CLASS ACTIONS - discovery - whether should be ordered if might lead to disproportionate costs being incurred.
Source
Original judgment source is linked above.
Catchwords
CLASS ACTIONS - discovery - whether should be ordered if might lead to disproportionate costs being incurred.
Judgment (7 paragraphs)
[1]
Judgment
The necessity for this judgment has arisen because the parties to this litigation have reached an impasse over its future progress. In short, the plaintiff seeks orders for discovery against the defendant, Rolls Royce PLC ("Rolls Royce"), an exercise that appears likely to be time consuming and expensive. Rolls Royce seeks orders to effect so called "class closure", a concept I will explain, and requiring potential class members to provide basic particulars of their loss for the purpose of advancing settlement discussions. For the reasons that I will explain I will take that latter course.
[2]
Background
The background to the proceedings is set out in Lam v Rolls Royce PLC [2013] NSWSC 805 ("Lam") at [3] to [5]. I will not repeat that discussion save to observe that, at the time of that judgment, it was thought that the maximum size of the class was 469 people, that being the total number of passengers and crew on the relevant flight. However, beyond that, the size of the class is still not known because the class is defined as "all persons on the aircraft who suffered psychological injury as a result" of the engine's failure on the flight.
Since Lam there have been a number of interlocutory steps, which included ascertaining the names and addresses of persons on the flight. On a rough estimate, about half of the people on the flight travelled on foreign passports and reside overseas.
On 20 June 2014 the Court made orders for the sending of "opt out" notices in an approved form (Civil Procedure Act 2005 (NSW), "CPA"; s 175(1)(a)). The orders required the inclusion of an attachment which was to be translated into eleven languages. The Court also ordered that the proceedings be referred to mediation. Unfortunately, matters went downhill from there.
First, there were difficulties with the opt out notices. In a letter dated 12 September 2014 to the plaintiff's solicitors, Rolls Royce's solicitors pointed out that the Sinhalese translation of the attachment was defective and there was a discrepancy between the opt out date specified in the notices and the opt out date specified by the Court. Further, Rolls Royce's solicitors raised concerns about the completeness of the list of passengers and crew upon which the mail out of the opt out notices was based. At the hearing of these applications the Court was advised that the plaintiff's instructing solicitors were unable to confirm that 59 of the people on board the flight were sent opt out notices in accordance with the Court's orders. Otherwise I note that approximately thirty persons on board the flight exercised their right to opt out of the proceedings (CPA; s 162).
Second, the mediation did not fare much better. The parties were understandably cautious in advising the Court of the difficulties that were encountered. However, Rolls Royce's position was explained by its solicitor as follows:
"The defendant's position is that the mediation would be used to fully explore resolution by any reasonable means. If the transparency of the group members' claims is enhanced, by identifying the population of group members who seek to pursue claims and provision of basic particulars of their injury and loss, both sides will have a better understanding of their claims and their value."
I was advised by Counsel for Rolls Royce at the hearing of these applications that his client sought to ascertain information concerning the likely level of loss in order to ascertain his client's "likely level of potential exposure", as well as to ascertain a more accurate understanding of the true size of the class. The Court was advised that Rolls Royce will take a genuine "and serious approach" to settlement.
Against that background, I will address the various applications that were made to the Court on 6 February 2015.
[3]
Discovery
On 8 January 2015 the plaintiff filed a notice of motion seeking discovery of 22 categories of documents from Rolls Royce. On 6 February 2015 Counsel for Rolls Royce advised the Court that he had not been able to obtain instructions in relation to the expense and time involved in providing discovery of the scope that was sought. However, he did make some preliminary submissions. There was a disagreement as to whether Rolls Royce had been given prior notice of the application for discovery and whether it had adequate time to respond. It is not necessary to resolve that dispute.
