SHOULD THERE BE CLASS CLOSURE?
61 I have the power under s 33ZF(1) and also in the exercise of my inherent power to make a class closure order that eliminates the existence of overlapping group members in two competing class actions. At the least, s 33ZF(1) is adequate for the task (see Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469 at [33]). In my view, it is "appropriate … to ensure that justice is done in the proceeding" (I do not need to discuss the expression "or necessary to …" in s 33ZF(1)) to close the class in one of the proceedings. But which proceedings?
62 Before continuing further, I should make it clear that in the present context I am not dealing with the scenario where class closure orders, including the requirement for group members to register, are being made to facilitate settlement, which involve potentially extinguishing a class member's right to share in the fruits of a subsequent settlement or judgment (cf the scenario discussed in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2017] FCAFC 98 at [71] to [80] per Jagot, Yates and Murphy JJ endorsing the exercise of discretion by the docket judge, Foster J). Under conventional class closure orders, group members who neither opt out nor register by a specified date remain group members for all purposes, but are precluded from participating in any settlement and, depending upon the form of the order, any judgment. But such an order would not overcome the problem in the present context of overlapping group members in the McKay proceedings and the Basil proceedings. I have an entirely different context. I am closing the class in one of the proceedings to eliminate the duplication in group membership over both proceedings. This will not involve barring orders as such. Signed up group members in each of the proceedings will have the choice of remaining as such. As for presently unsigned group members in both proceedings, they will (as I will explain shortly) be captured by the McKay proceedings and can choose to maintain membership thereof or opt out. At this stage, there will be no registration protocol put in place, let alone barring orders superimposed on those who have not registered. Now the McKay applicant has stressed the cautionary advice of the Full Court in Melbourne City Investments (at [77]). But such advice should not be decontextualised. The matter is context dependent as to why class closure is being addressed and at what time. It may also be accepted that "[w]hether it is appropriate to order class closure is a question of balance and judicial intuition" (at [79]), but the context is all important. My context requires the application of a different calculus and it has some analogy with Smith, although there is one significant difference.
63 In Smith, there was an "open" class action (the Creighton proceeding) and a "closed" class action (the Smith proceeding) which were both brought against Australian Executor Trustees Limited (AETL). All of the group members of the Smith proceeding (who had entered into funding agreements with Litman Holdings Pty Ltd) were also group members of the Creighton proceeding. The differences in the two proceedings were substantial, such that it was possible that one proceeding could succeed and the other proceeding could fail. I would note at this point that that is not my context, but I would also note for completeness that the respondent before me sought to finesse too much out of this difference. Ball J had available to him an additional justification supporting both proceedings being allowed to continue, but its absence does not justify the reverse result in my context. AETL sought a permanent stay of one or other of the class actions. After considering various factors, Ball J accepted that "if only one proceeding is permitted to continue as a representative proceeding, that should be the Creighton Proceeding" (at [43]). It appears that the principal reason for this conclusion was that the effect of staying the Creighton proceeding would be to deprive a substantial number of debenture holders of the benefit of being members of a representative action. If the Creighton proceeding was stayed, only members of the "closed" class in the Smith proceeding would remain members of a representative action. Ball J then said that the choice was between staying the Smith proceeding or giving group members of the Smith proceeding an option to continue in the Smith proceeding alone or in the Creighton proceeding alone. His Honour said that he preferred the latter option. This was because "[t]he two proceedings offer true alternatives in the sense that they have different funding models and frame their cases in significantly different ways. The choice is not simply which legal advisors should be permitted to advance what is effectively the same proceeding" (at [47]). On this basis, rather than staying the Smith proceeding, Ball J considered that the appropriate course was to fix a date by when class members were to opt out of the proceedings, and made an order that group members of the Smith proceeding who did not opt out of the Smith proceeding by a specified date would be taken to have opted out of the Creighton proceeding. Such an order was made on the basis that "members of the [closed] Smith Class [had] in a sense specifically chosen to opt into that class by signing a funding agreement" (at [45]).
