Lewis v Philips Electronics Australia Ltd trading as Philips Healthcare [2023] FCA 1486 | Case summary

The discontinuance application 4 The application for leave to discontinue the proceeding is supported by: (a) two affidavits of John Karantzis, a solicitor with Carbone Lawyers, the solicitors for Mr Lewis, sworn 24 November 2022 and 31 March 2023 respectively; and (b) an affidavit of Alexandra Rose, a partner of Clayton Utz, the solicitors for the respondents in the proceeding, sworn 31 March 2023. 5 In his 24 November 2022 affidavit Mr Karantzis deposes that: (a) Carbone Lawyers considers there to be insufficient evidence to warrant the continuation of the class action; (b) the firm has concerns as to the financial viability of the proceeding given that since the commencement of the proceeding the respondents have undertaken a voluntary recall program and have been repairing, replacing or refunding the devices; (c) Carbone Lawyers have funded the matter without the involvement of a third-party funder, and on a cost-benefit analysis the firm no longer wishes to act in the proceeding; and (d) Mr Lewis has instructed the firm to discontinue the proceeding. 6 Section 33V of the Act provides that a class action may not be settled or discontinued without the approval of the Court. Section 33X(4) requires that, unless the Court is satisfied that it is just to do so, an application for approval of a settlement under s 33V must not be determined unless notice has been given to group members. There is, however, no equivalent provision requiring that group members be given notice of an application for approval of a discontinuance. 7 The absence of such a provision is conspicuous but, pursuant to s 33X(5), the Court has a broad discretion to order that group members be given notice of a particular matter. It provides that the Court may, if it considers it appropriate, require that notice be given to group members of any matter. 8 The authorities reveal some different judicial approaches in relation to whether group members should be given notice of the proposed discontinuance of a class action. For example, in Simonetta v Spotless Group Holdings Limited [2017] FCA 1071 at [27] (Yates J) and Watson v Maximus Holdings (NSW) Pty Ltd [2021] FCA 87 at [50]-[60] (Wigney J) their Honours did not require that group members be given notice of the proposed discontinuance. In Babscay Pty Ltd v Pitcher Partners [2020] FCA 1610 at [40] Anastassiou J required that notice of the proposed discontinuance be given only to those group members who had "demonstrated an interest in the proceeding by entering into a funding agreement". In Francis (Trustee) v Oculus Accounting Pty Ltd (No 2) [2021] FCA 1275; 400 ALR 701 at [23] Derrington J seemingly decided that notice of the proposed discontinuance was required to be given to those group members whose interests might be affected if leave to discontinue was granted. 9 In my view the decisions in each of Simonetta, Maximus and Babscay turned on the facts of the case. But I accept that it is available to understand them as indicating that it is appropriate to take a relaxed view of any requirement for group members to be given notice of the proposed discontinuance of a class action. In that context I should note my view that, where it appears group members are aware of a class action, it will generally not be appropriate to grant leave to discontinue a class action without first giving group members notice of the proposed discontinuance. The principal purpose of a notice under ss 33X and 33Y of the Act is to ensure that group members can make informed decisions concerning their rights or interests: Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited [2017] FCAFC 98; 252 FCR 1 at [88] (Jagot, Yates and Murphy JJ). Unless group members are given notice of the proposed discontinuance and the terms upon which that is proposed to occur, they may not know: (a) that their claims are no longer being pursued in the proceeding and that they may lose their rights to bring their own claim by operation of the applicable limitation period; (b) that the proposed discontinuance is on terms that they remain able to bring any individual claim; (c) the reasons for the proposed discontinuance and therefore whether they should object to it; and (d) that they may seek to be substituted as the representative party on the basis that the applicant is no longer adequately representing his or her interests (s 33T): Turner v TESA Mining (NSW) Pty Ltd (No 2) [2022] FCA 435 at [32]-[35]; Turner v Ready Workforce (a division of Chandler Macleod) Pty Ltd [2022] FCA 467 at [7]; Wruck v Telstra Limited [2023] FCA 932 at [20]-[21]. 10 In the present case, in my view many group members are likely to be aware of the alleged deficiencies in the devices, particularly through the voluntary recall program, and the applicant's efforts "promoting" the class action. Unless group members are given notice of the proposed discontinuance they may not know that their claims are no longer being pursued in the proceeding and that they may lose their rights to bring an individual claim in relation to the device they used by operation of the applicable limitation period. Nor will they know that they may object to the proposed discontinuance and seek to be substituted as the representative party. 11 As a result of my view in that regard, on 20 December 2022 I made orders setting up a notice regime for group members. The orders required Clayton Utz to collate a list of potential group members from its records, and then itself or through an external mail house send a Court-approved Notice of Proposed Discontinuance (Notice) to group members by 27 February 2023, and for Carbone Lawyers and the first respondent to publish the Notice on their respective websites. 