out Notice contain a statement explaining the costs consequences of not opting-out of the proceedings. 3. His Honour should also have held that the Opt-Out Notice contain a statement explaining the necessity for any group member not opting-out of the proceedings to prove his or her reliance on the conduct complained of, and loss." 6 It was common ground on the application for leave to appeal that the representative proceedings will be conducted in two stages. At the first stage the applicant will endeavour to prove that the respondents engaged in misleading and deceptive conduct or breached their respective duties of care. If the applicant succeeds in the first stage of the proceedings it will be necessary to move to the second stage, unless the proceedings are settled (see ss 33V and 33W). At the second stage each group member will have to establish the elements of his or her individual cause of action. This will involve, for example, proof that the group member relied on the respondents' misleading and deceptive conduct in not accepting AMP's offer and that he or she suffered loss by reason of the respondents' conduct. 7 Maurice Blackburn Cashman ("MBC"), lawyers, have been retained by Mr King, the applicant in the proceedings ("the applicant"). Subject to one qualification, MBC do not seek to make group members liable for the costs incurred by the applicant in conducting the first stage of the proceedings. The qualification is that MBC have announced their intention of applying to the Court, at the conclusion of the proceedings, for an order under s 33ZJ of the Act, that costs in excess of those recoverable from the respondents in respect of the first stage of the proceedings be paid out of damages awarded in favour of group members. Section 33ZJ is in the following terms: "33ZJ(1) Where the Court has made an award of damages in a representative proceeding, the representative party or a sub-group representative party, or a person who has been such a party, may apply to the Court for an order under this section. (2) If, on an application under this section, the Court is satisfied that the costs reasonably incurred in relation to the representative proceeding by the person making the application are likely to exceed the costs recoverable by the person from the respondent, the Court may order that an amount equal to the whole or a part of the excess be paid to that person out of the damages awarded. (3) On an application under this section, the Court may also make any other order it thinks just." 8 MBC are not prepared to act on behalf of a group member to prove that individual's reliance and loss unless the group member enters into a "Fee and Retainer Agreement" with them. The Fee and Retainer Agreement is described as a "no-win, no-charge" arrangement. This, however, is not entirely accurate. The Fee and Retainer Agreement contains terms which, if breached by the client, entitle MBC to render an account for legal costs and to terminate the Agreement. In addition, the Agreement provides for a "success condition", whereby MBC may charge a premium of 25 per cent on the individual solicitor-client costs otherwise payable under the Agreement. It also appears that there is more than one Fee and Retainer Agreement in existence. 9 In considering a group member's liability for costs it is necessary to bear in mind s 43(1A) of the Act, which provides that in a representative proceeding commenced under Part IVA the Court may not award costs against a group member except as authorised by ss 33Q or 33R. Section 33Q permits the Court, inter alia, to establish a sub-group and appoint a representative party on behalf of sub-group members in order to determine issues not common to all group members. In such a case, the sub-group representative party and not the representative party is liable for costs associated with the determination of the issues common to the sub-group members: s 33Q(3). Section 33R(1) authorises the Court to permit an individual group member to appear in the proceeding for the purpose of determining an issue that relates only to the claims of that member. In that case, the individual group member and not the representative party is liable for the costs associated with determining that issue. 10 One issue debated before the primary Judge was whether, and if so on what terms, the notice approved by the Court pursuant to s 33Y(2) and s 33X(1)(a) of the Act should refer to the liability of a group member to pay legal costs. During the course of argument, his Honour expressed the tentative view that it was desirable that the notice should contain some information on the question of costs. His Honour ultimately decided, however, that the notice should not address this question, because any summary of the various permutations and combinations that could arise if the point is ever reached where individual reliance and loss must be proved made it impossible to deal with this issue in a simple and straightforward way. His Honour said this (at [18]): "The fee agreement is a lengthy document which contains many features. The danger in endeavouring to summarise the essence of the fee agreement is that the summary may highlight either attractive or unattractive features (or both). Attempting to create a balanced summary may involve reference to detail that destroys the summary's utility. I have made several attempts to do so as part of describing the position a group member may be in at a point, if it is ever reached, where individual reliance and loss must be proved. However, each attempt has resulted in a summary that is either too complex or fails to deal, in a simple and straightforward way, with the various combinations and permutations that could arise. I have ultimately decided that the notice should not endeavour to explain to a recipient what the consequences are of not opting out other than the important legal consequence of the group member being bound by the judgment. I have, at the conclusion of the approved notice, repeated (and I hope emphasised) the legal significance of the notice and the desirability of a recipient getting advice if that is what the recipient was minded to do." 11 The primary Judge's decision involved the exercise of a discretion, on a matter of practice and procedure, which would not ordinarily attract the grant of leave to appeal or the intervention of a Full Court: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397; House v The King (1936) 55 CLR 499. His Honour concluded that it would be unduly complicated if the notice were to address issues such as MBC's charge-out rates, the inclusion of a 25 per cent premium in the Fee and Retainer Agreement and a group member's entitlement to select his or her own legal representative. This was a discretionary judgment with which this Court would not ordinarily interfere. There are obvious disadvantages if appellate courts interfere with decisions made by the docket Judge in the course of managing complex litigation such as the present proceedings. We would not wish to give any encouragement to that process. 12 The particular feature of the present case which, in our view, warrants the grant of leave to appeal only emerged in the course of argument on the application for leave. The notice approved by the primary Judge states that the applicant alleges "that he and group members suffered financial loss" (emphasis added) which he alleges was caused by the representations and other conduct of the respondents. It further states that: "The Applicant seeks damages and other relief for himself and on behalf of group members. [MBC] are the firm of solicitors acting for the Applicant…". (Emphasis added) The document identifies the group members as those who, inter alia, have suffered loss by reason of the various representations and conduct of the respondents and have a claim against all the respondents. The only consequence that is said to flow from a group member's decision not to opt out of the proceedings is that he or she "will be bound by any judgment made in the proceedings". 13 In our view, the notice can reasonably be understood as conveying the following propositions: · the applicant is seeking damages for himself and on behalf of group members; · MBC are acting for the applicant in relation to the allegation that he and the group members suffered loss as a result of the representations and other conduct of the respondents; and · MBC has agreed to represent the applicant in his own claim and his claim on behalf of group members until the point of judgment in respect of the damages claim. 14 In our opinion, the notice in its current form is capable of creating a misleading impression in group members who receive it. In particular, they may be led to believe that MBC will act on behalf of the applicant, insofar as he seeks damages and other relief on behalf of group members, to the point of judgment. This impression would not be accurate, since MBC will act on behalf of a group member to establish the individual elements of his or her cause of action (notably reliance, causation and loss or damages) only if that group member enters into a Fee and Retainer Agreement. In other words, in the absence of a global settlement approved by the Court, an individual group member cannot obtain a favourable judgment without engaging a lawyer or representing himself or herself. 15 This misleading impression might well affect the decision of a group member whether or not to opt out of the proceedings. The principal purpose of the notice given under ss 33X(1)(a) and 33Y(2) is to ensure that group members can make an informed decision concerning their rights: see Law Reform Commission, Grouped Proceedings in the Federal Court (Report No 46, 1988), pars 188, 190; Femcare Ltd v Bright (2000) 100 FCR 331, at 336-337, 349. We do not think it is an answer, as Mr Burnside QC (who appeared with Ms Hanscombe for the applicant) suggested it was, that a group member who is misled by the form of notice approved by the Court could apply for and expect to receive an extension of the period during which he or she can opt out of the representative proceeding: s 33J(3). The represented group is large and group members are likely to have widely varying degrees of understanding of the claims made on their behalf and the possible outcomes of representative proceedings. It is important that any decision they make concerning opting out of the proceedings not be based on a notice that is apt to mislead them. 16 We agree with the primary Judge that clarity and simplicity are essential if a notice is to have its intended effect. We also agree that an attempt to provide detailed information is likely to create more difficulties than it resolves. Nonetheless, we think that, in order to remove the misleading impression to which we have referred, group members should be informed that, unless the proceedings are settled, MBC will not represent them to the point of judgment unless they assume a responsibility for their own legal fees. -17 Those objectives would be achieved if the following two paragraphs were to be inserted after the first paragraph under the heading "If you do not opt out" appearing on page 3 of the notice:

