Winterford v Pfizer Australia Pty Ltd

applicable principles 6 The principles relevant to whether the Court should approve, or should decline to approve, a settlement under s 33V and/or s 33ZF of the Federal Court Act were recently set out in Australian Securities and Investments Commission v Richards [2013] FCAFC 89. The Full Federal Court stated at [6]-[8]: Section 33V of the FCA forms part of the statutory scheme established by Pt IVA which regulates what are described as "representative proceedings" but are generally known as "class actions". Section 33V provides as follows: Settlement and discontinuance - representative proceeding (1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court. (Emphasis added.) Section 33ZF permits the Court to make any order in a Pt IVA proceeding it thinks "appropriate or necessary to ensure that justice is done in the proceeding". These are broad powers: McMullin v ICI Australia Operations Pty Ltd (No 6) (1998) 84 FCR 1 at 3-4. Justice will be satisfied where a settlement is "fair and reasonable having regard to the claims made by group members who will be bound by it": Jarra Creek Central Packing Shed Pty Ltd v Amcor Limited [2011] FCA 671 at [70], see also Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258. The role of the Court is important and onerous: Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 at [16]. It is protective. It assumes a role akin to that of a guardian, not unlike the role a court assumes when approving infant compromises: P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4) [2010] FCA 1029 at [23]; Tasfast Air Freight Pty Ltd v Mobil Oil Australia Ltd [2002] VSC 457 at [4], Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 at 408. In the current context, the Court's role is to protect those group members who are not represented by Levitt Robinson and whose interests may be prejudiced by their absence: Chats House Investments at 258; Darwalla Milling Co Pty Ltd (ACN 009 698 631) v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 at [41]. The Court must consider whether the settlement has been undertaken in the interests not merely of the applicant and Pfizer, but also in the interests of the group members as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258 per Branson J; Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459; [2000] FCA 1952 at [19] per Goldberg J. In Williams v FAI Home, Goldberg J said at [19]: Ordinarily the task of a court upon an application such as this, is to determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. Ordinarily in such circumstances the Court will take into account the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement. In In re General Motors Corporation Pick-Up Truck Fuel Tank Products Liability Litigation [1995] USCA3 325; 55 F.3d 768 (3rd Cir. 1995) at 785 the United States Court of Appeals for the Third Circuit referred to the nine-factor test it had adopted: "... to help district courts structure their final decisions to approve settlements as fair, reasonable and adequate as required by Rule 23(e) [which requires court approval for settlement of class actions]. See Girsh v Jepson [1975] USCA3 523; 521 F.2d 153, 157 (3d Cir. 1975). Those factors are: the complexity and duration of the litigation; the reaction of the class to the settlement; the stage of the proceedings; the risks of establishing liability; the risks of establishing damages; the risks of maintaining a class action; the ability of the defendants to withstand a greater judgment; the range of reasonableness of the settlement in light of the best recovery; and the range of reasonableness of the settlement in light of all the attendant risks of litigation." The Court's role is to protect those group members who are not represented and whose interests may be prejudiced by their absence. The practical judicial approach is to identify whether there are features of the settlement that involve any actual or potential unfairness to any group members or categories of group members having regard to all relevant matters, including whether the proposed settlement involves some unfair compromise by some member or category of members for the benefit of others and whether the proposed distribution scheme fairly reflects the apparent, or assumed, relevant losses suffered by particular members or categories of members: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Limited (No 2) (2006) 236 ALR 322; [2006] FCA 1388.

