Wright Rubber Pty Ltd v Bayer AG [2011] FCA 1172 | Case summary

REASONS FOR JUDGMENT 1 On 2 September 2011 I made orders pursuant to ss 33V, 33ZF and 50 of the Federal Court of Australia Act 1976 (Cth) ("the Act") approving the settlement of this proceeding. The terms of the settlement are contained in a settlement deed which was executed on 25 May 2011 and amended on 7 June 2011 ("the deed") and a related proposed settlement distribution scheme ("the scheme") all of which are exhibited to the affidavit of Ms Brooke Dellavedova sworn on 28 June 2011. At the time of making the orders I announced that I would publish my reasons at a later date. These are those reasons. 2 This is a representative proceeding, brought under Part IVA of the Act. It was commenced in 2007. The applicant represents group members who are commercial manufacturers of "Rubber Compounds" and "Rubber Products". It is alleged that they were forced to pay higher prices for these products because of a global cartel arrangement to which the first, third and fourth respondents were party with other manufacturers and suppliers of Rubber Chemicals. The cartel arrangement is said to have been entered into in or about July 1995. It was allegedly given effect to in Australia by the second and fifth respondents. The applicant contends that, in doing so, the respondents contravened the provisions of ss 4D, 45 and 45A of the Trade Practices Act 1974 (Cth) which was, at relevant times, in force. 3 On 5 February 2009 the Court ordered by consent that the fourth respondent cease to be a party to the proceeding. 4 The first and second respondents (whom it will be convenient to refer to as the Bayer respondents) and the third and fifth respondents (the Chemtura respondents) each filed defences in which they denied all of the material allegations which were levelled against them. 5 Whilst the trial was pending the parties entered into the deed and the scheme which they brought to the Court for approval. 6 Section 33V of the Act provides that: "(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." 7 The principles which have guided the Court in the exercise of its power under s 33V were collected by Jacobson J in Taylor v Telstra Corporation [2007] FCA 2008 at [56]-[66]. His Honour there said: "Section 33V(1) of the Act provides that a representative proceeding may not be settled or discontinued without the approval of the Court. The purpose intended to be served by s 33V was stated succinctly by Branson J in Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 142 ALR 177 at 184. Her Honour said: It is appropriate for the court to be satisfied that any settlement or discontinuance of representative proceedings has been undertaken in the interests of the group members as a whole and not just in the interests of the applicant and the respondent. In Lopez v Starworld Enterprises Pty Ltd [1999] FCA 104, Finkelstein J pointed out at [16] that the Court's task under s 33V is an onerous one. His Honour observed at [15] that he was not concerned so much with the position of the applicant, who was represented by solicitors and counsel, but with other group members, many of whom are not protected in this way. In Williams v FAI Home Security Pty Ltd (No. 4) (2001) 180 ALR 459 at [19], Goldberg J said: 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…the court will take into account the amount offered to each group member, the prospects of success…, the likelihood of 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… and the attitude of the group members to the settlement. His Honour referred to a nine-factor test which has been adopted in the United States in considering whether to approve settlements as fair and reasonable. In Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Ltd (No. 2) (2007) 236 ALR 322, Jessup J took a slightly different approach from Goldberg J. His Honour observed at [3] that each case is dealt with on its own merits and by reference to specific factors which might raise serious doubts as to fairness. His Honour said at [35] that he could see no particular warrant for incorporating into Part IVA of the Act the requirements of the rules of the court of an overseas jurisdiction. His Honour said at [39] that: The practical judicial approach has been…to identify any features of the settlement that are obviously unreasonable or unfair…[and] where some group members object to a settlement and state their reasons…, their reasons will provide a convenient focus by reference to which the court will decide matters of fairness and reasonableness. Jessup J at [41] proceeded on the basis of considering whether the overall settlement sum was reasonable having regard to: the manner of its calculation and its relationship to the best possible case outcome for the group as a whole; the prospects of achieving an outcome at or near the best probable case; the extent of the weaknesses, substantive or procedural, in the applicant's case; [and] whether the settlement sum falls within a realistic range of likely outcomes… The test applied by his Honour at [41] was to determine whether the settlement involved any actual potential unfairness to any group member or categories of group members having regard to all relevant matters, including: whether the overall settlement sum involved unfair compromises by some members or categories of members for the benefit of others; and whether the distribution scheme fairly reflected the apparent or assumed relative losses suffered by particular members or categories of members. Jessup J at [50] also said that he did not consider that it was the Court's function under s 33V to second-guess the applicants' advisers as to the answer to the question whether the applicants ought to have accepted the respondents' offer. He also said at [50]: the court's function is, relevantly, confined to the question of whether the settlement was fair and reasonable. There will rarely, if ever, be a case in which there is a unique outcome which should be regarded as the only fair and reasonable one…the court should, up to a point at least, take the applicants and their advisers as it finds them… So long as the agreed settlement falls within the range of fair and reasonable outcomes, taking everything into account, it should be regarded as qualifying for approval under s 33V. More recently in Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897 Gordon J said at [19] to [20] said (sic) that she did not consider that the analysis undertaken by Goldberg J ought to be read as seeking to incorporate into Part IVA of the Act the requirements of the rules of court of an overseas jurisdiction. She said at [20]: The analysis provided and continues to provide a useful guide in considering applications for approval under s 33V… It should, in appropriate cases and subject to the circumstances of any particular case, continue to be employed as a useful guide." 