Tongue v Council of the City of Tamworth [2004] FCA 1702 | Case summary

REASONS FOR JUDGMENT Introduction 1 This is a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("the Act"). By a notice of motion filed on 14 September 2004, the applicant, ("Mr Tongue") seeks leave to "discontinue as the representative in these proceedings". By a notice of motion filed on 9 December 2004, Reganam Pty Limited ("Reganam"), a group member, seeks an order that it be substituted as the representative party. 2 If Reganam's application to be substituted had been made unconditionally, the notices of motion could have been dealt with shortly. However, Reganam seeks to attach a condition to its order for substitution namely that it be substituted as the representative party on the basis that the costs to date "remain a matter for the existing applicant and the respondent, and not a matter for Reganam". 3 The proceeding has a long history. It commenced in 1998. It was placed in Allsop J's docket in 2001. His Honour was told at that time that the proceeding had been settled. The proceeding was adjourned on a number of occasions to enable an application to be made for approval of the settlement under s 33V of the Act. 4 However, on 28 July 2004, Allsop J refused to approve the settlement. His Honour did so largely because the settlement reached between Mr Tongue and the respondent was objected to by approximately half of the members of the group. 5 The group members consist of 53 claimants. As his Honour said in his judgment of 28 July 2004 at [19], they are "riven by strongly opposing views"; see [2004] FCA 972. 6 Upon the uncontested evidence of Mr Tongue, the leader of the group who opposed the settlement put forward by Mr Tongue is Mr Simon Kellaher. He is the principal of Reganam which now seeks to be substituted conditionally as the representative party. 7 Mr Kellaher's group seek to make, as Allsop J said at [18] in his judgment of 28 July 2004, a stronger and more robust case than Mr Tongue. His Honour was of the view that the case put forward in the proceeding is not so hopeless that the settlement which was agreed to between Mr Tongue and the respondent in July 2002 should be forced upon the objectors for their own good. That was the substantial reason why his Honour refused to approve the settlement. 8 Allsop J summarised the basic facts and causes of action pleaded in the proceeding in an earlier judgment; see [2004] FCA 209 at [12] - [20]. The case is based upon an allegation of failure to maintain the Dungowan Dam, which was constructed by the respondent, with the result that the supply of water from the Dam was not fit for domestic and stock watering purposes. Causes of action for breach of contract, negligence, breach of statutory duty, damages for misleading conduct under the Trade Practice Act 1974 (Cth) ("Trade Practice Act") and breach of implied terms under the Trade Practices Act are pleaded. 9 Mr Tongue's motion to withdraw does not specify the statutory provision under which the order is sought. However, when the matter was before me on 12 November 2004, Mr Rowe of counsel, for Mr Tongue, told me that his motion was based on s 33W. The power conferred by s 33W is enlivened where the representative party is seeking leave to settle, or has settled, his or her "individual claim". There was no evidence put before me of any settlement of Mr Tongue's individual claim against the respondent. 10 Nevertheless, Mr Officer QC, for the respondent, informed me that the respondent had agreed with Mr Tongue not to pursue him for the costs incurred to date. It may be that even though at the hearing of the present application, both Mr Rowe and Mr Officer disavowed any reliance on s 33W, Mr Tongue's motion is properly characterised as having been brought under that section. 11 At the hearing of the present application, Mr Rowe and Mr Officer both submitted that Mr Tongue's motion is based upon s 33T of the Act. That section provides in s 33T(1) that 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, the Court may substitute another group member and may make such other orders as it thinks fit. 12 It is plain on Mr Tongue's uncontested evidence that he is suffering from serious health problems and that he has lost the confidence of the group members led by Mr Kellaher. I should add that the loss of confidence does not seem to be due to any fault on the part of Mr Tongue. It is also plain on the evidence that there is a compelling case for Mr Tongue to withdraw from the proceeding by reason, in particular, of his deteriorating health. 13 But it does not follow that Mr Tongue's motion or Reganam's motion must be characterised as having been brought under s 33T. Mr T Robertson SC, for Reganam, argued that both motions were brought under s 33W. It is of course unusual that the existing parties to the proceeding should contend that the applications are brought under s 33T whereas the party wishing to be joined says otherwise. Nevertheless, as I have indicated above, it is a matter for me to determine. 14 Ordinarily, such a dance around the provisions of Part IVA of the Act might be pointless. But here, the competing positions taken by the respondent and Reganam are based upon perceptions as to whether the necessary conditions for the exercise of the power to grant leave to withdraw are satisfied. In particular, Mr Rowe and Mr Officer apparently proceed upon the basis that Mr Tongue has not settled his individual claim and, accordingly, that s 33 W does not apply. The Relevant Provisions of the Act 15 Central to any consideration of costs questions in representative proceedings under Part IVA of the Act is the principle stated in s 43(1A). This section provides that, in proceedings under Part IVA subject to two exceptions, the Court may not award costs against a person on whose behalf the proceeding has been commenced "other than a party to the proceeding who is representing such a person". 