FEDERAL COURT OF AUSTRALIA

Multiplex Funds Management Limited v P Dawson Nominees Pty Limited

[2007] FCAFC 200

PRACTICE AND PROCEDURE – Representative proceedings under Pt IVA of the Federal Court of Australia Act 1976 (Cth) – application by respondent for order under s 33N(1) of the Act that proceeding no longer continue as a representative proceeding under Pt IVA – criterion for membership of group that persons have entered a litigation funding agreement with particular funder – construction of paras (a), (b), (c) and (d) of s 33N(1) discussed – whether “policy” underlying Pt IVA can be identified and should be taken into account – whether criterion for membership of group inconsistent with Pt IVA

Held:  Primary Judge’s decision that presence of criterion not inconsistent with Pt IVA and that order under s 33N(1) should not be made upheld.

Federal Court of Australia Act 1976 (Cth) ss 33C(1), 33N(1)

Braverus Maritime Inc v Port Kembla Coal Terminal (2005) 148 FCR 68 cited

Bright v Femcare Ltd (2002) 195 ALR 574 discussed

Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394 discussed

Jameson v Professional Investment Services Pty Ltd [2007] NSWSC 1437 discussed

Knight v FP Special Assets Limited (1992) 174 CLR 178 cited

O’Sullivan v Challenger Managed Investments Limited [2007] NSWSC 383 referred to

P Dawson Nominees Pty Ltd v Multiplex Ltd [2007] FCA 1044  cited

P Dawson Nominees Pty Ltd v Multiplex Ltd [2007] FCA 1061  followed

PMT Partners Pty Limited (in liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 cited

Rod Investments (Vic) Pty Ltd v Clark [2005] VSC 449 discussed

Wong v Silkfield Pty Ltd (1999) 199 CLR 255 cited

Zhang v Minister for Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 384 cited

Australian Law Reform Commission Report No 46: Grouped Proceedings in the Federal Court (1988)

Morabito V, “Class actions instituted only for the benefit of the clients of the class representative’s solicitors” (2007) 29 Sydney Law Review 5

MULTIPLEX FUNDS MANAGEMENT LIMITED (ACN 105 371 917) v

P DAWSON NOMINEES PTY LIMITED (ACN 004 743 408) AND MULTIPLEX LIMITED (ACN 008 687 063)

VID 692 of 2007

MULTIPLEX LIMITED (ACN 008 687 063) v P DAWSON NOMINEES PTY LIMITED (ACN 004 743 408) AND MULTIPLEX FUNDS MANAGEMENT LIMITED (ACN 105 371 917)

VID 693 of 2007

FRENCH, LINDGREN AND JACOBSON JJ

21 DECEMBER 2007

MELBOURNE

THE COURT ORDERS THAT:

1.                  The appellant be granted leave to appeal.

2.                  The appeal be dismissed.

3.                  The appellant pay the costs of the first respondent.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

THE COURT ORDERS THAT:

1.                  The appellant be granted leave to appeal.

2.                  The appeal be dismissed.

3.                  The appellant pay the costs of the first respondent.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

FRENCH J:

1                     I agree for the reasons given by Jacobson J that the appeal should be dismissed with costs.  There may be policy questions, for consideration by the legislature, relating to the role of litigation funders in representative proceedings.  The Court is given a discretion under s 33N(1)(d) to order that a proceeding no longer continue under Pt IVA of the Federal Court of Australia Act  1976 (Cth) where it is satisfied that it is in the interests of justice to do so because “… it is otherwise inappropriate that the claims be pursued by means of a representative proceeding”.  The broad evaluative judgment permitted by the term “otherwise inappropriate” is not, in my opinion a charter to introduce a quasi legislative rule effectively excluding from representative proceedings groups defined by reference to accession to an agreement with a litigation funder.

Associate:

Dated:  21 December 2007

REASONS FOR JUDGMENT

LINDGREN J:

INTRODUCTION

2                     I have had the benefit of reading the reasons for judgment of Jacobson J for which I am grateful.  I agree with his Honour that the appeals should be dismissed and I agree generally with his Honour’s reasons for reaching that conclusion.  I wish, however, to add the following observations with reference to the issues identified by his Honour.  (I will use the abbreviated terms that appear in his Honour’s reasons for judgment.)

CONSIDERATION

Issue 1 – the relationship between s 33C(1) and s 33N(1)

3                     With respect, I do not think that the submissions of either the Multiplex parties or Dawson adequately represent the relationship between s 33C(1) and s 33N(1) of the Act.

4                     The words “Subject to this Part” in s 33C(1) do not indicate that the s 33N(1) considerations somehow qualify the right given by s 33C(1) to commence a proceeding, so that, for example, the right to commence a proceeding does not exist if “all the relief sought can be obtained by means of a proceeding other than a representative proceeding under [Pt IVA]” (s 33N(1)(b)).  Section 33N(1) refers to the Court’s being “satisfied” that it is in the interests of justice that the proceeding “no longer continue” under Pt IVA because of one of the reasons specified.  Such concepts cannot be applied to the anterior right to commence the proceeding.