There is a significant question as to whether the approach stated in Supreme Court Practice Note SC Eq 11 at [4] is applicable to class actions in this Division. In circumstances where any proper investigation of the allegations of breach concerns technical matters which are very likely to be solely within the knowledge of a defendant, such as the design and manufacture of a jet engine, there may be some warrant for adopting a more flexible approach than that stated in that practice note. For example, in such a case the Court might order the provision of limited discovery on certain issues sufficient to at least allow the plaintiff's experts to usefully opine on liability. However, such an application would have to be supported by proper evidence, such as an expert's report, indicating what material the plaintiff possessed, what further material was sought, and why. However, in this case no evidence was proffered by the plaintiff as to why discovery of various categories was sought. The absence of such evidence represents a significant impediment to allowing the application, regardless of what approach is adopted.
The breadth of the plaintiff's request for discovery is illustrated by considering two of the 22 categories of documents that were sought, namely:
"2. All documents comprising any testing, review or analysis of the specifications for design of the engine and the pipe and the componentry of each.
…
7. All documents comprising the records of the manufacture and supply of the componentry of the engine and the pipe by or to the Defendant."
Counsel for Rolls Royce advised that he was instructed that the engine consisted of more than 30,000 parts, of which over 2,500 had specific part numbers, that there are in excess of 100 manufacturers of the parts and they are located across the world, and that the time span for the design and testing of the engine was eight years, being from 1996 to 2004. Of course those assertions are untested, but they are broadly consistent with what one would expect with something as sophisticated as a jet engine. I consider it self-evident that undertaking discovery of the scope sought by the plaintiff is likely to be time consuming and expensive.
On 9 December 2013, Counsel for the plaintiff provided a written submission to the Court which quantified the cost of an investigation that his client would need to conduct in relation to the engine as approximately US$4.4 million. In relation to the total potential value of the class of claims, Counsel stated "in our view many of the claims would be of a minor nature and their total value may not exceed the cost of the investigation".
There is no reason to doubt that this represented a realistic assessment of what was then known about the total value of the claims. It is sufficient to raise a real question as to whether the total value of all the claims of the class members will be proportionate to the likely costs incurred by both sides in investigating liability, including by way of a discovery, much less the full cost of litigating the matter.
I am not satisfied that the mediation process is exhausted. I also have a real concern that acceding to the motion is likely to lead to the parties incurring disproportionate costs when a mediated outcome would avoid that and, in any event, there is an insufficient basis to order discovery of the scope that is sought. In these circumstances, I consider the better course at this point is to decline to order discovery, and instead take whatever steps can reasonably be undertaken to promote mediation (CPA; s 60).
I will dismiss the plaintiff's notice of motion seeking discovery.
Class closure
As noted, Rolls Royce seeks orders to effect what is sometimes described as "class closure". In Matthews v SPI Electricity Pty Ltd 2013 VSC 17 ("Matthews") at [23] Forrest J described this concept as follows:
"Class closure is a different concept to that of a closed class. This expression means, as I understand it, that a Court may require group members to identify themselves by certain point in time as having an interest in any judgment or proposed settlement. Failing a declaration of such interest (normally achieved by registering with a Court or firm of solicitors by a certain date), any subsisting entitlement to damages of the group members relating to the claim may be extinguished."
The orders sought by Rolls Royce are consistent with this. Thus Rolls Royce seeks an order that notices be sent to the effect that persons who do not opt out of the class action, who fall within the class definition (see [2]) and who wish to share in the benefit of any settlement, must register their claim with the plaintiff's solicitors. It is also proposed that the notice state that, if they do not register, they may not be able to share in the benefit of any settlement unless they obtain special permission from the Court. To that end, the proposed short minutes specify a registration date and proposed order 6 provides:
"Order that any group member who does not by 4pm on the Registration Date register with the plaintiff's solicitors in accordance with these orders shall remain a group member for all purposes of the proceedings but in the event of a settlement of the claims in the proceeding which is approved by the Court pursuant to section 173 of the Civil Procedure Act shall not, without leave of the Court, be entitled to claim compensation pursuant to the settlement."
Neither of the parties doubted the power of the Court to make orders that achieve class closure. A number of decisions of the Federal Court have invoked the equivalent to s 183 of the CPA as the source of that Court's power to make an order of the kind sought by Rolls Royce, including at a point prior to liability being determined (see for example McMullen v ICI Operations Pty Ltd (No 6) (1998) FCR 14; and the cases discussed in Mathews at [31]). (In Victoria a specific power to make orders of this kind is conferred by s 33ZG of the Supreme Court Act 1986: see Matthews at [14]).