12 The Notice informed group members that the applicant wished to discontinue the class action, and that group members had three options, namely: (1) do nothing, in which case the class action was likely to be discontinued; (2) propose themselves or another group member to be substituted for Mr Lewis as applicant, and thereby take over the conduct of the case. The Notice also informed group members that any proposed new applicant was required to be willing to conduct the class action on his or her own behalf and on behalf of group members, to appoint lawyers to act in the case, and to be in a position to meet the legal costs or to make arrangements for them to be met; or (3) object to or oppose the proposed discontinuance. If a group member wished to take up either the second or third option they were advised to notify Carbone Lawyers by close of business on 27 March 2023, and that if they wished they could appear at the hearing of the discontinuance application on 3 April 2023. 13 As it eventuated, by the 27 March 2023 deadline 34 group members had objected to the proposal to discontinue the class action, but at that point no group member proposed themselves or another group member to be substituted as the representative party. One objector, Mark Magill, strongly pressed for a longer period within which a group member could come forward to be substituted as the representative party, including because he was gathering evidence in relation to the alleged safety defects affecting the devices. Mr Magill also filed or sought to file a series of interlocutory applications which I largely rejected. In the meantime, another firm of solicitors, Shine Lawyers, sent an email to my chambers expressing interest in taking over the conduct of the proceeding on behalf of the applicant, subject to being given sufficient time to conduct due diligence in relation to the case. 14 In circumstances where both Mr Magill and Shine Lawyers sought more time before the application for leave to discontinue was heard and decided, I concluded it was appropriate to allow more time to see if another proposed representative party emerged. On 3 April 2023 I made orders providing that any group member who wished to be substituted as the applicant must file and serve an application in that regard by 31 July 2023. On 25 August 2023 I made orders extending that date to 31 October 2023.

Consideration 18 If Ms Lindbloom is substituted as the applicant in the proceeding then Mr Lewis will no longer be the applicant and Carbone Lawyers will no longer be acting for the applicant in the proceeding. In that event the proceeding can continue and, strictly speaking, it is unnecessary to decide the discontinuance application. 19 Section 33T(1) of the Act provides: Section 33T Adequacy of representation (1) If, on an application by a group member, it appears to the Court that a representative party is not able adequately to represent the interests of the group members, the Court may substitute another group member as representative party and may make such other orders as it thinks fit. Thus, under s 33T, provided it appears to the Court that the applicant is not able adequately to represent group members' interests, on the application of a group member the Court has power to substitute a group member as the representative party. 20 I do not however accept that the Court only has power to substitute a group member as the representative party upon application by a group member. In Perera v GetSwift Ltd [2018] FCA 732; 263 FCR 1 at [361] Lee J said, and I agree: More generally, a representative who is not and cannot conduct the proceeding in the interests of group members has demonstrated an inability adequately to represent those group members. Even absent an application by a group member, the broad power contained in s 33ZF will allow the Court to intervene in order to ensure the claims of group members are being adequately represented and advanced. The power under s 33ZF(1) may be exercised by the Court of its own motion, or on the application of a party or group member . 21 I consider the Court also has power to substitute a group member as the representative party pursuant to s 33Z(1)(g) of the Act. It provides: Section 33Z Judgment - powers of the Court (1) The Court may, in determining a matter in a representative proceeding, do any one or more of the following: … (g) make such other order as the Court thinks just. 22 In Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; 211 CLR 540 at [267], Kirby J said in relation to s 33Z(1): From these provisions, it is clear that the Parliament intended to arm the Federal Court with a wide and flexible armoury of powers, capable of being adapted to the particular needs and novel circumstances of representative proceedings and any matter in such proceedings. 23 The question of power to substitute a representative party was briefly dealt with in Auskay International Manufacturing & Trade Pty Ltd v Qantas Airways Limited [2010] FCA 1302 at [7] (Tracey J). In that decision counsel for the applicant accepted that the power to substitute an applicant was not to be found in s 33T. Perhaps that concession was made because the applicant did not contend that it was unable to adequately represent group members' interests. Even so, treating that as the basis of the concession, I would be disinclined to accept that s 33T is not a source of power to substitute the representative party. 24 The judgment in Auskay indicates that the applicant no longer wished to continue as the representative party. To my mind, where an applicant no longer wishes to continue as the representative party, that immediately raises a question as to whether the applicant is able to adequately represent group members' interests. I very much doubt that group members would see it as being in their interests that they were represented in what may be large, complex and difficult litigation by a representative party who no longer wishes to perform the obligations of that important role. 25 In Auskay Tracey J appears to accept that, in the circumstances of that case, s 33T does not provide power to substitute another group member as the applicant. But given his Honour's view (at [9]) that the Court had power under s 33Z(1)(g) of the Act and under Order 6 of the (then) Federal Court Rules to order that other group members be substituted for Auskay as representative parties, the issue evaporated. At that time Order 6 of the Federal Court Rules contained a broad power to substitute parties to a proceeding (Bray v F. Hoffman-La Roche Ltd [2003] FCA 1505 at [14]) and the position is similar under the present Federal Court Rules 2011 (Cth) (the Rules). Rules 9.10 and 9.11 do not expressly provide for the substitution of an applicant party, but it is plain from their terms that the Rules include a broad power to substitute parties. 