McKenzie v Cash Converters International Ltd

LEE J: 1 In McKenzie v Cash Converters International Ltd (No 3) [2019] FCA 10, I explained the approach the Court takes on an application for approval pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act) and also, in general terms, the nature of the current controversy. 2 This representative proceeding was commenced by Ms McKenzie in 2016. The litigation was, it is fair to say, hard fought. Following an unsuccessful mediation in May 2018, the parties eventually reached an agreement, but only immediately prior to an initial trial scheduled to commence before a judge of the Court in October last year. 3 On this application I have had the benefit of a confidential opinion prepared by both senior and junior counsel for the applicant, all of whom are counsel well-experienced in representative proceedings. That opinion both cogently and comprehensively addresses the matters referred to in the Class Actions Practice Note (GPN-CA) at [14.4]. Given: (a) the complexity and likely duration of the representative proceeding; (b) the lack of any opposition of group members to the settlement; (c) the perceived risks of establishing liability; and (d) other matters which are referred to in the opinion (but are not apt to be detailed in this judgment), I have no doubt that the settlement is fair and reasonable and in the interests of all group members. 4 Accordingly, one might think that this is a very straightforward application: however, there are two aspects of this settlement that require closer consideration. 5 In Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379 at [52]-[54], I referred to the fact that in that settlement approval I was prepared, not without some hesitation, to accede to a request that the solicitors for the applicant be appointed as the administrator without exploring in detail the possibility of another person or entity undertaking the administration task at lesser cost. That was a fact-dependent determination, which was accompanied by the following admonition: I stress, however, that for the reasons I have already explained, it seems to me that in a number of cases this would not be the appropriate course to take. If a notion exists among those conducting Part IVA work that solicitors for applicants will somehow automatically become scheme administrators, the time has come for that notion to be exploded. (emphasis added) 6 As will become apparent, the explosion referred to in Lifeplan was somewhat of a damp squib. 7 In Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527, Murphy J was faced with a proposal to approve a settlement which contained a condition precedent in the settlement deed. In broad summary, that condition precedent provided that performance of the deed was conditional upon the Court making a common fund order. 8 His Honour indicated (at [32]) that he had "no difficulty in accepting that as part of the settlement approval application… orders directed at achieving equality of treatment between funded and unfunded group members should be made". Notwithstanding this, his Honour described as "completely inappropriate" the notion that the making of such an order be a condition precedent to a settlement, and indicated that he would have been "strongly inclined to refuse to approve a settlement which included such a clause". 9 Perhaps not surprisingly in these circumstances, the condition precedent was not pursued and settlement ultimately occurred. 10 Returning to the present conditional settlement, a settlement deed was entered into in October 2018. Clause 2.2 of that deed was in the following terms: 2.2 Appointment of Maurice Blackburn as Claims Administrator Maurice Blackburn will, when applying for the Approval Order, seek to be appointed as Claims Administrator to administer the Settlement Distribution Scheme. If so appointed, Maurice Blackburn will cease to act as the solicitor for the Applicant or any Group Member. If Maurice Blackburn is not so appointed, this Deed will terminate on the decision of the Court not to make the appointment. (emphasis added) 11 Consistently with this clause, a specific obligation was imposed upon the applicant, by cl 5.2 of the deed, to apply to the Court for orders approving a Settlement Notice which contained provisions that Maurice Blackburn was to "thereby [be] appointed Claims Administrator by the Court if Settlement is approved". Clause 5.3 imposed certain obligations on Maurice Blackburn, premised on the notion that it must and would be appointed administrator. 12 What I am about to say does not reflect upon the appropriateness of Maurice Blackburn to be appointed administrator. The evidence establishes plainly that Maurice Blackburn has undertaken significant preliminary work which suits it to be the claims administrator in the particular circumstances of this case, given that it is a task which will involve the administrator dealing with a range of persons, a large number of whom are likely to be financially vulnerable and unsophisticated when it comes to complex legal matters. I am satisfied that the firm is highly experienced and has skill in undertaking this challenging work. 13 The court's role in these types of applications is often referred to as being an "onerous" one. This is not an empty slogan or mantra. It is protective and supervisory and involves the court making a decision as to whether a paction struck between an applicant and a respondent is one that should be given the sanction of the court on the basis it has characteristics of fairness and reasonableness. Integral to this process is a necessity for the court to be satisfied that any amount paid by a respondent to settle Part IVA proceedings is able to be distributed to group members with minimum cost and maximum efficiency. Indeed, this goes so far as being an obligation of the court when one has regard to the provisions of s 37M(3) of the Act which requires the civil practice and procedure provisions, which includes s 33V of the Act, to be applied in a way which best promotes the quick, inexpensive and efficient resolution of controversies. 