64 It is open to me to make similar types of orders in the present case to eliminate the duplication, although I accept that I have a different context given that in both of the proceedings before me the same or very similar claims are being pursued. In other words, if one of the proceedings succeeds or fails, the result in the other is most likely to mirror that outcome on the common issues. I would first need to determine which of the McKay proceedings or the Basil proceedings were the preferable proceedings for group members based on an assessment of the relevant factors. A suitable mechanism for achieving this result might be the following. Assume that the McKay proceedings are the preferable proceedings for at least the unsigned group members. On that basis, I could fix a date by which class members could opt out of either or both proceedings after first modifying the group description in the Basil proceedings. I could make orders to the following effect:
(a) The first step would be to modify the Basil group definition to close the class, so that it only includes signed up Basil group members. After that I could then implement an opt out mechanism in both proceedings.
(b) Members of the McKay proceedings who had not signed a funding agreement with the funder in the Basil proceedings (ICP Capital) and who had not opted out of the McKay proceedings by the opt out date would be members of the McKay proceedings. By definition, such persons would not be members of the Basil proceedings by reason of step (a). Such persons could be signed (ie parties to IMF funding agreements) or unsigned McKay group members. If such members did opt out of the McKay proceedings, then they would not be members of any proceedings.
(c) Members of the Basil proceedings who had signed a funding agreement with ICP Capital and who opt out of both the Basil proceedings and the McKay proceedings by the opt out date would no longer be members of either proceedings.
(d) Members of the Basil proceedings who had signed a funding agreement with ICP Capital and who opt out of the Basil proceedings (but not the McKay proceedings) by the opt out date would no longer be members of the Basil proceedings but would be members of the McKay proceedings. This would give funded group members of the Basil proceedings the option of electing to be members of the McKay proceedings in circumstances where I had determined that the McKay proceedings were the preferable proceedings for group members and was to be the only open class action to go forward, notwithstanding that such Basil group members had signed funding agreements with ICP Capital. Any contractual restraint on opt out of the Basil proceedings would have no force or effect in the face of my orders or any statutory right to opt out.
(e) Members of the Basil proceedings who had signed a funding agreement with ICP Capital and who opt out of the McKay proceedings (but not the Basil proceedings) by the opt out date would only be members of the Basil proceedings.
(f) Members of the Basil proceedings who had signed a funding agreement with ICP Capital and who did not opt out of either of the proceedings by the opt out date would be taken to have opted out of the McKay proceedings and be members of the Basil proceedings.
65 Orders of this kind would have the consequence that after the opt out date in each of the proceedings:
(a) the Basil proceedings would be a "closed" class action consisting of signed Basil group members only; and
(b) the McKay proceedings would be the "default" open class action with both signed and unsigned McKay group members.
66 Mr Michael Garner, counsel for the respondent in both proceedings, submitted that I should not make a class closure order. The respondent's preferred option was a permanent stay of one of the proceedings, which I have rejected. Mr Garner advanced the following contentions.
67 First, if one class is closed, then both proceedings will be heard in a joint trial. But that would result in duplication of work, including in respect of pleadings, discovery and interlocutory applications. There would be inefficiencies for the respondent (who would remain exposed to two sets of adverse costs orders) and inefficiencies for the Court. Moreover, the potential return for group members may well be reduced. It is said that such outcomes are not justified. Now I have addressed these matters earlier and there are steps that I propose to consider (as I discuss later) that will ameliorate these concerns. It is also said that the McKay proceedings and Basil proceedings are substantially the same and that the present context is not a scenario like Smith, where the two proceedings offered true alternatives such that one could succeed and one could fail. Rather, it is said that in the present context the choice is simply which legal advisors and funders should be permitted to advance what is effectively the same proceedings. Now that is true so far as it goes but it ignores the signed up group members' interests and the funding choices that they have made.
68 Second, it was contended that class closure of one of the proceedings would require there to be an opt out process in both proceedings conducted simultaneously, which would be expensive and confusing for group members. In addition, if a class closure order of the kind described above is made, there would inevitably be a need for a further conventional class closure mechanism at a later time in respect of the "default" open class, which would also occur at the expense of group members. Accordingly, it was contended that the class closure option for dealing with the problem of overlapping group members would likely result in two opt out regimes (one initially in each of the proceedings), followed at a later time by a third conventional class closure regime in the "default" open class action. It is said that this can be contrasted with a permanent stay of one of the proceedings, pursuant to which there would only be one opt out/class closure regime. In short, it is said that the stay option would be much less expensive and much less confusing for group members than the class closure option. These submissions are accurate to some extent but they do not compellingly support a case for a stay.