26 I do not accept that Pt IVA of the Act evinces a legislative intent that the power to substitute a group member as the representative party is limited to circumstances where a group member applies to the Court. It is relevant that the role of a group member in a class action is essentially passive until after resolution of the common issues, and he or she may show, or have, little interest in the case unless or until the common issues are resolved in their favour: P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 2) [2010] FCA 176 at [31] (Finkelstein J); Thomas v Powercor Australia Ltd (Ruling No 1) [2010] VSC 489 at [37]-[39] (Forrest J). Some group members may not even be aware of the proceeding and therefore unable to apply to the Court. Other group members may be aware of the proceeding but forced to rely on the applicant or the applicant's solicitors for information about the progress of the case, and therefore not in a position to understand that the applicant was not adequately representing their interests. The likelihood of group members being independently well-informed about whether the applicant is adequately performing his or her role is low: Legg M, "Judge's Role in Settlement of Representative Proceedings: Lessons from United States Class Actions" (2004) 78 Australian Law Journal 58, 64. 27 It is also relevant that in a Pt IVA proceeding the applicant has fiduciary obligations to group members, and the Court has a protective role in relation to their interests. In such circumstances it is unlikely Pt IVA is intended to operate such that, absent application by a group member, the Court must sit idly notwithstanding that it appears to the Court the applicant may not be properly representing group members' interests. 28 That view is consistent with the Court's power in representative proceedings brought under the rules of the old Court of Chancery, which are reflected in Div 9.2 of the Rules. Writing in relation to representative proceedings under the old Chancery rules, Starke J said in Templeton v Leviathan Pty Ltd [1921] HCA 55; 30 CLR 34 at 76: It was no doubt the duty of the Court in such suits to see that the absent interests were fairly and honestly represented. 29 Similarly, in Carnie v Esanda Finance Corporation Ltd [1995] HCA 9; 182 CLR 398 at 408, which concerned a representative proceeding brought under the NSW equivalent of Div 9.2 of the Rules, Brennan J (as his Honour then was) explained: …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. The self-proclaimed carrier of a litigious banner may prove to be an indolent or incompetent champion of the common cause in the courtroom…. 30 Nor do I consider that the power to substitute a group member as the representative party is limited to circumstances where it is established that the applicant is unable to adequately represent the interests of group members. There are a variety of other situations where the Court may be satisfied that it is "just" under s 33Z(1)(g) or "appropriate or necessary to ensure that justice is done in the proceeding" under s 33ZF to order that a group member be substituted as the representative party, including for example, because the applicant no longer wishes to undertake the role; the applicant has settled his or her personal case; or the case has changed such that the applicant is no longer the best person to represent group members' interests. 31 For the following reasons I am persuaded that it is appropriate to order that Ms Lindbloom be substituted for Mr Lewis as the applicant. 32 First, Mr Lewis does not wish to continue as the representative party, and he does not oppose Ms Lindbloom's appointment. His unwillingness to continue to undertake the important obligations of a representative party directing large and complex class action litigation may mean that group members' interests in the litigation are not adequately represented. The Court should not force an unwilling person to remain in that important role: Oasis Fund Management Ltd v Royal Bank of Scotland NV [2010] NSWSC 584 at [24] (Biscoe AJ); Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund) v Sims Ltd [2021] FCA 984 at [22] (Rares J). 33 Second, Ms Lindbloom is, or at least appears to be, a group member in the proceeding, and she has applied to be substituted for Mr Lewis. Allowing her to be substituted for Mr Lewis will mean that the important obligations of the representative party's role are more likely to be properly undertaken, and group members' interests are more likely to be adequately represented: Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; 256 CLR 507 at [40] (French CJ, Bell, Gageler and Keane JJ). 34 Third, the courts will usually not permit a person to be the applicant in a class action unless they are legally represented (Wilkinson v Wilson Security Pty Ltd [2022] FCA 756 at [20]-[24]) and Ms Lindbloom has engaged legal representatives to act in the proceeding. GMP and counsel retained in the case have some experience in class action litigation and it is likely that they understand that they owe duties to group members who are not their clients: Dyczynski v Gibson [2020] FCAFC 120; 280 FCR 583 at [209] (Murphy and Colvin JJ), citing Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323; (2016) 335 ALR 439 at [220] and [308] (Murphy J). Again, group members' interests are more likely to be adequately represented. 35 Fourth, Ms Lindbloom has made arrangements to meet the legal costs likely to be incurred in the litigation. She has engaged GMP on the basis that the firm will conduct the proceeding without a litigation funder, I infer on a conditional fee basis. 