the settlement sum 7 The application for approval was supported by a number of affidavits sworn by Ms Goodwin. Ms Goodwin deposed that the amount of the distribution sum was based on the estimated total of individual group member's claims discounted by 50%, being a compromise that reflected various factors including the complexity and likely duration of the litigation, the stage of proceedings, the risks of establishing liability (including risks relating to limitation periods and statutory preconditions to the recovery of damages), the risk of establishing loss or damage, the risks of maintaining a representative proceeding and further costs of litigation. In an open affidavit Ms Goodwin set out the steps taken in order to form a view about an appropriate settlement sum range. As the objectors are highly critical of the way in which Arnold Thomas & Becker has handled their claims, Ms Goodwin's evidence should be referred to in detail. 8 Ms Goodwin deposed that information was obtained from each group member concerning their claims and an affidavit was prepared on behalf of every group member setting out that group member's history and experience with Cabasar or Dostinex. Ms Goodwin also deposed that she prepared the majority of the 172 group member affidavits and read every group member affidavit. She further deposed that each group member's affidavit was prepared based on conference(s) with the individual group member either in person or by telephone. Each group member was asked a set of pro forma questions which were developed over time and formed the basis of the group member's affidavit. The pro forma questionnaire was exhibited to her affidavit. She also deposed that group members often included other information in their affidavits describing their allegations made as a result of the consumption of Cabasar or Dostinex. She further deposed that the affidavit was sent to group members in draft form and it was common for several drafts of an affidavit to be prepared prior to the group members swearing or affirming. 9 Ms Goodwin deposed to the steps taken to obtain medical and financial material in respect of each group member. Each group member was asked to sign an authority to enable her office to obtain medical material in support of any claim for non-economic loss and to substantiate the period in which the group member consumed Cabasar or Dostinex. The medical information requested on behalf of each group member varied but included general practitioner(s) records, psychologist or psychiatrist records, specialist(s) records, counselling records, hospital records, Medicare information, reports setting out the names of medical practitioners visited by a group member, Medicare Pharmaceutical Benefit Scheme records setting out the medications dispensed to the group member and medical reports from treating doctors. Where possible, Arnold Thomas & Becker obtained or sought medical records for a period of one year prior to the consumption of Cabasar or Dostinex to date. An appraisal of the medical records was undertaken to identify in a summarised form reference to Cabasar or Dostinex, other dopamine agonists, psychological or psychiatric diagnosis or treatment, compulsive behaviour, warnings or discussion related to compulsive behaviour and dopamine agonists and any past history of psychological or psychiatric treatment. 10 Group members also signed authorities to enable Arnold Thomas & Becker to obtain financial records in support of loss claimed as a result of compulsive gambling or provided those records themselves. The gambling loss records typically consisted of bank records for each bank account from which the group member claimed money was withdrawn for gambling, credit card records for each credit card from which the group member claimed money was withdrawn for gambling, gaming statements such as TAB records or casino reward card statements, statutory declarations from family or friends where money was loaned in cash amounts claimed as money that was gambled, bankruptcy files, records from pawn stores and general and varied documents showing evidence of money accessed through personal loans, re-mortgages of homes, and early access of superannuation. Where possible, Arnold Thomas & Becker obtained or sought financial records for a period of one year prior to the consumption of Cabasar or Dostinex and up to one year following cessation of Cabasar or Dostinex. Ms Goodwin deposed that it was often found that there were significant problems with the financial material provided or obtained on behalf of group members to substantiate the gambling loss. It was not always possible to confirm from reviewing the financial documents whether some ATM withdrawals were related to gambling without clarifying instructions from the individual group members. Her office often contacted group members to clarify instructions after obtaining financial records and often group members marked the withdrawals identified as gambling related withdrawals on bank records. Where possible, based on the financial records, an itemised report was prepared by her office that summarised the transactions claimed as a loss by the group member. The itemised report listed the date of transaction, the account name and number, the withdrawal amount, the location of the gambling venue or ATM from which the withdrawal was made, the fees (if any) associated with the withdrawal and any winnings. In some circumstances, group members provided Arnold Thomas & Becker with spreadsheets similar to those that the firm prepared identifying loss. 11 Group members also signed authorities to enable Arnold Thomas & Becker to obtain financial records in support of the loss claimed as a result of compulsive spending or provided those records themselves. The spending records typically consisted of bank records for each bank account from which the group member claimed compulsive spending showing evidence of items purchased, and credit card records for each credit card from which the group member claimed money was spent on compulsive spending purposes. Again where possible, Arnold Thomas & Becker obtained or sought financial records for a period of one year prior to the consumption of Cabasar or Dostinex and up to one year following cessation of Cabasar or Dostinex. Ms Goodwin deposed that it was often found that there were also significant problems with the financial material provided or obtained on behalf of group members to substantiate spending loss and Arnold Thomas & Becker followed a similar process to the process used to identify losses from gambling. Where possible, based on the financial records, an itemised report was prepared by her office that summarised the transactions claimed as a loss by the group member. The itemised report listed the date of transaction, the account name and number, the purchase amount, the location of the store from which the item was purchased. Where possible the spreadsheet included calculations of the group member's average spend in the year before they commenced Cabasar or Dostinex and the year following the cessation of Cabasar or Dostinex. 