5                     It is not as though the words “Subject to this Part” must incorporate a reference to s 33N(1) of the Act in order to have work to do.  There are other provisions within Pt IVA that do modify or clarify the right to commence a proceeding given by s 33C.  For example, s 33E(1) provides that the consent of a person to be a group member is not required, but s 33E(2) provides that none of the persons specified in that subsection is a group member in a representative proceeding unless that person gives written consent to being so.  Section 33G provides that a representative proceeding may not be commenced in the circumstances described in that section.  There are other provisions designed to ensure that s 33C is given an ample construction; see, for example, ss 33D(1) and s 33F(1).

6                     On the other hand, while the words “Subject to this Part” in s 33C(1) do not signify that the commencement of a proceeding can be denied statutory authority by reference to the s 33N(1) considerations, that subsection, on its own terms and without reference to the words “Subject to this Part,” gives the Court a discretion to order that a proceeding no longer continue under Pt IVA on the grounds identified.  I see no reason why those grounds should be understood to be limited by reference to post-commencement developments.  Indeed, the grounds will usually, although not necessarily, be established by facts that existed when the proceeding was commenced, although they may only have become clear afterwards.

Issue 2 – s 33N(1)(d) and the definition of a group that satisfies s 33C(1)

7                     In Bright v Femcare Ltd (2002) 195 ALR 574 (Bright v Femcare) I said (at [74]) that s 33N(1)(a)–(d) raise practical questions that require that the Pt IVA proceeding in question be compared with other proceedings that are available to the applicant and group members as a means of resolving their claims.  I am of the view that that is an appropriate statement of an overall effect of s 33N(1).  Paragraphs (c) and (d), however, have a broader reach.  While a comparison is relevant to those paragraphs too, they are not limited by the necessity of making a comparison.  I do not think that a fair reading of what I said in Bright v Femcare 195 ALR at [74] suggests a circumscription of the scope of paras (a) to (d) of s 33N(1) so as to exclude the broader reach of paras (c) and (d).

8                     In relation to the use of the indefinite article “a” in the expression “a representative proceeding” in para (d), I refer to my observations at [13] to [15] below.

Issue 3 – whether the words “representing some or all of them” in s 33C(1) provide a complete answer to the Multiplex parties’ contentions

9                     Clause 14 of the draft Federal Court (Grouped Proceedings) Bill 1988 within Appendix A to Australian Law Reform Commission Report No 46: Grouped Proceedings in the Federal Court (1988) was headed “Addition of further group members: incomplete groups”.  The draft Explanatory Memorandum prepared by the Australian Law Reform Commission (ALRC) to accompany the proposed Bill explained (at para 24) in relation to the proposed cl 14:

If an application commencing grouped proceedings does not include as group members all persons with related claims, that is, if the group is not as extensive as it could be, the respondent or those excluded may be prejudiced.  The purpose of clause 14 is to allow the Court to deal with situations where persons who could have been included as group members in the originating process are omitted.  A potential group member or the respondent can, under subclause 14(3) apply in the principal proceeding for all the proceedings to be stayed for a specified time under subclause 14(1)  to give the principal applicant the opportunity to amend the application or to seek leave to amend the application (if leave is required at that stage in accordance with the Federal Court Rules) to commence proceedings for further group members.  If the principal applicant does not avail himself or herself of that opportunity, subclause 14(2) allows the Court

·to replace the principal applicant with an existing or potential group member or

·to separate the proceedings so that each member has the conduct of his or her own proceeding.

(Original emphasis.)

10                  Not only was cl 14 of the draft Bill not adopted:  the concluding words of s 33C(1) “as representing some or all of them” show positively an intention that there was to be no right of complaint merely because some of the persons falling within paras (a), (b) and (c) of s 33C(1) had been omitted from the group as defined.

11                  The Multiplex parties submit that s 33N(1) of the Act, and in particular s 33N(1)(d), fills the gap arising from the Parliament’s abandonment of the ALRC’s proposed cl 14.  With respect, I do not agree.  It is true that the Attorney-General in the Second Reading Speech on the Federal Court of Australia Amendment Bill 1991 (Cth) that introduced Pt IVA into the Act, and the Explanatory Memorandum that accompanied that Bill, stated that the purpose of s 33N was to empower the Court to prevent abuse of the Pt IVA procedure (see Australia, House of Representatives, (1991) Vol HR 181, p 3175).  To my mind, however, the words “as representing some or all of them” in s 33C(1) prevent the present group definition from being characterised as an “abuse”, and those words are not to be circumvented via the inefficiency or ineffectual ground in s 33N(1)(c) or the “otherwise inappropriate” ground in s 33N(1)(d).

12                  In construing Pt IVA it is unsafe to rely on the class action landscape as envisaged by the ALRC in 1988.  That landscape included the existence of the two funding measures mentioned by Jacobson J at [114] and omitted the advent of litigation funding as it exists today.  Moreover, particular recommendations of the ALRC and provisions in its draft Bill were not enacted.  In these circumstances, reliance on the ALRC report as a guide to construction of the Act is apt to mislead.