36 Another issue that arises is in relation to any adverse costs order that may ultimately be made. For example, is it appropriate to order at this stage that: (a) Mr Lewis be liable for the respondent's costs incurred only up to the date he ceased to be the representative party; and (b) Ms Lindbloom be liable only for the respondent's costs incurred after the date of substitution, rather than be liable for the respondent's costs incurred both before and after her substitution as the representative party. 37 In the case management hearing on 31 October 2023 I expressed a preliminary view that it was appropriate to leave any consideration of the appropriate costs order until after final judgment, citing Auskay at [15] and Tongue v Tamworth City Council [2004] FCA 1702; 141 FCR 233 at [38]-[40] (Jacobson J). I gave the parties an opportunity to put on written submissions on the issue if they wished, but neither did so. 38 Since the issue was raised, an article titled "Liability for Costs When Class Representatives Change in Australia's Federal Class Actions" (2015) 15(1) Oxford University Commonwealth Law Journal 71 by Professor Vince Morabito has come to my attention. The good Professor bemoans what he describes as the uncertainty that exists (where the applicant in a class action has been substituted as the representative party and the action is ultimately unsuccessful) regarding which of the applicants the respondent is able to turn to in order to recoup its legal costs. In relation to costs incurred before the substitution of the new applicant, Professor Morabito asks whether the respondent can recover adverse costs from the original class representative, the new class representative, both of them, or neither of them? He notes that there are three categories of respondent's costs to consider, being: (i) costs incurred by the respondent where the costs orders were made before the change in the representative party; (ii) costs incurred by the respondent before the change in the representative party, but where no costs orders have been made before the change; and (iii) costs incurred by the respondent after the change in the representative party. 39 In my view the third category is straightforward. I can see no reason why, in the event the proceeding is unsuccessful, the new applicant would not be liable for the respondent's costs incurred after that person was substituted into the role. Once substitution occurs the new applicant is the party providing instructions to the lawyers he or she has retained and, on the usual principles, is the party liable for any adverse costs order. 40 It is relevant too that following the substitution of the new applicant, the original applicant may revert back to being just a group member. If that occurs, the original applicant will have the benefit of s 43(1A) of the FCA Act which provides that the Court "may not award costs against a person on whose behalf the proceeding has been commenced". 41 In relation to the first and second categories the position is not as straightforward. It is one thing to say that the original applicant should be responsible for costs incurred by the respondent where costs orders were made before the substitution of the new applicant; but the position can reasonably be said to be different where the costs were incurred by the respondent before the substitution, but where no costs orders were before that change. In such circumstances it can be argued that the new applicant should be liable in respect to costs orders made after the date of substitution, even where they relate to costs incurred before the change in the representative party. 42 An order in relation to respondent's costs incurred before the substitution may have the effect of reducing access to justice under the Pt IVA regime. In Tongue the proposed new applicant withdrew the application for substitution when confronted with a risk of liability for costs incurred by the respondent prior to substitution taking place. The proceeding therefore came to an end because no other class member was willing be substituted into the role. 43 Group members who wish to be substituted as the representative party are often reluctant to assume the risk of adverse costs liability for the respondent's costs incurred during the period when the group member had no say over how the case was being run by the original applicant. And it is relevant that at the time the respondent incurred those costs the new applicant was only a group member and therefore enjoyed the protection of s 43(1A) of the Act, although it will usually be the case that the new applicant does not have the protection of that provision at the point that the adverse costs orders were made. 44 However, while I accept that the cases reveal some inconsistent judicial approaches to the issue, they largely reflect different factual circumstances, including agreements between the parties in relation to costs. The proper exercise of the discretion in relation to costs is necessarily fact and context dependent, and I consider is appropriate to leave the resolution of where the burden of any adverse costs liability should fall until resolution of the proceeding. First, the issue is hypothetical; the applicant may be successful in the case and no issue regarding liability for the respondent's costs may arise. Second, if an issue as to whether and to what extent the original applicant and/or the new applicant should be liable for the respondent's costs, it will be necessary to hear the parties and to do so in the context of the costs orders proposed to be made. 45 For these reasons I made orders for Ms Lindbloom be substituted for Mr Lewis as the applicant; to reserve the question as to the apportionment of any liability for the respondents' costs between Mr Lewis and Ms Lindbloom; and to dismiss the application for discontinuance. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy.

Lewis v Philips Electronics Australia Ltd trading as Philips Healthcare

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