Philip Morris (Australia) Ltd v Nixon

REASONS FOR JUDGMENT 1 This is an application principally for a stay of orders relating to the placement of an advertisement in representative proceedings brought pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"). Since the orders require the advertisement to appear on 17 September 1999, a Full Court has been convened urgently to enable the applicants for leave to appeal (the respondents in the proceedings at first instance) to seek stay orders. 2 Representative proceedings have been brought under Part IVA of the Federal Court Act by six named applicants. Initially there were two separate sets of proceedings, one commenced on 8 March 1999 and the other on 16 April 1999. Each proceeding made claims on behalf of specified applicants and a class of represented persons, all of whom were said to have suffered damage to their health by reason of smoking cigarettes. The two sets of proceedings were subsequently consolidated. 3 The applicants sue three sets of respondents, each of which manufactures or distributes cigarettes in Australia. The applicants sue on their own behalf and as representing the group members described in par 1 of the further amended statement of claim ("the statement of claim"), filed on 1 September 1999, by leave of the primary judge, Wilcox J. 4 The class of group members is described in terms that require four conditions to be satisfied. The class comprises persons "a) who suffer (and have been medically diagnosed as suffering) from one or more of the following diseases: cancer of the lung, cancer of the larynx, cancer of the pharynx, cancer of the tongue, cancer of the oesophagus, emphysema, chronic airflow obstruction, peripheral vascular disease, coronary vascular disease and/ or cerebral vascular disease ("smoking related disease") and b) who, after 1 October 1974, smoked the cigarettes and who after 1 October 1974, began, continued, or failed to quit such smoking, wholly or partly because of: (i) the conduct of any one or more of the respondents in advertising, marketing and/ or promoting the cigarettes as enhancing life and the enjoyment of life; and/or (ii) the conduct of any one or more of the respondents in advertising, marketing or promoting the cigarettes as 1) healthy, or healthier than other cigarettes; and/or 2) safe to smoke, or safer to smoke than other cigarettes; and/or (iii) The conduct of any one or more of the respondents in making or causing to be made public statements: 1) denying that there existed any or any reliable evidence linking cigarette smoking to any risk to health, and in particular to smoking related disease; 2) casting doubt on evidence or reports linking cigarette smoking to any risk to health and in particular to smoking related disease; 3) denying that there existed any or any reliable evidence that the nicotine contained in cigarettes was addictive; and/or (iv) The absence or inadequacy of warnings about the risks associated with smoking the cigarettes; and c) whose condition; i) first manifested clinically observable symptoms between 16 April 1996 and 16 April1999; and ii) was caused in whole or in part by the person smoking the cigarettes; and d) who are present in Australia at any time during the month of September 1999." 5 The case pleaded by the applicants in the statement of claim includes claims under s 52 of the Trade Practices Act 1974 (Cth) and claims in negligence, although one of the negligence counts has been omitted from the latest version of the statement of claim. 6 The applicants have filed a total of five versions of the statement of claim. On 2 July 1999, the first respondents ("Philip Morris") filed and served notices of motion seeking to strike out the proceedings on the ground, inter alia, that they did not satisfy the requirements of s 33C(1) of the Federal Court Act for representative proceedings. Similar motions were filed by the other respondents ("Wills" and "Rothmans", respectively). Section 33C(1) provides as follows: "(1) Subject to this Part, where: (a) 7 or more persons have claims against the same person; and (b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and (c) the claims of all those persons give rise to a substantial common issue of law or fact; a proceeding may be commenced by one or more of those persons as representing some or all of them." 7 The motions were heard by Wilcox J on 26 and 27 July 1999. On 13 August 1999, his Honour delivered judgment on the motions in which he dealt with a large number of issues. He made a number of rulings, including the following: (i) the applicants were entitled to claim exemplary damages in a representative proceeding brought pursuant to Part IVA of the Federal Court Act; (ii) a non-federal negligence claim pleaded by the applicants fell within the accrued jurisdiction of the Federal Court; (iii) the common questions identified in the statement of claim were not hypothetical; and (iv) despite the respondents' criticisms of the definition of the group members, the applicants claim satisfied the requirements of s 33C(1) of the Federal Court Act. 8 Wilcox J accepted, however, that the respondents had made valid criticisms of the definition of the represented group, as set out in the applicants' then most recent filed application and statement of claim. In the light of those criticisms, Wilcox J struck out both documents, but allowed the applicants a further opportunity to replead. 9 The applicants followed this course and formulated a further amended application and statement of claim. Over further objections by the respondents, Wilcox J granted leave, on 31 August 1999, for the filing of the amended documents. 