However, should the power be exercised? Rolls Royce submitted that the orders should be made because they would facilitate settlement of the proceedings as they would enable it to gauge the size and scope of the claim made against it. It also submitted that there is no substantive prejudice occasioned to any class member in requiring them to register as a condition of participating in any resolution of the proceedings. Counsel emphasised that, if no settlement is achieved, there will be no affectation of their rights, but if a settlement is achieved, class members can still apply to the Court for leave to be involved in the settlement distribution. In the alternative, Rolls Royce submitted that class closure could be achieved by "excluding those non-registering class members from the current proceedings" by amending the class definition.
The plaintiff resisted the making of any order designed to achieve class closure. It was accepted that, at some point in the proceedings, a class member must take some positive step if they wish to participate in the proceeds of a settlement or a verdict. However, it was submitted that this application was entirely premature in that any process requiring class members to take positive steps is better facilitated if the terms of settlement are known. The plaintiff submitted that Rolls Royce's legitimate interests can be protected by the form of any settlement which could, for example, limit their overall exposure rather than binding class members to an outcome while limiting their rights to participate in any settlement.
The plaintiff placed particular reliance upon the decision of Bromberg J in Winterford v Pfizer Australia Pty Ltd [2012] FCA 1199 ("Winterford") in which his Honour declined the respondents' request for class closure orders even though they asserted they were needed in order to quantify their potential exposure in order to facilitate settlement.
In Winterford at [7], Bromberg J stated that "the fact the respondent says that it is not willing to enter into settlement negotiations because of uncertainty as to the quantum of potential group members' claims … is not a compelling reason of a kind that would justify requiring a group member to take the positive step so as to enable the class to be closed". His Honour added that the experience of many jurisdictions with opt out class action regimes was that "respondents are not only able to enter into negotiation without a quantification of group member claims but can often successfully settle actions in those circumstances". It appears that the two sets of proceedings in Winterford were at a relatively early stage, in that in one case the pleading had not closed and in the other settlement discussions had only just commenced.
In Matthews, Forrest J dealt with an application for class closure orders just prior to the commencement of a lengthy trial arising out of the Victorian bush fires. The plaintiff represented a class of persons described as "all persons who suffered personal injury, property damage or economic loss" in the particular fire. The parties agreed on the need for class closure. They accepted that the identification of the number of potential claimants would assist in settlement negotiations (Matthews at [1]). Forrest J made an order closing the class, but in doing so differentiated between those claimants who suffered personal injury and those who incurred property damage or economic loss. With the former, Forrest J ordered that those persons who did not register be excluded from the class. His Honour concluded that "a non-registered personal injury or dependency claimant's interests are better protected by the retention of their rights outside the class action and that to do otherwise would not ensure that justice is done in this proceeding" (Matthews at [89]). His Honour considered, inter alia, the characteristics of persons who may have a personal injury claim including the fact that many would be minors and would include those with psychological injuries who "may not understand or appreciate the consequences of not registering if a class closure model is adopted for all claims."
However, in respect of economic loss and property damage claims, Forrest J made an order similar to that noted in [18], i.e. that those persons who do not register would remain within the class but would not be able to participate in any approval or settlement without the leave of the Court. His Honour's assessment was that the vast majority of these claimants were "adults capable of managing their own affairs who can, with appropriate information, make a decision as to whether to register or not" (Matthews at [90]).
In Mathews Forrest J identified three factors relevant to making orders for class closure prior to a settlement or judgment as being "(i) the point at which the case has reached; (ii) the attitude of the parties to such a step; and (iii) the complexity and likely duration of the case" (at [79(e)]). Thus in Mathews the proceedings were close to the trial, the parties agreed to the making of class closure orders and the trial was likely to be very lengthy and extremely complex.
