INTRODUCTION
1 Before the Court is an interlocutory application dated 28 April 2023 in which the applicants in this class action, Michael Robert Luke and Meredith Ann Luke (in their capacities as co-executors of the estate of Robert Colin Luke, deceased) and Ann Mary Stroud and Neil Bernard Colombari (in their capacities as co-executors of the estate of Joan Mary Colombari, deceased), seek Court approval of a proposed settlement under s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act).
2 The applicants bring the class action on their own behalf and on behalf of approximately 2,700 current and former owners of freehold or leasehold interests in units in retirement villages operated by the respondent, Aveo Group Limited, which is a major operator of retirement villages in Australia. The proceeding is funded by Galactic Aveo LLC pursuant to litigation funding agreements it entered into with the applicants and approximately 232 group members.
3 The applicants' claims arise from Aveo's introduction of the "Aveo Way Programme", which it began implementing in about 2014 and 2015, and which it continues to implement today. The essence of the claims is that Aveo sold to the applicants and group members their rights to occupy a retirement village unit upon a certain set of contractual terms, commonly a freehold interest in the unit with lower deferred management fees and the prospect of a capital gain when leaving the unit, Aveo then altered the terms on which incoming residents were to be offered units. The central allegation is that under the Aveo Way, in practice, incoming residents could only acquire a leasehold interest, which meant that the applicants and group members were not able to sell as attractive a set of rights to incoming residents as the rights they had themselves originally purchased; that the value of their existing rights was therefore materially diminished; and that Aveo unconscionably took advantage of its bargaining power in order to shift the applicant and group members over to being required to sell their existing rights under the Aveo Way.
4 The applicants have reached an in-principle settlement with Aveo (the proposed settlement) under which, if approved, Aveo will pay the applicants and group members $11 million (settlement sum) inclusive of interest, legal costs and settlement administration costs in full and final settlement of the proceeding.
5 Mr Levitt's evidence in the approval application shows that he knew that the settlement sum would be consumed by Levitt Robinson's legal costs. In an affidavit in support of the approval application he said that the firm had incurred $10,999,558 in legal costs in conducting the case up to the date of settlement, and estimated the costs of the settlement approval application at $251,450. It must have been plain to Mr Levitt that the sum provided under the proposed settlement would mean that the applicants and group members would get nothing.
6 Group members might reasonably ask how the applicants and their lawyers could conscientiously put forward the proposed settlement for approval when the group members are to receive nothing under the settlement, yet the applicants' lawyers seek payment in full for their work. A group member who objected to the proposed settlement complained that the "[t]he fees applied by Levitt Robinson appear to be unreasonable and what remains for the Group Members is an insult". Group members might also reasonably ask how the Court could conclude that such a settlement is fair and reasonable in the group members' interests. They might think that a settlement under which the only winners are the lawyers indicates that something is terribly amiss in the operation of the class action regime in Pt IVA of the Act.
7 The Court's fundamental task in a settlement approval application under s 33V(1) of the Act is to determine whether the settlement is fair and reasonable and in the interests of the group members who will be bound by it, including as between the group members. There must be a good reason why a settlement could be considered fair and reasonable from the perspective of group members, when the lawyers and litigation funders get more out of the class action than the people for whom the proceeding is brought: Clarke v Sandhurst Trustees Ltd (No 2) [2018] FCA 511 at [29]; Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; 132 ACSR 258 at [244].
8 However, the fact that a proposed settlement is reached on terms which are quite unfavourable to group members does not necessarily indicate that the settlement is not fair and reasonable having regard to their interests, nor does it necessarily indicate a failure in the operation of the Pt IVA regime. Every day, in courts around the country, litigants are forced to confront the reality that their claims or defences are not as strong as they thought, and are forced to the realisation that it is appropriate to settle the case on unfavourable terms, or even to entirely capitulate. That is what happened here.
9 The parties reached the proposed settlement after six days of trial. The evidence in the approval application tends to show that the applicants accepted the offer of $11 million inclusive of costs because they (or more accurately their lawyers) had come to the view that the applicants' and group members' claims were likely to fail if the trial continued to judgment. It is not the Court's role in a settlement approval application to second guess the decisions or risk appetite of the applicants or their lawyers. Different applicants and different lawyers will have different risk settings, and the question is whether the proposed settlement falls within the range of reasonable outcomes: Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323; 335 ALR 439 at [74]. Even so, it is perhaps worth noting that the applicants' assessment of their prospects of success had a sound basis. Having regard to the materials in the approval application, I consider that their claims were likely to have failed had the trial continued to judgment.
10 I was satisfied that the proposed settlement fell within the range of reasonable outcomes of the proceeding, and fair and reasonable in the interests of group members to be bound to it, including as between group members. On 22 November 2023 I made orders to approve the proposed settlement.
11 But there remained a question as to the reasonableness of Levitt Robinson's legal costs and of Galactic's litigation funding charges. The Court must decide whether it is 'just' under s 33V(2) of the Act to approve the payment of those amounts from the settlement fund.
12 Class actions are intended to be conducted for the benefit of the applicants and group members rather than for service providers such as lawyers and funders and the legal costs and litigation funding charges should be both reasonable and proportionate: Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527 at [148]. The Court has a supervisory role in relation to the legal costs and litigation funding charges proposed to be deducted from a settlement, and it is appropriate to scrutinise those costs as part of the settlement approval process: Kelly at [11], [333] and [346]; Earglow Pty Ltd v Newcrest Mining Ltd [2016] FCA 1433 at [91].