69 Third, it is said that if the Court adopts the class closure option, it would in any event be required to determine which of the McKay proceedings and the Basil proceedings is the preferable set of proceedings for group members so as to determine which of the two proceedings should be the "default" open class action. It is said that if that determination is made, the appropriate course is for the Court to allow the preferable proceedings to continue as an open class action and to stay the other proceedings. But again this ignores the position of the signed up group members in the proceedings to be stayed.
70 Mr Garner's submissions have considerable force, although his second and third submissions travel beyond the interests of the respondent. But as I have indicated, I do not consider that a proper basis has been shown for staying one of the proceedings if I eliminate the overlap in group membership and have one open class and one closed class. The question that arises is which class should be closed: the McKay class or the Basil class? In answering that question, the principal and overriding consideration is the best interests of group members. But what does this mean precisely in the present context? On one analysis I have four classes of group members to consider being:
(a) the signed up group members in the McKay proceedings (ie those that have entered into litigation funding agreements and retainer agreements with IMF and Slater & Gordon);
(b) the balance of the group members in the McKay proceedings;
(c) the signed up group members (with ICP Capital and Maurice Blackburn) in the Basil proceedings; and
(d) the balance of the group members in the Basil proceedings.
71 Now theoretically I should consider the best interests of the four classes both separately and collectively. But two of these classes can be readily eliminated from further consideration if I allow both proceedings to go forward with one as an open class and the other as a closed class. In that scenario, the signed up classes referred to in [70(a)] and [70(c)] will have their interests protected whichever class I close. Therefore I need only further address the classes referred to in [70(b)] and [70(d)], ie the unsigned group members in each of the proceedings. But these two classes can be reduced to one class for the purposes of the analysis. Each may be separately formally stipulated, but in substance their boundaries and content are co-extensive; hence the duplication to be eliminated. So the question (assuming the duplication is to be eliminated) is: which are the preferable proceedings for unsigned group members in both proceedings? What considerations are relevant to answering this question? In my view, the following non-exhaustive considerations are relevant:
(a) The experience of the practitioners seeking to bring the representative actions, although that factor may be confined to whether the practitioners have sufficient experience and competence to be able to properly represent the interests of class members.
(b) The costs the practitioners expect to charge for all work performed.
(c) The funding terms in each of the proceedings including funding terms and conditions and percentages.
(d) The resources made available by each firm of solicitors, and their accessibility to clients.
(e) Generally, the fact that one of the proceedings was commenced first in time carries little weight, however that will not always be the case. It may be relevant if one case has been on foot for significantly longer than the other and is therefore more advanced. Accordingly, the state of preparation of the proceedings is relevant, but will not be determinative if both proceedings will be ready for trial at the same time.
(f) The number of group members signed up to each of the proceedings.
(g) Whether each of the proceedings would proceed without a common fund order, and the terms of any proposed common fund order that might be sought.
(h) The position adopted by each funder on the question of security for costs and generally their resources to meet any adverse costs order.
72 In the present context as to a comparison between both proceedings, criteria (a), (d), (e), (f) and the first aspect of (g) are neutral.
73 First, as to criterion (h), there are no difficulties concerning the McKay proceedings, but there are unresolved questions concerning the Basil proceedings. Issues have been raised about the financial position of ICP Capital (the Basil funder), which are relevant to security for costs and the funding of adverse costs orders. ICP Capital was registered in December 2016. It has no financial accounts and has paid up capital of $1 million, but has $19 million said to be due and payable from its shareholders. But there is a lack of real detail (although there is some evidence) as to the financial capacity of those shareholders, some of whom are foreign corporations, to contribute a further $19 million if required to do so. Further, ICP Capital has said that it will use the money due and payable from its shareholders to fund the Basil proceedings and up to two more class actions, conditional on book build. But it is not entirely clear to me how ICP Capital could fund and provide security in each of the Basil proceedings and up to two more class actions. However, ICP Capital proposes to take out an adverse costs insurance policy in the Basil proceedings, which may or may not be adequate.