Neither the judgment in Mathews nor in Winterford suggests that there was any substantial concern that the cost of these proceedings would be disproportionate to the amount in issue. In Mathews, even though there were difficulties in estimating the defendant's overall exposure which warranted class closure orders, there was no doubt that there were thousands of claimants, many of whom appeared to have suffered substantial loss (see Mathews at [80]). The prospect of significantly disproportionate costs being incurred may warrant orders for class closure at an early stage if the Court considers that it would substantially advance settlement discussions. In this case, it is the Court's assessment that class closure orders will have that effect. This is the decisive consideration in favour of making class closure orders notwithstanding the relatively early stage of the proceedings.
The more difficult question is what order to make in respect of the persons who did not register with the plaintiff's solicitors. Should they be excluded from the class and their rights preserved or should they remain a member of the class but be subject to the limitations of the order proposed by Rolls Royce noted at [18]? On the one hand, maintaining all the persons who suffered psychological injury as class members, regardless of whether or not they register, is more likely to facilitate settlement. Defendants legitimately crave certainty and finality. On the other hand the Court needs to be wary of orders that may have the effect of extinguishing or limiting class members' rights if they do not take an active step given that, in the ordinary course, class members are only expected to play an "essentially passive role" (P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 2) [2010] FCA 176 at [31] per Finkelstein J).
In Mathews, Forrest J considered the nature of the alleged loss suffered and the likely characteristics of the class in determining whether or not claimants who do not register should be excluded from the class. In this case, as stated, roughly half of the people on the flight travelled using a foreign passport. Some of those persons have contacted the plaintiff's solicitors but others have not. In some cases there is reason to doubt whether their contact details are sufficient to enable the Court to be satisfied that they have, or will, receive notification of the existence of these proceedings. If the orders proposed by Rolls Royce are made then persons who live overseas and suffer from a psychological condition as a result of their experiences on the flight will have their right to litigate put at risk if they do not register with the plaintiff's solicitors. They will be bound by the outcome but will not be able to participate in its benefits without leave being granted. This will occur in circumstances where there is: a possibility that they may not receive notification of the existence of these proceedings, a likelihood that, even if they do, they are unfamiliar with the Australian legal system and a strong probability that there is no simple answer to a question about the effect of any binding settlement on their right to litigate in their home jurisdiction.
Even allowing for the fact that, under Rolls Royce's proposed orders, if sufficient cause is shown, a person resident overseas could be granted leave to participate in any settlement, I consider that the only proper course is to order that persons with contact details outside of Australia and who do not register with the plaintiff's solicitors be removed from the class. The notices to be sent will need to make that clear. The practical effect of this course is that persons who reside overseas and were on board the flight can choose to participate in the proceedings but will not be compelled to.
I will adopt a different approach to persons on the flight with Australian contact details. The concerns raised above have some application to their circumstances but not to the same degree. Further I have a greater level of confidence that the facility to grant leave to allow persons who do not register to participate in any settlement offers substantive protection to those persons on board the flight who reside in Australia.
As a consequence of this approach it will be necessary for the parties to prepare different notices for those potential members of the class who have contact addresses overseas and those with contact details in Australia.
[4]
Particulars of loss and damage
On or about 18 December 2013, Rolls Royce's solicitors sent an email to the plaintiff's solicitors seeking what was described as "basic details" of the injuries and losses of the persons who were aboard the plane so far as they were known. The enclosed documents sought the name, date of birth and occupation of the relevant passengers and then enquired as to the nature of the injury or illness and duration of the illness, the names and addresses of all medical practitioners they had consulted as well as some details of economic loss, out of pocket expenses and whether workers compensation benefits had been requested since 4 November 2010.
On 4 March 2014 the plaintiff's solicitors provided a response from 65 persons. One difficulty with the responses that were provided was that a number of them answered the request for "nature of injuries/illness" by simply stating "psychological".
On 29 April 2014 Rolls Royce's solicitors responded. They sought much more detailed information in respect of the persons listed. This request was similar to the standard form of comprehensive particulars that are usually sought if each of the class members were a party in their own right. The plaintiff's solicitors responded to this on 14 May 2014. They stated that, in respect of the lead plaintiff, full particulars had already been provided but the request was otherwise too onerous in respect of the other potential class members.
Exhibited to the affidavit of Rolls Royce's solicitor is a schedule setting out a summary of all the particulars that had been provided to date. The schedule indicates that some useful information has been provided in respect of the potential class members although details of their psychological symptoms is lacking.