16 Thus, the rule stated by the High Court in Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-193 that there is a category of cases in which costs may be ordered against a non-party who has an interest in the subject matter, is not applicable to Part IVA proceedings. Instead, s 43(1A) makes it clear that costs are to be borne by a representative applicant and not by group members. This provision was inserted in response to a decision of the Full Court of the Supreme Court of Victoria in Burns Philp & Co Limited v Bhagat (1993) 1 VR 203 in which it was held (at 223) that the Court had power to order costs against a represented party. 17 I will turn then to the provisions of Part IVA of the Act. 18 I have described the terms of s 33T(1) above. For completeness, I will set out s 33T(1) in full as follows:- "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." 19 Section 33V(1) provides that a representative proceeding may not be settled or discontinued without the approval of the Court. The representative proceeding in the present case has not been settled. Nor does Mr Tongue apply to discontinue the proceeding. Thus, s 33V(1) is not applicable to Mr Tongue's motion. 20 Section 33W deals, as I have said, with the settlement of an individual claim and the substitution of a new representative party. It provides:- "1. A representative party may, with leave of the Court, settle his or her individual claim in whole or in part at any stage of the representative proceeding. 2. A representative party who is seeking leave to settle, or who has settled, his or her individual claim may, with leave of the Court, withdraw as representative party. 3. Where a person has sought leave to withdraw as representative party under subsection (2), the Court may, on the application of a group member, make an order for the substitution of another group member as representative party and may make such other orders as it thinks fit. 4. Before granting a person leave to withdraw as a representative party: (a) the Court must be satisfied that notice of the application has been given to group members in accordance with subsection 33X(1) and in sufficient time for them to apply to have another person substituted as the representative party; and (b) any application for the substitution of another group member as a representative party has been determined. 5. The Court may grant leave to a person to withdraw as representative party subject to such conditions as to costs as the Court considers just." 21 Section 33X(1) provides that notice must be given to group members of certain matters relating to a representative proceeding. One of those matters is an application by a representative party to seek leave to withdraw under s 33W. 22 Section 33X(5) confers wide power on the Court at any stage of the proceedings to order that notice of any matter be given to group members. 23 Section 33Y(2) provides that the form and content of a notice under s 33X must be approved by the Court. 24 Section 33Z(1) confers power on the Court in determining a matter in the representative proceeding to do a number of things, including determining issues of fact and law and granting relief. Section 33Z(1)(g) is in wide terms. It gives the Court power to "make such other order as the Court thinks just". 25 Section 33ZE provides that upon the commencement of a representative proceeding, the limitation period is suspended against group members. It commences to run again if a group member opts out or if the proceeding is determined without disposing of the group member's claim. 26 Section 33ZF is another section which confers wide power on the Court. It provides that in any proceeding under Part IVA the Court may of its own motion or on an application by a party or a group member, "make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding." 27 The effect of s 33ZG is that Part IVA of the Act contains a limited code applicable to representative proceedings. Section 33ZG(b) states that, except as otherwise provided by Part IVA, the Court's powers under other sections of the Act or the Rules are not affected. Discussion 28 It is plain that until the hearing of the subject motions, Mr Tongue's application filed on 13 September 2004 was based upon s 33W. Mr Rowe told me that on 12 November 2004, and a notice to group members was given in accordance with s 33X(1)(c). 29 Upon the plain meaning of s 33W, the power to grant leave to a representative party to withdraw is only enlivened if three conditions are satisfied. First, the party who wishes to withdraw must seek leave to settle, or have settled, his or her individual claim; see s 33W(2). Second, the Court must be satisfied that notice of the application has been given to group members in accordance with s 33X(1) in sufficient time for them to apply for another person to be substituted as the representative party; see s 33W(4)(b). 30 The third condition is that "any application" for another group member to be substituted has been determined. 