74 The McKay proceedings offer group members greater certainty in respect of the adequate provision of security for costs and an assurance that their returns will not be reduced by the expense of an adverse costs insurance policy. Contrastingly, there are some risks with respect to security for costs in relation to the Basil proceedings. In my view, there is a small risk that ICP Capital may not ultimately be able to provide adequate security for costs. Accordingly, it is not in the best interests of group members that the McKay proceedings' class be closed in circumstances where there exists uncertainty as to whether the Basil proceedings will ultimately proceed. If I were to close the class in the McKay proceedings but allow the Basil proceedings to go forward as an open class and the Basil proceedings were ultimately stayed for non-provision of security for costs, group members' interests (the unsigned members at least) in both proceedings would be significantly prejudiced. Of course, if that were to occur I could revisit any class closure of the McKay proceedings. But that would be an uncertain and unsatisfactory outcome.
75 Further and generally, in the McKay proceedings group members will not incur the costs of an application for security for costs. In addition, there is no risk that any relevant insurance premium in respect of adverse costs will be passed on to group members. Contrastingly, ICP Capital intends to pass on the cost of the relevant insurance premium to the Basil applicant (and group members), subject to an undocumented guarantee pursuant to which the extent of the "passing on" will be capped at a certain level. John Walker, CEO of ICP and ICP Capital, gave evidence of a "pricing assurance" styled as the "Net Benefits Warranty". Apparently, ICP and ICP Capital have now agreed that the sum of ICP's fee plus ICP Capital's fee plus any adverse costs order insurance premium will be no greater than IMF's fees; if the sum is greater, the difference will be deducted from the fees of ICP and ICP Capital. But as yet there is no evidence that the Net Benefits Warranty has been effected by way of amendment to the funding agreement signed by funded group members in the Basil proceedings. Its existence, terms and enforceability remain opaque to Basil group members.
76 Generally, there is a small risk that ICP Capital may not have sufficient resources to fund the Basil proceedings or be able to procure full insurance coverage for adverse costs orders. But I do accept that in the event ICP Capital is unable to continue funding, then Maurice Blackburn would conduct these proceedings on an unfunded basis. On balance, on criterion (h) the McKay proceedings are favoured as the default open class.
77 Second, let me now elaborate on criterion (c) and the funding arrangements. The pricing model contained in the IMF funding agreement and the proposed McKay funding model is relatively clear. Contrastingly, the pricing model contained in the ICP Capital funding agreement is complex, uncertain and subject to various significant undocumented "riders", creating a further source of uncertainty for group members in assessing their likely financial returns should the matter successfully resolve. On this point therefore, on balance the McKay proceedings are still favoured as the default open class.
78 The IMF funding agreement is in fairly standard terms. Varying commission rates are proposed to be charged on gross recoveries depending upon the timing of resolution; there is no charging of a multiple of IMF's investment in the McKay proceedings. Further, a project management fee is not being charged. IMF's commission rates and caps compare favourably with the rates and caps used in other group proceedings and approved by this Court. IMF and the McKay applicant have also agreed that the terms sought in any common fund application will be on more favourable terms than under the present funding agreements, with entitlements to additional commission under the latter not pursued.
79 Contrastingly, the ICP Capital funding arrangements operate on the basis of complicated formulae, including what has been described as the 3 x Multiple Model, which essentially allows a fee in respect of a particular claimant of three times the claimant's share of project costs. But I should observe that the ICP Capital funding agreement relevantly provides for commission fees specified by the greater of various rates, which are in fact lower than IMF's rates, and the application of the 3 x Multiple Model. Accordingly, given the operation of cll 6.1(c)(iii) and 6.1(c)(iv), a direct comparison of percentages between the two funders is superficial and incomplete. Further, despite the existence of apparently comprehensive documents comprising the ICP Capital funding agreement, these documents are to be read with or subject to various pricing assurances, described in the materials as the Net Benefits Warranty, which I have described, and what has been described as the Return Guarantee (or sometimes the Net Claim Proceeds Guarantee). The Return Guarantee provides for a cap on fees payable by a claimant such that the claimant receives at least 50% of what are defined to be the Net Claim Proceeds.
80 I would also note that the use of the 3 x Multiple Model to determine commission rates may not necessarily incentivise ICP Capital to keep litigation costs low or resolve the litigation at an early stage of the proceedings, notwithstanding other provisions drawn to my attention that may act as a counterbalance.