12 Where the claimed obsessive behaviour was hyper sexuality, compulsive eating or punding, group members supplied, or Arnold Thomas & Becker obtained, material that supported the group member's claim for the alleged behaviour to substantiate that claim. That material varied but included police records, photographs, emails, letters, published articles, forum discussions, and personal journal or diaries. A very small percentage of group members identified compulsive eating or punding as alleged behaviours causing loss. 13 Ms Goodwin also deposed that following the review of the material, the characteristics of a valid group member's claim was considered by reference to the alleged behaviour type (gambling, compulsive spending, hyper sexuality, eating and punding), length of use of Cabasar or Dostinex, period of use of Cabasar or Dostinex (pre or post warnings), time to onset of behaviour, use of other dopamine agonists, post use behaviour, prior history of alleged behaviour and prior history of psychological treatment. 14 Ms Goodwin deposed that at the time of mediation each individual group member known to Arnold Thomas & Becker had completed a group member questionnaire and a settlement questionnaire and her firm had the sworn affidavits of each of the group members setting out their relevant medical history and losses, the appraisals of medical records, itemised reports of gambling losses for individual group members and itemised reports of spending losses for individual group members. Based on that material, Ms Goodwin prepared for counsel attending the mediation an overview of the quantum of group members' claims and an estimate based on the best possible outcome assuming there were no problems in proving the individual group member's quantum at that time. Ms Goodwin deposed that due to the steps that had been taken to obtain an estimate of group members' claims, a view was able to be formed that the distribution sum was within the appropriate range to settle based on the collation of the material undertaken of the known group members claims at the time of mediation. 15 In support of the application for approval is a confidential opinion of senior counsel for the applicant in which he recommends the settlement for the reasons that he sets out. In assessing whether the proposed settlement is fair and reasonable, the Court must necessarily place considerable reliance on such an opinion: P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) [2010] FCA 1029; Lopez v Star World Enterprises (1999) ATPR 41-678; [1999] FCA 104; Pathway Investments Pty Ltd v National Australia Bank Ltd (No 3) [2012] VSC 625. The Court relies on the parties' lawyers to give the Court a frank and candid opinion of the merits of the claim. In Pathway Investments v National Australia Bank Ltd (No 3) [2012] VSC 625, Pagone J explained the importance of the need for candour in the expression of the opinion at [3]: An important consideration for a court asked to approve a settlement will frequently be the candid opinion which the practitioners for the parties, and particularly for the party representing the group members, give in recommending the settlement. The importance to the court of the candid opinions of the solicitors and barristers acting for the parties has frequently been remarked upon. In P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 4) Finklestein J observed: Despite the obvious advantages of settling class actions, there remains the need to ensure that the interests of class members are adequately looked after. In the trial preparation, and the conduct of the trial itself, their protection depends, in no small measure, on the capacity of the named applicant to monitor the actions of the lawyers who have been retained to run the case. When it comes to a settlement it is the court that assumes responsibility for protecting the interests of the class members. In that task the court necessarily places considerable reliance on the parties' lawyers. I say "parties' lawyers" to make clear that I do not think that it is just the applicant's lawyers that carry the burden of ensuring that the court is given sufficient information to assess whether a proposed settlement is to be approved. A settlement proposal is, in reality, a proposal put up by both sides. So the respondent's lawyers should also bear some responsibility for ensuring that the court has all the information that objectively describes the merits of the case and brings to the court's attention the obstacles to recovery and the benefits to be derived from the proposed settlement. The opinion given by senior counsel for the applicant refers to the legal and factual issues that would be raised in this proceeding if it went to trial, the matters that must be established by the applicant in order to succeed in this proceeding, the strength and weaknesses of the applicant's case, the risk factors involved and the basis for his view that an appropriate discount for risk is probably 50%. As the opinion is confidential, it is not appropriate to set out the views expressed and the reasons given, but it is appropriate to state that the matters disclosed provide a strong basis for concluding that the settlement sum that Pfizer has agreed to pay is fair and reasonable for group members as a whole. 16 Additionally, junior counsel for Mr Winterford also swore an open affidavit in which he expressed the view that a 50% compromise is proper and appropriate in all the circumstances and should be approved by the Court. Junior counsel supported his opinion by reference to several American cases involving dopamine agonists in which Courts have dealt with issues confronted by the claimants in this case. 17 The terms of the proposed settlement also provide for the settlement sum to be distributed in accordance with the confidential settlement distribution scheme which provides for the assessment of each group member's loss and damage. The distribution scheme makes provision for the settlement sum to be paid to group members pro rata to the loss and damage suffered by each of them. A confidential opinion provided by junior counsel for the applicant explains the methodology for assessing each group member's loss and damage, and the same methodology applies to each group member in respect to the assessment of his or her loss or damage.