31 There was no evidence put before me of the terms of any settlement between Mr Tongue and the respondent. Nor did Mr Rowe seek leave to settle his client's individual claim. However, as stated above, Mr Officer said in open Court that the respondent had given an undertaking to Mr Tongue not to pursue him for the costs of the proceeding. Moreover, Mr Officer did not oppose Mr Tongue's application to withdraw as the representative party. 32 It seems to me that I can infer from this that Mr Tongue has settled his individual claim against the respondent. In ordinary parlance, for a claim to be settled, it must have been compromised. However, law dictionaries suggest that the element of compromise is not a necessary ingredient. As is said in Butterworth's Australian Legal Dictionary at 1073, when a matter has been settled, the parties have reached some kind of agreement and no longer require the Court to deliberate between them. Another dictionary states that a "settlement" means "an agreement ending a dispute or law suit"; see Transport Accident Commission v Coyle (2001) 3 VR 589 at [27]. 33 In my view, that is precisely what Mr Tongue and the respondent have done. I can infer from Mr Officer's concessions that Mr Tongue and the respondent have agreed that Mr Tongue will not pursue his individual claim against the respondent and that there will be no order as to costs between them. That is a settlement. It is not a settlement of the representative proceedings and can only be a settlement of Mr Tongue's individual claim. Accordingly, the first condition for the exercise of the power under s 33W is satisfied. 34 The second condition for the exercise of the power under s 33W is also satisfied. I am satisfied that notice has been given to group members in sufficient time. 35 The third condition does not, in my view, require that there be an order for the substitution of another group member as the representative party. All that is required is that any application for substitution be determined. Thus, if I refuse to order the substitution of Reganam on the conditional basis which it seeks, I will have determined the application notwithstanding that there will then be no applicant in the proceeding. 36 A possibility that there will be no applicant is not a barrier under s 33W to the exercise of the power to grant leave to the representative party to withdraw. In my opinion, s 33W expressly contemplates that possibility because if no other group member steps forward to be substituted then the third condition for the exercise of the power will not arise. 37 The refusal of other group members to assume the mantle of applicant cannot be a barrier to the exercise of the Court's discretion to grant leave to a representative party to withdraw. An unwilling party should not be forced to litigate against his or her will. That is a principle which applies in ordinary proceedings; see Order 22 rule 2 of the Federal Court Rules. There is no reason why the same approach should not apply in representative proceedings. That is particularly apt where there is a compelling case for Mr Tongue to withdraw and neither the respondent nor the objectors oppose his withdrawal. 38 A group member cannot, by refusing to assume the mantle of applicant or by making an application to be substituted on terms which are not approved by the Court, hold an unwilling representative party to his or her role as an applicant with the consequent liability for costs of the proceeding. It must always be a matter for the Court's discretion to grant leave to withdraw if the conditions stipulated in s 33W are satisfied. If no other group member steps forward it may be appropriate for the Court to make an order that the proceeding cease to continue as a representative proceeding. That is a course I will have to consider in the present case. 39 I am satisfied that, even though Mr Rowe and Mr Officer disavow reliance upon s 33W, the underlying basis for Mr Rowe's motion relies upon s 33W and that the conditions for the exercise of the power to grant leave to withdraw under s 33W are satisfied. 40 The power to impose conditions as to costs on a representative party as the price for withdrawal under s 33W(5) does not arise on Mr Tongue's motion. This is because Mr Tongue and the respondent have agreed that there is to be no order as to costs. 41 Reganam's motion for substitution is governed by s 33W(3). Mr Tongue has sought leave to withdraw as the representative party under s 33W(2). The Court may therefore make an order for the substitution of Reganam as another group member. The Court may also make such order as it thinks fit. 42 Mr Robertson SC for Reganam urged upon me the view that there was power under s 33W(3) to make the substitution order on the condition that Reganam not assume any liability for costs of the proceeding to the date of the substitution order. He submitted that such a condition was necessary to facilitate the substitution of a new representative party and that the Court should strive to ensure that there is a representative party so that the action can continue. 43 Mr Robertson relied on the principle that a group member is not to be ordered to pay the costs of a representative action. He therefore submitted that Mr Tongue is the only party who at present is "on the hook" for costs and that Reganam as a group member otherwise immune from a costs order should not be liable for costs incurred prior to the date of its substitution as the representative party. He pointed out that although there is no evidence of this, there may be an indemnity given by other group members to Mr Tongue and that it may be open to Reganam to obtain indemnity from other group members against Reganam's potential liability for a costs order. 