10 The orders made on 31 August 1999 included the following: · The applicants were granted leave to file and serve an amended application and a statement of claim in accordance with drafts provided to Wilcox J (Order 1). · The Court fixed 30 November 1999 for the purposes of s 33J(1) of the Federal Court Act, as the date before which group members could opt out of the proceedings (Order 2). · The applicants were directed to cause advertisements to be placed in daily newspapers throughout Australia, commencing on 17 September 1999. The advertisements were to be in the form of a draft which identified the members of the represented group in substantially the same terms as the statement of claim (Order 3). · The costs of the advertisement were, in the first instance, to be borne by the applicants (Order 5). · A timetable for the further conduct of the proceedings was laid down (Orders 6-11). 11 Each of the respondents has sought leave to appeal from the interlocutory orders made by Wilcox J. Although the motions are not in identical form, they all seek to stay the orders made by Wilcox J pending the hearing and determination of the applications for leave to appeal, and the appeal. 12 Orders have already been made by another Judge of the Court, Einfeld J, that the applications for leave to appeal, the appeals and the applications for a stay be heard together and that the hearings be expedited. The leave applications and the appeals (should leave be granted) will be heard no later than the November Full Court sittings. 13 The respondents (the applicants on the various motions) argue that they have substantial grounds on which to challenge the rulings made by Wilcox J. They say that there are substantial deficiencies in the definition put forward by the applicants of the represented group and that Wilcox J erred in deciding that the proceedings could continue as representative proceedings under Part IVA of the Federal Court Act. They contend that, if the appeals are successful in whole or in part, the proposed advertisement, or parts of it, will prove to be erroneous and may create a seriously misleading impression in the community, in particular, among putative class members. Moreover, there may be prejudice to some putative class members, who may refrain from instituting their own proceedings in reliance on the continuance of the representative proceedings and thereby be statute-barred from pursuing their own claims. 14 The applicants (the respondents to the motions) oppose the grant of the stay. They argue that an applicant for a stay must demonstrate, at the least, that there is a real risk that it will not be possible for a successful appellant to be restored substantially to his or her former position if the judgment below is executed. Moreover, the Court will consider where the balance of convenience lies, and whether the grant of a stay will or may cause prejudice to the respondents to the appeal. 15 On this basis, the applicants contend that the respondents have not established that there is a real risk that they could not be restored substantially to their former position if successful on appeal. The applicants accept that the respondents have raised arguable appeal grounds. However, they say that this is not determinative of the stay application. Due weight should be given the decision of the primary judge to permit advertising to proceed notwithstanding the filing of the application for leave to appeal. Further, they argue that the advertising order does not affect substantive rights or obligations. The advertisements are merely designed to notify group members of the existence of the proceedings and of their right to opt out. If necessary, further advertising can take place, whether by way of amendment to earlier advertising, or in substitution for the earlier advertising. 16 The applicants point out that the claims pleaded relate to life-threatening illnesses. They say that if the proceedings are not advertised, the fact of the proceedings may not come to the attention of group members prior to their death. Mr Burnside says that the evidence suggests that over one thousand people per month die of tobacco related diseases and that many of these people are within the represented class. It follows that many seriously ill persons, if they do not learn of the proceedings, might be denied the opportunity to have their evidence taken and thereby suffer irretrievable prejudice. Moreover, additional prejudice will be caused to the applicants and group members if the trial is delayed by reason of a stay of necessary interlocutory steps. Mr Burnside says that the respondents themselves will not suffer any prejudice should the advertising proceed. 17 The general principles governing an application for a stay pending the determination of an appeal or application for leave to appeal are not in doubt. The party seeking a stay must demonstrate a reason, or an appropriate case, to warrant the exercise of a discretion in his or her favour. This requirement is not satisfied by the mere filing of an appeal or an application for leave to appeal: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 (CA), at 694. The Court has a discretion whether or not to grant the stay, and if so, as to the terms that will be fair. In the exercise of the Court's discretion, it weighs consideration such as the balance of convenience and the competing rights of the parties, in particular whether prejudice will be caused by reason of the grant or withholding of a stay: Alexander, at 694; Jennings Constructions Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681 (Brennan J), at 685. Within this framework, the Court exercises a broad discretion, and the party seeking a stay does not have to establish "special" circumstances: Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 (FC), at 66, per Burchett J. In general, a party which has succeeded at the trial is entitled to the benefit of a judgment and thus to commence with the presumption that the judgment is correct: Powerflex,at 66. The question on the present application is how these principles apply to the unusual circumstances of the present case. 18 In this respect, it is to be observed that the order for publication of the advertisements does not vindicate any right of the applicants established at first instance. It is simply a step which Part IVA of the Federal Court Act requires to be taken in relation to a representative proceeding, in part to ensure that class members have an opportunity to opt out. Cases which consider the circumstances in which a successful litigant will be denied the fruits of his or her victory pending the determination of an appeal are somewhat removed from the circumstances of the present case. 19 The orders made by Wilcox J require the publication of advertisements the terms of which have been approved by the Court, as contemplated by s 33Y(2) of the Federal Court Act. If the appeals succeed, in our view, there is little doubt that some putative class members, perhaps many, are at risk of being misled by the terms of the Court-approved advertisements. As we have noted, the applicants accepts that the respondents have an arguable case in relation to the applications for leave to appeal and the appeals. 20 A number of examples were given in argument of the prejudice that may be caused to members of the putative class if the advertisements appear. In essence, however, the examples constitute variations on a theme. Persons who read the advertisement and take the view that they are or may be within the defined class, are likely to be induced into taking action, or refraining from action, by the terms of the advertisements. If it ultimately turns out that the proceedings cannot continue as a representative action, they may have acted, or refrained from acting, in a manner that is likely to be prejudicial to them. For example, persons who consider that they are members of the class may refrain from commencing their own proceedings in relation to tobacco related illnesses because they think their interests are protected by the representative proceedings. Others, noting that, if they are to opt out, they must take action by 30 November 1999, may make what may be a difficult and anxiety-provoking decision in order to ensure that their position is preserved and, indeed, may incur not inconsiderable expense in reaching that decision. 21 It was considerations of this kind that prompted Merkel J, in the course of argument in the Longford litigation (see: Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) ATPR 41-696), to observe that the public advertising of representative proceedings, pending an appeal on interlocutory issues, was likely to cause serious prejudice to putative members of the class if the appeals were successful and if the proceedings did not continue as contemplated in the advertisement. In our view, there is considerable force in these observations. 22 Mr Burnside pointed out that the Longford Case was one without the element of urgency present in this case. Nonetheless, the approach taken by Merkel J enforces the point that public advertising is likely to create significant prejudice to a large number of people if the representative proceedings do not continue in the form contemplated by the advertisements. It is necessary to weigh that form of prejudice against the prejudice identified by the applicant if the advertisements are delayed. 23 It is true that if the advertisements do not appear, there may be some putative class members who will be unaware of the proceedings and who, if they are seriously ill, may lose the opportunity to have their evidence taken in support of their claims. However, the practicalities are, that very few people in that position, if any, would be able to have their evidence taken before the applications for leave to appeal are disposed of by the Full Court. Moreover, each such person would be entitled, in any event, to institute proceedings in his or her own right if so advised. 24 We do not, of course, overlook the difficulties confronting an individual wishing to institute proceedings against the manufacturers of tobacco products. However, we think it difficult to suggest that, in practice, a short delay in the publication of the advertisements is likely to outweigh the prejudice that will follow from publication of the advertisements should the proceedings not continue as a representative action. 25 The respondents have also sought more general orders staying the proceedings at first instance. While they accept that the parties should adhere to a timetable for the completion of pleadings, they contend that discovery should not take place. The respondents rely on evidence suggesting that, if they are required to undertake discovery, they will incur a very heavy financial burden. 26 The orders made by Wilcox J do not include orders for discovery. His Honour has not yet ordered the respondents to make either general discovery, or discovery of categories of documents. In our view, it is premature to deal with this aspect of the respondents' application. The application for a more general stay should be stood over until the hearing of the application for leave to appeal. 27 In the result, we make the following order: Orders 2, 3, 4 and 5 of the orders made by Wilcox J on 1 September 1999 be stayed pending determination of the applications for leave to appeal and (should leave be granted) of the appeals herein.