81 Now I accept that the ICP Capital funding agreement caps the sum of ICP's and ICP Capital's fees at no more than the fees proposed to be charged by any other funder that funds a filed claim against the respondent; this is now to be further modified as I have discussed earlier. In substance, the Basil funding arrangements have the effective cap that Basil group members will pay no more than if the alternative funding arrangements in the McKay proceedings applied. So, it was said that, ceteris paribus, this was an argument in favour of the Basil model over the McKay model. Simplistically this may be true in one sense, but two points. First, such a rider adds some complexity and uncertainty as to how the Basil funding arrangements are to apply. Second, what would happen if each competing funder had such a rider? The effect and operation of each rider would be circular and ineffectual. For my part, whilst such a rider has some appeal, I have not given it great weight in the balancing exercise in comparing funding models.
82 Finally on this aspect dealing with the comparison between funding terms, the Basil applicant says that under the ICP Capital funding agreement, if ICP (as the provider of management services) believes that circumstances have arisen such that ICP may be in a position of conflict with respect to any obligation owed to ICP Capital and the obligations owed to class members, ICP will act in the class members' interests to resolve that conflict. It is said that such protection afforded group members and prioritisation of their interests is possible, given the separate functions of ICP and ICP Capital, but is not possible under the IMF funding arrangements. In the overall scheme of things, I do not consider that this is a significant relevant difference in favour of the Basil arrangements.
83 Let me now deal with some of the modelling evidence relevant to potential outcomes. Each of the applicants has filed a form of accounting or financial modelling evidence seeking to justify how it is said that, in relation to the modelling of realistic scenarios, their funding arrangements ultimately lead to better returns for group members. One might appreciate that various scenarios required modelling depending upon the assumed recoveries, the point at which the proceedings were resolved and inputs involving estimates of legal costs and other deductions that needed to be made from any gross recoveries. Some prediction was also necessary concerning how the terms of the competing funding arrangements were to work.
84 At the outset, I would note that the inherent complexity of the terms of the ICP Capital funding agreement, combined with the effect of various significant unwritten riders thereto render it difficult to assess the impact of the funding and cost arrangements on possible outcomes for group members.
85 Now the Basil applicant has contended that the most significant reason why the Basil proceedings are advantageous for group members is that ICP Capital's funding arrangements in the Basil proceedings offer considerable advantages to claimants over IMF's funding arrangements in the McKay proceedings. It is contended that "careful, extensive and detailed" modelling of potential returns to group members in the two class actions has been conducted by ICP Capital. Of the settlement scenarios that have been modelled:
(a) more than 50% result in group members in the Basil proceedings receiving a higher return than those group members in the McKay proceedings, with an average increase in return to group members in the Basil proceedings of some significance;
(b) less than 50% result in group members in the McKay proceedings receiving a higher return than those group members in the Basil proceedings, with an average increase in return to group members in the McKay proceedings of only a very modest difference.
86 Further, the Basil applicant says that by reason of:
(a) the fact that ICP Capital's rates are lower than IMF's funding rate(s);
(b) the existence of the various guarantees and warranties; and
(c) the common fund order cap that will be applied for,
ICP Capital's funding arrangements provide at least an equal, and in many scenarios, a greater return to funded and unfunded group members than those proposed by IMF.
87 In my view, at this stage it is difficult to meaningfully compare the modelling undertaken by the parties. Each of the models worked through relies upon a number of assumptions concerning the funding models, key inputs and the stage at which, and amount for which, the matter is resolved. In my view, the modelling should be treated conservatively as offering no more than a guide to the range of possible outcomes for group members. In so far as any such comparative analysis is able to be undertaken, one should have little regard to the scenarios which may be regarded as outliers. It is more meaningful to focus on the scenarios which depict more conservative outcomes in terms of claim proceeds and which are focussed on the more likely stage at which the proceedings might resolve. When one does so, in my view there is a reasonable basis for concluding that the McKay funding model may generate a more beneficial result for group members in the majority of those resolution scenarios which are more conservative. In summary, at the present time I cannot confidently form the view that the Basil funding model (even adjusted by the recent warranties and guarantees proffered) will always, or even most often, deliver the superior result.