the objections 18 Two group members, Ms Skea and Mr Stokeld, appeared at the hearing, and put submissions in opposition to the approval of the settlement and two other group members filed affidavits in opposition. Mrs Skea was represented by counsel. 19 Counsel for Ms Skea contended that the settlement would not be in the interests of group members because there has been a systemic failure by Arnold Thomas & Becker properly to evaluate the economic and non-economic losses suffered by group members. Counsel for Ms Skea was highly critical of the procedure adopted by Arnold Thomas & Becker to obtain instructions from group members, submitting that the Court could not have confidence that instructions were properly obtained from group members, given Ms Goodwin's evidence in cross examination that some of the initial interviews were not conducted by legally qualified persons or face to face, but rather were conducted by trainees at the firm by telephone, and in some cases the interview was with family members rather than the group members themselves. Counsel was also highly critical of the steps (or, as it was put, the lack of steps) taken to assess the extent of claimable loss and damage and submitted that there has not been proper or adequate determination of loss and damage. That submission was based on Ms Goodwin's evidence in cross examination that, for most group members, no forensic accounting or psychiatric advice was obtained by the firm in relation to their claims. Ms Skea also gave evidence that she asked that such advice be obtained in respect of her claim but this was not done. It was submitted that without such reports for each group member there was no adequate and proper means of assessing the overall quantum of the group members' claims and, in the circumstances, there is no way of knowing whether the amount offered to each group member is fair or reasonable given the lack of proper preparation of the case of each group member by Arnold Thomas & Becker. 20 It was submitted also that group members' claims are not only reduced by the 50% risk discount, which itself was criticized because "[i]t would appear that this reduction is based solely on the basis of" an American decision, and not Australian authority, but the discount on each group member's loss and damage would be actually greater than 50% by reason of the methodology applied in assessing group member claims under the settlement distribution scheme, which, it was said, involved "arbitrary reductions". It was put that "[t]here is simply no authority for such a substantial reduction in the Australian cases". 21 Counsel for Ms Skea raised serious concerns about the assessment process. All assessments were done by junior counsel retained in this matter, not by independent persons. Counsel contended that junior counsel was in a position of conflict in relation to the conduct of the assessments because he was also involved in the settlement negotiations and consequently, it was argued, there is a legitimate apprehension of "shoehorning" of claims into the amount that has been agreed upon. It was submitted that it was unfair and unreasonable for junior counsel to conduct the assessments which should have been conducted by an independent person. Counsel also raised concern that the settlement distribution scheme was not provided to each group member but merely made available on request and therefore group members may not be aware that they have a right to review of their assessments by an independent person and might be predisposed to "blindingly accepting the assessment amount determined by" junior counsel. Furthermore, it was submitted that in an independent review group members stand to be prejudiced because the mechanism for independent review under the settlement distribution scheme limits them to presenting the material that was before junior counsel in the assessment so that they would not be at liberty to supplement their claims with the expert evidence that should have been obtained by Arnold Thomas & Becker, had it properly prepared their cases. These objections were supported by Mr Stokeld and two other group members, who each expressed serious concerns about their assessments and the process that had been undertaken. 22 In addition to contending that the compensation assessed for Mr Stokeld was inadequate, Mr Stokeld's son (who appeared for his father) objected to approval of the settlement on the basis of concern that group members were placed under undue coercion to settle by Arnold Thomas & Becker and junior counsel. Mr Stokeld was critical about the conduct of a meeting at which the proposed settlement was explained to five group members and critical that a meeting of all group members was not convened to discuss the merits of the proposed settlement. 23 Notwithstanding the objections, I am not persuaded that the settlement is not a fair and reasonable compromise of the claims made on behalf of group members. The amount agreed upon has been justified by reference to the analysis undertaken with respect to the potential total quantum of loss and damage of each of the group members at the time and the risk factors involved. It is not the function of the Court to second guess those risk factors: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Limited (No 2) (2006) 236 ALR 322 at [50]. Where the Court is reliant on the advice of counsel, the Court must be careful not to substitute its own view for those of counsel in circumstances where the Court is not fully cognisant of all the issues and in this case, I have before me opinions from both senior and junior counsel that set out the risk factors and the matters bearing upon prospects of success. Furthermore, I am not persuaded on the material before me that there has been systemic failure by Arnold Thomas & Becker in preparing the claims of the group members. The process undertaken has been the subject of detailed and open evidence by Ms Goodwin. Having regard to the extensive processes outlined by Ms Goodwin, and the evidence given by Ms Goodwin and junior counsel in cross examination, I am not persuaded that the fact that for most group members forensic accounting and psychiatric advice was not obtained weighs heavily against the probity of the process. Their evidence did not indicate that the question of the need for such evidence was simply not addressed. Rather, it indicated that there was not sufficient justification for obtaining expert medical and financial reports in relation to each group member. Furthermore, the evidence before me does not indicate that Arnold Thomas & Becker did not take proper steps to ensure the capacity of persons to provide instructions. Although trainees were involved in obtaining instructions, this was done under the supervision of Ms Goodwin whose evidence was to the effect that she oversaw, collated and prepared each of the 172 group member claims and all but four group members have given instructions that they will be participating in the settlement. 