14 It is the duty of an applicant in fulfilling its fiduciary duty to group members not to act contrary to their interests to ensure that any settlement sum to be distributed to group members pursuant to an agreement is maximised. The largest deductions that come out of settlement sums are, almost invariably, funding costs and legal fees. Irrespective as to whether there is litigation funding (absent here), it seems to me incumbent upon an applicant (in giving instructions in relation to an in-principle settlement) to have regard to the possibility of reducing future costs consistent with facilitating the distribution of the monies pursuant to the settlement if ultimately approved. 15 In North America it is common to leave the distribution of sums to group members to third party service providers. Such service contracts can be the subject of award following tender in a competitive market. Although such a market, at least to my knowledge, has not developed in Australia, at the very least it seems to me a court must have the ability to take whatever steps are necessary or appropriate in relation to settlement distribution to minimise costs. Like the common fund condition precedent referred to in Cao (No 2) at [34], attempts to dictate a particular form of order to the court by, in effect, providing the court with no option but to refuse the settlement unless solicitors for the applicant are appointed the claims administrator, are inconsistent with assisting the court to discharge its protective and supervisory function in relation to group members properly. Moreover, and again without being critical of the highly respected solicitors and firm involved in the present application, it is, at best, a "bad look" for a representative applicant to give instructions that a settlement (presumably struck because it is perceived to benefit group members) is only to go ahead and provide benefits to group members, if the applicant's solicitors obtain a contract for the provision of future services (presumably at a profit paid out of monies that would otherwise go to group members). In some cases it might amount to more than a mere "bad look", although this is not such a case. 16 Having expressed my misgivings during the course of argument, sensibly and helpfully, both parties have now agreed that they do not seek approval of those parts of the settlement which present the court with the minatory prospect that settlement is not to go ahead unless the Court appoints the applicant's solicitor as the administrator. This pragmatic approach resolves the issue in the present case, and indeed, I am satisfied that Maurice Blackburn ought to be the administrators. My purpose for dwelling on the topic is that it is an important point of principle and hopefully these remarks, together with the comments made by Murphy J in Cao (No 2) and the earlier comments that I have made in Lifeplan, will now have greater resonance and this problem of conditions precedent (which primarily benefit funders and solicitors) will not become a recurring one. 17 The second issue is one which is somewhat unusual, at least in my experience, and that is that the settlement provides for the dismissal of relief which includes an order that various respondents are to pay a "civil penalty pursuant to s 102(2) of the [Consumer Credit (Queensland) Code]" (Code). 18 Part 6 of the Code provides a regime for civil penalties to be imposed for defaults of credit providers and, by Division 1, the imposition of civil penalties for breach of what are described as "key disclosure and other requirements". By s 101, an application for a civil penalty may be sought by a party or guarantor to a credit contract or by what is described as a Government Consumer Agency (although a private party is prohibited from making an application for a civil penalty in the event that a Government Consumer Agency has made such an application: see s 101(2)). 19 Section 111 provides that a Government Consumer Agency may apply to the court to become a party to any application under the division and, if joined as a party, has standing to represent the public interest and the interest of debtors. Section 112 of the Code provides that the court, even in circumstances where an applicant seeks to withdraw an application, may make such directions as it considers appropriate to protect the interests of the debtor or guarantor. 20 The decision to seek a civil penalty changed, in a not insignificant respect, the character of this proceeding. Although primarily it was a vehicle by which the private claims of both the applicant and group members against the respondents were sought to be vindicated by an award of declaratory and statutory relief, the prayer for a civil penalty was relief which has a public dimension. 