88 I would make some additional general points on the question of funding. First, comparisons between funding models at this stage is in some respects an unsatisfactory exercise. I have not approved their terms or addressed any common fund order question. Accordingly, any comparison proceeds on an unstable foundation. It proceeds on the questionable assumption that either model is what will be approved by me at a later stage either directly or through the determination of any common fund order application. Second, notwithstanding the uncertain aspects of the Basil funding model, I see no difficulty in leaving Basil group members, who have been signed up, to the funding model that they have chosen in their proceedings, subject to any later approval question by me. That result can be achieved by allowing the Basil proceedings to go forward but to close its class so that it only includes those who have presently been signed up or ultimately a sub-set thereof (ie those who have signed up less those who have signed up but then opted out). I see little advantage in permitting unsigned group members (ie those who have not yet signed up in the Basil proceedings) to participate therein. Now the Basil applicant contends that McKay group members who have not presently been signed up in the McKay proceedings should be permitted to participate in the Basil proceedings to take advantage of the so-called advantages of the Basil funding model. I disagree for the reasons that I will later elaborate on. In essence, the assumption of the relative advantages of the Basil funding model is questionable. Further, there can be no certainty in that model being ultimately approved by me or being the basis for any common fund order in any event. Further, leaving such an option open will create considerable uncertainty for group members in terms of notification procedures. In my view, unsigned group members in either of the proceedings should only have a choice of staying in or opting out of the McKay proceedings. I will elaborate on this later.
89 Third, let me now address criterion (b) and the legal fees and evidence relevant to their projections. In summary, this criterion is neutral as between the two proceedings, notwithstanding the following matters.
90 Now I accept that the rates and the litigation budget for the McKay proceedings are both lower than those in the Basil proceedings. The lawyers' rates are higher in the Basil proceedings than in the McKay proceedings across all categories of personnel who might be involved. The differences range from 12% for a principal lawyer / consultant / special counsel, to 45% for a paralegal. The average difference between the rates proposed to be charged for equivalent legal staff is 27% higher in the Basil proceedings. Further, the litigation budget in the Basil proceedings is higher than that in the McKay proceedings.
91 Generally, on current projections it would appear that legal costs may be lower in the McKay proceedings than in the Basil proceedings, such that the returns to group members may be higher in the McKay proceedings.
92 But I do not consider it to be a useful discriminant at an early stage to compare solicitors' charge out rates or legal costs budgets for the purpose of selecting the proceedings to go forward with the lowest legal costs estimate, unless there is a very major discrepancy. I say this for a number of reasons:
(a) First, charge out rate comparisons are in some respects invidious and tell you little about the quality of the service delivered and the experience and quality of the personnel who are to deliver the service. Indeed, a firm that has higher rates but is more efficient in terms of lower hours spent may be preferable.
(b) Second, legal budgets at an early stage of proceedings have too many imponderables to be a useful base or comparator for costs estimates in lengthy and complex group proceedings.
(c) Third, in any event if you use legal costs budgets as a comparator, one firm may be incentivised to give an unreasonably low initial estimate in order to gain approval for its action to go forward.
(d) Fourth, in any event the Court's supervisory jurisdiction on costs can at all times be invoked to ensure that whatever budget is initially proffered, legal costs are kept at a reasonable and realistic level. In other words, the Court can in substance factor out at a later stage any notional and hypothetical difference in costs estimates in relation to legal costs "charged" ultimately to group members.
93 Finally and as I have indicated, there are a number of other factors that seem to be equally balanced as between the two proceedings. First, in relation to size (number or financial stake) of group members, the signed up McKay group members number 1,586 compared with 1,008 Basil group members. But it appears that the loss estimates for the groups, based on the application of an inflation per share loss methodology calculated on a LIFO basis, are of a similar order of magnitude. Second, in relation to the extent of involvement of the proposed representative applicants, both representative applicants are highly engaged and each makes a reliance-based claim as well as a market-based causation claim. Third, as to the experience of the legal teams, both legal teams are comprised of solicitors and counsel who are appropriately experienced to conduct the proceedings. Fortunately, the parties before me have refrained from making "scandalous" submissions about their rival lawyers' competency (or lack thereof) (cf Setterington v Merck Frosst Canada Ltd [2006] OJ No. 376 at [27] per Winkler J). Fourth, as to the nature and scope of the causes of action advanced in each action, the case theories and the stage each of the proceedings have reached, such factors are equally balanced.
94 On balance, and given my view that the duplication in group membership should be eliminated, it is appropriate to close the Basil class. First, the ICP Capital funding arrangements are more opaque and evolving than the IMF funding arrangements. Second, I have less confidence in the financial strength and capacity of ICP Capital than I do of IMF. Relatedly, there are some small risks concerning its ability to deal with adverse costs orders and the question of insurance. I am content to leave signed up Basil group members with the arrangements that they have chosen, but I do not consider that the Basil class should remain open.