• Furthermore, if you do not opt out of the proceedings you will be one of the group members on whose behalf the applicant is conducting the proceedings. Maurice Blackburn Cashman are representing the applicant in the proceedings. You will not be liable for their legal fees merely by remaining a group member. That is subject to the qualification that the court has power under s 33ZJ of the Act to order that the costs reasonably incurred by the applicant in prosecuting the claim, to the extent that they exceed the costs recoverable by him from the respondents, be paid to the applicant out of any damages awarded to class members in the proceedings. The applicant has indicated that, at the conclusion of the proceedings, he will seek an order to that effect. - Unless the proceedings are settled, you will need to prove that you have individually suffered loss or damage because of the respondent's conduct. To do this you are likely to need legal representation. If you want Maurice Blackburn Cashman to act on your behalf for this purpose you will have to enter into a fee agreement with them. To obtain a copy of the fee agreement contact Maurice Blackburn Cashman at 550 Swanston Street, Carlton, Victoria (phone: (03) 9345 2700). 18 Neither party raised the issue that the "opt out" date specified in the notice, namely 23 February 2001, has already passed. This is a matter that the primary Judge will address. It may be that additional consequential amendments to the notice will also necessary. The proceedings should therefore be remitted to the primary Judge to make such further directions in relation to the notice, consistent with these reasons, as are appropriate.

CONCLUSION 19 The Court orders that:

1. Leave be granted to appeal from Order 2 made on 20 December 2000 approving the form of notice which is Schedule 1 to the reasons of the primary Judge.
2. The appeal be allowed.
3. The form of notice be amended by the insertion of the following paragraphs between the two paragraphs presently appearing under the heading "If you do not Opt-Out" on page 3 of the notice:

• Furthermore, if you do not opt out of the proceedings you will be one of the group members on whose behalf the applicant is conducting the proceedings. Maurice Blackburn Cashman are representing the applicant in the proceedings. You will not be liable for their legal fees merely by remaining a group member. That is subject to the qualification that the court has power under s 33ZJ of the Act to order that the costs reasonably incurred by the applicant in prosecuting the claim, to the extent that they exceed the costs recoverable by him from the respondents, be paid to the applicant out of any damages awarded to class members in the proceedings. The applicant has indicated that, at the conclusion of the proceedings, he will seek an order to that effect.
• Unless the proceedings are settled, you will need to prove that you have individually suffered loss or damage because of the respondent's conduct. To do this you are likely to need legal representation. If you want Maurice Blackburn Cashman to act on your behalf for this purpose you will have to enter into a fee agreement with them. To obtain a copy of the fee agreement contact Maurice Blackburn Cashman at 550 Swanston Street, Carlton, Victoria (phone: (03) 9345 2700).

4. The proceedings be remitted to the primary Judge to make such further directions in relation to the notice, consistent with these reasons, as are appropriate.
5. The applicant pay the first respondent's costs of the application for leave to appeal and of the appeal. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Counsel for the Applicant: Mr J W K Burnside QC with Ms K Hanscombe

Solicitor for the Applicant: Maurice Blackman Cashman