21 I did not have the benefit of submissions on the point, but intuitively it seems to me that in circumstances where, as part of the resolution of a Part IVA proceeding, the parties agreed on an amount of a civil penalty, then the position the court would take is similar to that taken when an agreed penalty is sought by a regulator, which I explained in Australian Competition and Consumer Commission v Apple Pty Ltd (No 4) [2018] FCA 953 at [6] as follows: There is an important public policy involved in promoting the predictability of outcomes in civil penalty proceedings which encourages corporations to acknowledge contraventions. Most obviously, such acknowledgements assist in avoiding lengthy and complex litigation... As the High Court explained in Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at 507 [57], "in civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences", and there "is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy". More specifically, in relation to civil penalty proceedings, French CJ, Kiefel, Bell, Nettle and Gordon JJ (with whom Keane J agreed) observed at 507 [58]: Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and … highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty. (Original emphasis, citation omitted) 22 The present question is how does one deal with the circumstance where, in the face of a denial of contravention, a party seeking a civil penalty order has agreed for the application for imposition of a civil penalty to be dismissed? 23 There is a limit to the use of analogies between civil penalty regimes and the criminal law, although such analogies have been often employed when considering the application of issues such as the imposition of penalty, the application of the totality principle, and the applicability of a privilege analogous to that against self-incrimination. To the extent that there is any relevant analogy, it may be thought that the current situation is not entirely dissimilar to circumstances where a private informant has commenced the machinery of the criminal law but has determined not to proceed. This would usually take the form of the informant withdrawing the information rather than, such as here, agreeing to the dismissal of a charge. This perhaps shows the limits of analogy, but seems to me one way of analysing the present situation. In the end, I am required to form a view of whether it is fair and reasonable and in the interests of group members that all aspects of the relief sought, including those aspects which have a public dimension, are within a range of outcomes which is consistent with the interests of group members. Looking at the present dismissal of the penalty relief in this case through that prism, the answer is plain: it clearly is in the interests of the group members to assist in securing the settlement. 24 The only other order I propose to make which requires reasons, is the approval of an amount of $10,000 to be paid to the applicant. The settlement deed had made provision for the payment "to reimburse the Applicant for the time spent by her providing instructions and evidence". 25 The evidence establishes that a significant amount of work was undertaken by Ms McKenzie on behalf of group members. A useful analysis of such payments is provided by Professor Morabito, "An Empirical and Comparative Study of Reimbursement Payments to Australia's Class Representatives and Active Class Members" (2014) 33(2) Civil Justice Quarterly 175 at 180. In Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 at [128] I noted that "[r]epresentative applicants perform an important function, and it is appropriate that they be reimbursed for the time they have spent in performing that role to the benefit of others". What is important to stress about that principle is that any such payment is not for the work undertaken by an applicant in pursuing their individual claim but rather a recompense for them performing work on behalf of others. I explained the relationship between this principle and more general equitable principles regarding a party who has brought a fund into court, for the benefit of others, being entitled in equity to receive an amount to compensate for that work in Kadam v MiiResorts Group 1 Pty Ltd (No 5) [2018] FCA 1086; (2018) 129 ACSR 74. 26 It does not seem to me that an amount of this type should be paid to somebody because they might have suffered some stress or anxiety or been vexed by the process of litigation or for the work they have done in advancing their own interests. The evidence adduced in relation to these matters seems to me to be rather beside the point. The payment is appropriate only because it is proper to reimburse the applicant for the work she has performed in a representative capacity. Although the figure proposed is arbitrary and does not (as it should) distinguish between the time spent by Ms McKenzie in performing work on her account (in contradistinction to work performed on behalf of group members), it appears to me to be a reasonable sum for somebody who has performed this valuable role. It is important to recognise that without an applicant being willing to come forward and be a representative, then class actions cannot be commenced. 27 I have deliberately been somewhat circumspect in relation to my analysis of why I consider this settlement to be within the range of acceptable outcomes because, as my earlier judgment explained, there is a relationship between this proceeding and another proceeding in which judgment is reserved. It suffices for me to repeat, that for the reasons set out in the confidential opinion, I am satisfied that it is consistent with my protective and supervisory role to approve the settlement. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

SCHEDULE OF PARTIES NSD 601 of 2016 Respondents Fourth Respondent: BAK PROPERTY PTY LTD ACN 103 054 824