95 Now before dealing with the precise class closure mechanism, it is appropriate at this point to make a number of other general observations.
96 First, if I had been faced with the scenario of two open class proceedings which substantially overlapped as to both class membership and causes of action, with neither involving a substantial number of group members signed up to litigation funding and retainer agreements, I would have had no hesitation in staying one of the proceedings, and in essence adopting a modified carriage motion model.
97 Second, if I had been faced with the first scenario but with one of the proceedings involving a very substantial number of group members signed up to funding agreements and the other not, I would have, ceteris paribus in terms of the quality of the legal representation and the availability of resources, been inclined to stay the proceedings that did not have such a substantial number of signed up group members. But this observation should not be seen as an incentive to sign up group members before issue. It simply reflects the reality that displacing contractual arrangements made by significant numbers of group members should be avoided (if possible) where I can otherwise ensure that signed and unsigned group members' interests are properly protected in any event. Moreover, what I have said cannot be definitive in all cases, for example where the quality of the legal representation and the resources is substantially less in the proceedings with the signed up group members as compared with the other proceedings; but this is an unlikely scenario as experience shows that if anything the reverse is likely to be the case.
98 Now it will be appreciated that the present cases before me do not involve either scenario. Rather, I am dealing with a scenario where both proceedings have over 1000 signed up group members in each case. Even then, if I had been satisfied that the quality (experience) of the legal representation and the availability of resources in one case was substantially less than for the other, I would have stayed the former case. But as I have indicated, in the two cases before me there is no such significant disparity between the quality of the legal representation and the resources available in each case, subject to the small risks I have discussed earlier concerning the Basil proceedings.
99 Third, I do not consider it to be an appropriate discriminant in most cases, in terms of choosing at an early stage which proceedings to stay (or perhaps which class to close), to endeavour to compare (in terms of assessing what is in the best interests of group members):
(a) the terms of possible competing common fund order scenarios; and
(b) the ultimate net recoveries that may be available to group members under different common fund order scenarios.
100 In relation to (a), I say this because at an early stage the Court will not have approved the funding model(s), let alone made any common fund order. In other words, the comparison that (a) may entail would be based on an insecure foundation at an early stage of the proceedings. Various statements have been made by the Basil applicant / ICP Capital and the McKay applicant / IMF as to what position they would take concerning a common fund order application if their related proceedings, namely, the Basil proceedings and the McKay proceedings respectively, were to proceed as open class proceedings. At this stage, and given that the terms of any such order (indeed whether I make one at all) are matters for later consideration by the Court, the position is too unclear to assess whether one set of proceedings should be favoured over the other (in terms of being the open class proceedings) by reason of this criterion.
101 In relation to (b), the problems are compounded. Not only would one have an insecure foundation in terms of assessing the terms of the funding models, but in terms of projections as to future recoveries based on these models there would be uncertainty as to the inputs into any calculations relating to gross recoveries, approved deductions (s 33V) and net recoveries.
102 But what I have said is subject to the rider that if in a particular case matters [99(a)] and [99(b)] can at an early stage be determined with a substantial degree of confidence, with one of the proceedings being clearly and significantly advantageous to unsigned group members over the other in terms of realistic funding arrangements and projected ultimate net recoveries, then that may favour staying the less favourable proceedings or closing its class. But in my view it would be an unusual case where this could be determined with confidence at an early stage. I could not so determine in the matters before me. I am, nevertheless, closing the Basil class for other reasons.
103 Fourth, I do not consider that any "first in time" criterion, even if it was a relevant consideration, has any weight in the present case. It is well established that a race to the palace ought not to be encouraged by adopting such a criterion. But where a second representative overlapping action has been instituted a significant time after the first such action, it may be relevant to consider the relative timing. But to do so would not be to prefer the first in time for just being first. Rather, it may simply reflect the fact that significant work may have already been done under the first action, such that the second action ought not be permitted to proceed because of the duplication in expense, inefficiencies and delay involved which may be antithetical to group members' interests. But in the present context, I am not faced with such a scenario given that the Basil proceedings were instituted shortly after the McKay proceedings.