24 I am also not persuaded that that the process for the calculation of the amount of group members' financial entitlements under the settlement distribution scheme involves arbitrary reductions that are not justifiable. The evidence explains the methodology which takes into account the risk factors attributable to the individual claims, which is designed to ensure that each group member is assessed by the same principles and provide conformity in assessment of claims on the basis of those risk factors. 25 I do, however, consider that there is some substance in the concern about the fairness of the assessment process being conducted by junior counsel and not by an independent person. In such circumstances, there is the potential for a conflict of interest to arise which may well support an apprehension that the claims of group members may not have been fairly assessed. In so stating I am not to be taken as stating that the claims have not been fairly assessed. Mr Rowe, the junior counsel concerned, has filed an open affidavit in which he set out the process undertaken by him in assessing the claims in accordance with the settlement distribution scheme and he was cross examined on his evidence. It is not the function of the Court on this application to form a view on how much each objector is entitled to receive under the distribution deed and whether any of the objectors' claims should have been assessed for more than has been determined. The Court's concern is whether the assessment process is one that is fair and reasonable. Senior counsel for the applicant put material before the Court to show that the objectors' claims were not assessed arbitrarily and that their assessments are supportable. Nonetheless, the usual position is that an assessment is conducted by independent persons for the very sound reason that there is the potential for conflict which should be avoided, if at all possible. Confidence in the integrity of the process stems from the independence of the persons who are making the assessments and no good reason has been advanced in this case as to why the usual approach of appointing an independent panel of assessors was not taken. Moreover, the potential for conflict is not properly addressed by the independent review process provided for under the distribution settlement distribution scheme. The scheme provides for an independent review process but the evidence does not indicate that group members have all been made aware of their right to an independent review or made aware of the time limit within which such rights may be exercised. Furthermore, any review is limited to the material that was before the assessor, Mr Rowe. As the assessments have not been carried out by independent persons, it is all the more important that all group members have rights of review that are able to be exercised and about which they are aware and that their rights to review are not limited to the material before the assessor. I would not approve the settlement in its present form by reason of the restrictions on rights of review. The persons who wish to pursue their rights of review should have full and proper opportunity to do so before an independent reviewer and not be confined to the material that was before the assessor. The rights of review provisions in the settlement distribution scheme need to be amended and submitted to the Court for further consideration for approval of the settlement to be given.

Costs 26 It is proposed that the payment of the legal costs will not come out of the settlement sums. Arnold Thomas & Becker have funded the litigation and will accept payment of the approved costs in full satisfaction of their fees and disbursements, including estimated fees and disbursements with respect to the approval application and administration of settlements in accordance with the proposed settlement distribution scheme. No amount will be payable by any of the group members towards, or in respect of, those costs and disbursements. 27 In evidence is an affidavit sworn by an independent costs assessor, Mr Joseph Mazzeo, who has assessed the solicitor's costs and disbursements chargeable pursuant to Mr Winterford's retainer. Mr Mazzeo has assessed those costs and disbursements in an amount that is more than the amount that Pfizer will pay under the settlement sum in respect of those costs and disbursements. Mr Mazzeo has concluded that the solicitors properly calculated the assessed fees and disbursements pursuant to that retainer and that the disbursements were properly and reasonably incurred and reflect reasonable expenditure for the furtherance of the proceedings. Mr Mazzeo also expressed his opinion that no significant costs or disbursements have been incurred unnecessarily or inappropriately and that the amount assessed by him for the solicitors' costs and disbursements including estimated approval and administration costs is fair, reasonable and appropriate in the circumstances. Accordingly, I am satisfied that this aspect of the proposed settlement is also fair and reasonable to group members as a whole. Counsel for Ms Skea claimed that the affidavit was insufficient to justify the costs sum but I am satisfied there is sufficient detail to support the assessment sum reached.

conclusion 28 I consider that the settlement sum is a fair and reasonable compromise of the proceeding and that the settlement will not adversely affect the interests of the participating group members. I also consider that the costs sum is fair and reasonable having regard to the work undertaken. However, I am concerned that the present independent review process is inadequate and that process requires review and amendment of the settlement distribution deed before giving approval. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.