It is trite to observe that members of the class, other than the lead plaintiff, are not parties to the litigation and thus there is no prima facie entitlement on the part of a defendant such as Rolls Royce to obtain particulars of damage at this stage of the litigation. However, that does not mean that the Court cannot order they be provided if it is warranted. In resisting such an order, Counsel for the plaintiff submitted that it inverts the ordinary progression of class actions to require members of the class to provide particulars of loss prior to liability being either determined or admitted. There is considerable force in that submission. However, the Court's assessment is that there is real potential for costs to be significantly disproportionate to the amount in issue. Further, as I accept Rolls Royce's statement that it is bona fide in its desire to pursue mediation but needs some basic information concerning loss to obtain an understanding of its likely exposure. In those circumstances, I consider this requiring the potential class members to provide some information at that stage to facilitate settlement is warranted.
However, the purpose of such an order needs to be borne in mind. Such an order is not designed to facilitate a series of admissions which Rolls Royce could later use to its advantage if an assessment of the individual claims of class members is required. Further, the Court must scrutinise the scope of the request to ensure that it is not unnecessarily intrusive given the current stage of litigation. For example, potential class members will not be asked to provide details of their medical history unrelated to any psychological condition arising out of the flight. Instead, what should be prepared is a set of basic requests specifically directed to the incident on the airplane and its sequelae. Thus, the request that I will permit to be made of potential class members is one that seeks the following details:
1. name;
2. age;
3. occupation;
4. nature of injury;
5. the symptoms and conditions experienced as a consequence of the flight;
6. the period for which the symptoms and conditions were experienced;
7. whether the person consulted any medical practitioner as a consequence of their experiences on the flight and how often;
8. whether they have suffered any loss of income as a result of their experiences on the flight and if so, how much;
9. whether they have incurred or will incur any out of pocket expenses as a result of their experience on the flight and if so, how that is calculated;
10. whether they have flown since the time of the accident and if so, how often; and
11. whether they make any other claim for loss or damage arising out of the accident, and, if so, for what and how much.
I will leave it to the parties to settle the form of request and to consider whether, in respect of any of the passengers or crew, the answers that have been supplied to date are sufficient. The final form of the request will be settled by the Court but it should be in the form of a basic questionnaire.
[5]
Revised Opt Out Notice
I have already adverted to the difficulties that have arisen regarding the opt out notices that were issued on behalf of the plaintiff during 2014. During submissions on 6 February 2015 Counsel for the plaintiff indicated that it was for the Court to determine the best course to take in light of the defective nature of previous attempts to issue opt out notices. Given the potential level of non-compliance, the only appropriate course is to require the sending of revised opt out notices to all the persons on board, other than the three that had been previously excluded from the class (see Lam v Rolls Royce's Plc (No 3) [2014] NSWSC 647) and the persons who have already opted out (see [5]). The opt out notices will need to accommodate the Court's findings in relation to the above issues.
[6]
Orders
I will order that the plaintiff's notice of motion filed 8 January 2015 be dismissed, and direct the parties to bring in a form of orders that otherwise reflects this judgment. This will include revised orders providing for the sending of opt out notices, a scheme for registration and a proposed schedule of questions to be sent to the potential members of the class. In addition, Counsel for Rolls Royce submitted that, given the confusion that has emerged in relation to the plaintiff's mail out, the plaintiff should be ordered to provide to Rolls Royce a definitive list of the persons whom the plaintiff contends were aboard the flight in question. I will make that order.
Costs will be reserved.
Accordingly, the Court orders:
1. The plaintiff's notice of motion filed 8 January 2015 be dismissed.
2. On or before 27 February 2015 the plaintiff serve the defendant with a list of the persons and crew whom he contends were aboard the flight referred to in [4] of the Amended Statement of Claim.
3. The parties confer in relation to the form of orders otherwise necessary to give effect to this judgment.
4. On or before 20 March 2015 the parties file either agreed orders, or competing versions of the orders, necessary to give effect to this judgment.
5. Proceedings stand over for further directions to 27 March 2015 at 9.30am.
6. Costs reserved.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 05 March 2015