13 In order to best protect the group members' interests I made orders on 8 June 2023 to appoint:
(a) Elizabeth Harris, an experienced legal costs consultant, as a referee pursuant to s 54A of the Act (the Costs Referee) to inquire and report in relation to the reasonableness of the applicants' legal costs for work done up to the hearing of the settlement approval application, including costs anticipated but yet to be incurred as at the date of her report. The Costs Referee concluded that the reasonable legal costs incurred by Levitt Robinson up to the date settlement was reached were not $11 million as Levitt Robinson initially claimed, but instead $9,664,594. That represented a reduction of $1,334,964 (the Disallowed Costs). Neither the applicants, Levitt Robinson nor Galactic opposed adoption of the Costs Referee's reports, and I concluded that it was appropriate to adopt the reports and disallow those costs; and
(b) Lachlan Armstrong KC and Kane Loxley of counsel as contradictor (Contradictor), to assist the Court to perform its judicial function by representing group members' interests in the settlement approval application. The Contradictor submitted that after taking account of the Disallowed Costs, the Court should further reduce Levitt Robinson's approved costs by $1,141,078 which the Contradictor submitted resulted from Levitt Robinson's lack of expedition and serious inefficiency (the Avoidable Costs).
If both the Disallowed Costs and the Avoidable Costs are taken into account Levitt Robinson's reasonable legal costs will be reduced by $2,476,042, to a total $8,523,516.
14 The Contradictor contended that Levitt Robinson failed to act with due expedition and efficiency by failing to serve the applicants' expert evidence in accordance with the Court ordered pre-trial timetable. On the Contradictor's argument, had Levitt Robinson complied with the pre-trial timetable in relation to the service of its expert evidence the applicants would have had Aveo's expert reports by late November/early December 2022; because of Levitt Robinson's late service of its expert reports it did not receive Aveo's expert reports until the eve of trial; that the parties' expert evidence was pivotal to achieving a settlement and that the case would most likely have settled at a mediation in December 2022 had the expert evidence been on; and because the parties did not have their expert evidence, the case did not settle at the mediation and Levitt Robinson ran up $1.141 million in costs in the period immediately prior to trial which would have been avoided had the firm complied with its professional obligations.
15 Levitt Robinson denied any serious lack of expedition, inefficiency or delay, and said that any failure on its part that was found to exist did not cause the Avoidable Costs. It said, and I accept, that the Court should be cautious before requiring the firm to write off substantial costs when there is no suggestion that they were incurred other than in an honest endeavour to prosecute the applicants' and group members' claims. This was a large and complex case and it is appropriate to be cautious before reaching a conclusion, several years later, well removed from the heat of battle, and with the benefit of 20/20 hindsight, as to what could or should have been done by Levitt Robinson.
16 But for the reasons I explain I came to broadly accept the Contradictor's submissions. I am persuaded that Levitt Robinson failed to act with due expedition and was seriously derelict in failing to serve the applicants' expert evidence in accordance with the Court-ordered pre-trial timetables. It is more likely than not that the case would have settled earlier had the firm complied with its professional obligations, and the $1.141 million in costs which the firm ran up in the immediate lead up to trial were avoidable.
17 It is material to my view that the question of whether the applicants and group members had suffered any loss in the value of their freehold or leasehold interests in units in retirement village operated by Aveo was central to the case. Notwithstanding that centrality, Levitt Robinson ran the case for more than five and a quarter years before it obtained a report by an expert property valuer. Levitt Robinson did not serve its expert evidence until 16 January 2023, which was so late that the applicants could not realistically expect to receive Aveo's expert reports in response until effectively the eve of trial.
18 When Aveo served its expert reports on 10 March 2023, three business days before trial, it should have been immediately apparent that Aveo's expert evidence, coupled with the evidence of its sales managers, seriously damaged the prospects of the applicants being able to establish loss. It is sufficiently clear on the materials in the approval application that the difficulties the applicants faced in establishing loss were significant in the decision to accept the proposed settlement. Had Levitt Robinson complied with the pre-trial timetable so that Aveo was required by the pre-trial timetable to serve its expert evidence by late November 2022, it is likely that at the December 2022 mediation the applicants' lawyers would have understood the difficulties the applicants faced in establishing loss, and that the case would have settled at around that point. The applicants would thereby have avoided the $1.141 million in Avoidable Costs that Levitt Robinson ran up in 2023, in the immediate pre-trial period.
19 I do not, though, accept the Contradictor's contention that after reducing Levitt Robinson's approved costs by: (a) $1.335 million in Disallowed Costs; and (b) $1.141 million in Avoidable Costs; none of Levitt Robinson's costs incurred in the settlement approval application should be approved. In the circumstances of the case a reduction of $2.476 million is sufficient, and Levitt Robinson's reasonable costs incurred in the settlement approval application should be approved. Those costs are minor in the scheme of things and they would have been incurred regardless of whether Levitt Robinson complied with the pre-trial timetable for service of the applicants' expert reports.
20 I have therefore approved Levitt Robinson's reasonable and proportionate costs up to the date of settlement in the amount of $8,523,516, and also approved the firm's reasonable costs of the settlement approval process in the amount of $394,538, as assessed by the Costs Referee. I have ordered that Levitt Robinson pay the costs of the Contradictor. If not for the legal costs that Levitt Robinson sought to have deducted from the settlement fund the greater part of the Contradictor's fees would not have been incurred.
21 When the settlement approval costs and the settlement administration costs (estimated at $186,000) are taken into account, there will be approximately $1,895,946 available for distribution to the applicants and group members, which represents approximately 17% of the settlement. That is a far from a happy result for them, but the unfortunate reality is that their case was weak and always likely to fail. The fact that this is a class action rather than ordinary inter partes litigation does not provide a proper basis for giving group members something for what turned out to be worth nothing or something beyond what the true value of their claims are worth: Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374 at [18]-[19].