44 In support of his submissions, Mr Robertson referred me to the decision of French J in Revian v Dasford [2002] FCA 1119. In that case his Honour ordered the removal of a representative party under s 33T of the Act. In doing so, his Honour said at [15]:- "Of course, any group member who is substituted as an applicant will become liable to pay the costs of the proceeding thereafter if unsuccessful." (emphasis added) 45 However, I do not consider that French J was stating a general rule that in all cases the substituted party will only be liable for costs from the date of the substitution. His Honour was addressing the facts of the particular case in which the representative party lacked the capacity upon which she relied to prosecute the proceeding. It may have been appropriate in that case for a substituted party to be liable only for future costs. But, in my view, all that his Honour intended to say by the use of the word "thereafter" was that, from then on, the substituted party would be liable to a costs order which may include costs incurred before the date of the order. 46 Mr Officer submitted in forceful terms that there is no power to impose the condition sought by Reganam. Nevertheless, in my opinion, the power does exist. There are a number of sources of the power. First, it seems to me that the power to make an order for substitution under s 33W(3) which is expressed in wide discretionary terms, must include the power to make an order on certain conditions. Second, the Court has wide powers to make other orders under s 33W(3), s 33Z(1)(g) and s 33Z(f)(1). There is no reason why the Court cannot, in an appropriate case, make an order under one or more of those provisions that the substituted party not be liable for costs incurred to date. 47 However, it must always be a question of the exercise of the Court's discretion on the facts of each case as to whether such a condition or order should be attached to an order for substitution. In my view, there is nothing whatsoever to justify the exercise of the discretion in the present case. 48 Mr Robertson submitted that the respondent made a commercial decision not to seek costs from Mr Tongue and, accordingly, it should not look to Reganam, if it is substituted, for any costs incurred up to the present time. However, I do not think that is to the point. 49 The reason I take this view is that Reganam seeks to take over the conduct of the proceeding. It would, if joined, obtain whatever benefit flows from the preparation which has taken place to date. Statements of lay witnesses, including Mr Kelleher, have been filed and expert statements have also been filed with the Court. The respondent has prepared to meet the case. It seems to me to be plain that the question of what costs orders are appropriate, in the event that Reganam is substituted and if it is unsuccessful at the final hearing, must be a matter to be considered after final judgment is delivered. 50 Mr Robertson submitted that it was unfair to Reganam to expose it to the risk of costs incurred by the respondent prior to the substitution of Reganam as the representative party. But there is nothing to suggest that any costs incurred to date are out of the ordinary. The position is that Reganam seeks to be substituted as the representative party in proceedings which are at an advanced state of preparation for trial. The question of what costs order will be made at the conclusion of the proceeding will depend upon the outcome of the trial. There is no reason why the respondent ought to be deprived, at this stage, of the potential to obtain a costs order for the whole of the proceedings if it is unsuccessful at the final hearing. 51 I accept Mr Officer's submission that there is no evidence to suggest that the condition sought to be imposed by Reganam is necessary to facilitate the substitution of Reganam as the representative party. There is no evidence that without such a condition Reganam will be unable to obtain an indemnity from other group members against liability for costs. Nor is there any evidence that unless such a condition is imposed, the proceeding will abate. 52 The same approach must apply if the present motions are in truth governed by s 33T. I am satisfied that by reason of his ill health and the perception of lost confidence by other group members, Mr Tongue is not able to adequately represent the interests of the group members. I would therefore have power to order the substitution of Reganam. 53 The power under s 33T is discretionary and carries with it the power to attach conditions. However, for the reasons stated above, in the exercise of my discretion, I would not impose the condition sought by Reganam. Conclusion and Orders 54 I will make orders which will give Reganam the opportunity to seek to be substituted unconditionally or to give other group members an opportunity to apply to be substituted. If neither of those events occur within a reasonable time, there will be no applicant in the proceeding and I will, at the next directions hearing, consider whether it is appropriate to make an order under s 33N that the proceeding no longer continue under Part IVA and an order under s 33P for group members to be joined as applicants in their own separate proceedings. At that point of time, the limitation period would begin to run afresh; see s 33ZE(2). 55 The orders I will make are:

Tongue v Council of the City of Tamworth

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