8 These principles are reflected in the terms of Practice Note CM 17. Paragraph 11 of the Practice Note advises applicants for approval under s 33V that: "Court approval of settlement 11.1 When applying for Court approval of a settlement, the parties will usually need to persuade the Court that: (a) the proposed settlement is fair and reasonable having regard to the claims made on behalf of the group members who will be bound by the settlement; and (b) the proposed settlement has been undertaken in the interests of group members, as well as those of the applicant, and not just in the interests of the applicant and the respondent/s. 11.2 When applying for Court approval of a settlement the parties will usually be required to address at least the following factors: (a) the complexity and likely duration of the litigation; (b) the reaction of the group to the settlement; (c) the stage of the proceedings; (d) the risks of establishing liability; (e) the risks of establishing loss or damage; (f) the risks of maintaining a representative proceeding; (g) the ability of the respondent to withstand a greater judgment; (h) the range of reasonableness of the settlement in light of the best recovery; (i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and (j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding." 9 Ms Dellavedova has dealt with all of the factors which are referred to in paragraph 11.2 in an affidavit which she has sworn in support of the application. A good deal of the material exhibited to Ms Dellavedova's affidavit is necessarily confidential. It includes privileged legal advice and evidence prepared for the purpose of the proceeding. This material should be protected from disclosure by orders made under s 50 of the Act: cf Jarra Creek Central Packing Shed Pty Ltd v Amcor Limited [2011] FCA 671 at [154]-[160] (per Jacobson J). In determining to approve the settlement I have had regard to this confidential material. 10 The litigation has developed to a point where the issues are clearly defined. The parties are, therefore, in a position to assess the strengths and weaknesses of their respective cases and to make informed decisions about the basis for settlement. The applicant's solicitors, who are most experienced in the conduct of class actions, have recommended that the proceeding be compromised on the terms provided for in the deed and the scheme. Their recommendation has been supported by the opinion of counsel who has long been involved in the proceeding on behalf of the applicant. 11 No class member has objected to the settlement. 12 The applicant's decision to compromise the proceeding had regard to the vagaries of litigation. These included the lack of certainty on questions of liability and the expenses likely to be incurred in the conduct of a lengthy trial and possible appeals. Another consideration which weighed heavily in the present case was the capacity of the respondents to meet any damages awarded should the applicant be successful at trial. 13 In 2009 the second respondent, the Chemtura Corporation, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, Southern District of New York. The applicant filed proofs of claim in the bankruptcy proceeding. The Chemtura Corporation filed a plan of re-organisation under Chapter 11. Provision was made in the plan for the amount of $750,000 to be set aside to meet any liability of the Corporation to the applicant and group members in the present proceeding. That sum was to be made up, as to 14%, by cash and, as to 86%, by the issue of common stock in the re-organised corporation. The plan was approved by the Bankruptcy Court in November 2010. The share price of the common stock was, of course, subject to market fluctuations. 14 The Bayer respondents agreed to contribute $750,000 to a settlement fund. 15 By the time the deed was entered into, the applicant's legal fees had exceeded $600,000 and disbursements in excess of $500,000 had been incurred. 16 In the absence of any further contributions to the settlement fund, had an agreement not been reached, it would not have been long before legal fees and disbursements would have grown to the point where no funds would have been available for distribution to the applicant and the group members. 17 The scheme provides for the applicant's solicitors to receive only $500,000 by way of reimbursement for disbursements and $600,000 as part payment of their fees. The applicant's solicitors have prepared an itemised statement of the applicant's fees and disbursements for the work performed in relation to the proceeding up to 30 June 2011. The statement and the supporting documentation was reviewed by an independent legal cost consultant. I am satisfied, on the basis of his report, that the solicitors have incurred considerably more than the amount allowed for disbursements and could properly have charged a good deal more than the amount allowed for their fees. 18 A formula was then devised to facilitate the calculation of the entitlements of the applicant and the group members to the balance of the fund. 19 The scheme provides for the making of a payment to the applicant by way of compensation and reimbursement for the time and expenditure it had reasonably incurred in acting as the representative party. This payment was, in my view, reasonable having regard to the time, expense and responsibility undertaken by the applicant in prosecuting the proceeding. 20 The scheme provides that each group member who purchased Rubber Chemicals will be entitled to a sum calculated by multiplying its total expenditure on Rubber Chemicals during the relevant period by 0.06. The six per cent figure represents an estimate of the over-charging attributable to the alleged cartel conduct. An estimate has been relied on because of the cost and expense which would have been involved had a detailed economic analysis been conducted and because of the unavailability of some of the data which would have been needed to make more precise calculations. 21 The six per cent estimate has been based on settlements of class actions which have been brought in Canada arising out of the same alleged cartel agreement. 22 The scheme also provides that each group member who purchased Rubber Compounds will be entitled to a sum calculated by multiplying its total expenditure on Rubber Compounds during the relevant period by .004. The .4% figure represents the estimated inflation to Rubber Chemicals prices caused by the alleged cartel conduct (that is, the estimated 6% overcharge), multiplied by an estimated average rate of inclusion of Rubber Chemicals in Rubber Compounds. The estimate was based on an expert report which calculated the average inclusion of Rubber Chemicals in ten typical Rubber Compounds. 23 The estimates on which the calculations are based appear to me to be justified having regard to the material on which they were founded. Had expert evidence been obtained it is unlikely that the percentage figures would have varied significantly. The cost of obtaining that expert evidence would have reduced, if not eliminated, the pool from which the settlement payments are to be made. 24 I was unable to detect any actual or potential unfairness to any group member arising from the outcomes produced by these formulae. 25 In all of these circumstances I considered that the proposed settlement was fair and reasonable having regard to the interests of the group members. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.

Wright Rubber Pty Ltd v Bayer AG

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (5 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (7)