Issue 4 – s 33N(1): whether comparison required with other proceedings 

13                  Paragraphs (a) and (b) of s 33N(1) expressly call for a comparison between the particular Pt IVA proceeding and a non-Pt IVA proceeding.  Paragraph (c) invites but does not compel a comparison between the particular Pt IVA proceeding and any other proceeding, including any under Pt IVA, by which the claims may be pursued.  Paragraph (d) does not require, although it does not prohibit, a comparison between the particular Pt IVA proceeding and non-Pt IVA proceedings by which the claims may be pursued.  Paragraph (d) does not, however, permit a comparison between the particular Pt IVA proceeding and some other hypothetical proceeding under Pt IVA.  This last proposition arises from the use of the indefinite article “a” rather than the definite article “the”.

14                  In my view, since the Multiplex parties accept that it is appropriate that the claims be pursued by means of a Pt IVA proceeding, their attack on the definition of the group is to be assessed under para (c), not para (d), of s 33N(1).

15                  Inappropriateness of the present Pt IVA proceeding within s 33N(1)(d) is not established merely by pointing to a hypothetical different Pt IVA proceeding that the Court may consider “more appropriate”.  Paragraph (c) directs attention to the particular proceeding under Pt IVA that is on foot, whereas para (d) directs attention to the group members’ claims and poses the question whether it is appropriate that they be pursued by a proceeding under Pt IVA at all.

Issue 5 – opting in

16                  The expression “opt in” is sometimes used to refer to taking a step to become a member of a represented group in a Pt IVA proceeding about to be commenced, and at other times to refer to taking a step to become a member of the represented group in a Pt IVA proceeding that is already on foot.

17                  The expression “opt in”, or any derivative of it, is not used in Pt IVA.  Opting in to a Pt IVA proceeding already on foot would be inconsistent with one or more of ss 33C, 33H, 33J and 33K of the Act.  Senior counsel for Dawson accepted that an opting in of that kind is not permissible.

18                  It is a somewhat loose use of language to speak in this case of opting into the represented group before the proceeding was commenced.  The group was defined in the form of application and the statement of claim as persons who, inter alia:

“(c)      have, as at the commencement of this proceeding, entered a litigation funding agreement with International Litigation Funding Partners, Inc.”

 This criterion (which I will call “Criterion (c)”) had the effect that the group was not constituted at all until the proceeding was commenced.  It is more appropriate to say of the pre-commencement period, that some 40 or more persons agreed that one of their number should launch a Pt IVA proceeding on behalf of itself and the others, and that to that end all should enter into a funding agreement with ILF.

Issue 6 – whether the funding agreement prevents opting out

19                  I note in passing that certain difficulties would arise if practical disincentives to opt out were allowed to defeat a group definition.  There will almost inevitably always be some disincentive for a group member to opt out, at least once the proceeding has advanced.  There is the disincentive that arises from the simple fact that the solicitors retained have been pursuing the claimant’s interests – a benefit that will be lost by an opting out.  What would be the discrimen between those disincentives that are to be tolerated and those that are not?  Would a provision for a certain level of payment to the solicitors by each group member opting out be acceptable and a higher level of payment not?  Would the answer depend on evidence of common practice in relation to the terms on which solicitors are retained to pursue similar proceedings outside the Pt IVA context?  Would a requirement that group members invest a stipulated minimum level of effort and time in instructing the solicitors and assisting in assembling evidence be a disqualifying disincentive? 

20                  I accept that there are practical disincentives to opt out in the present case.  The question is whether those forming the group were at liberty to provide for those disincentives.  In my opinion they were. There is no suggestion that the funding agreement and the contract of retainer were anything other than transactions entered into voluntarily by parties who considered it to be in their commercial interests to enter into them.  The disincentives to opt out are to be seen in that light.

Issue 7 – whether the Multiplex parties established by evidence a hypothetical comparator proceeding

21                  As noted above, the Multiplex parties concede that it is appropriate that the group members’ claims be pursued by means of a Pt IVA proceeding as compared with non-Pt IVA proceedings.  They contend however that it is inappropriate that the group members’ claims be pursued by means of this particular representative proceeding as compared with another hypothetical Pt IVA proceeding having a group definition that omits Criterion (c) from the definition of the group.  In my opinion, however, the present group definitions does not enliven s 33N(1)(c) or (d).  It may be possible to conceive of group definitions that do so but the present is not one of them.  The Multiplex parties’ concession means that according to my construction of para (d) previously explained, that paragraph has no scope for operation.  Paragraph (c) is, however, a broad provision and might be enlivened if the Court was at liberty to apply a policy that the considerations of efficiency and effectiveness demanded that all persons who satisfied paras (a), (b) and (c) of s 33C(1) be included.  However, s 33C(1) expressly states that they need not be.

Issue 8 – the comparison chosen by the primary judge

22                  The passage from the reasons for judgment of Heerey J in P Dawson Nominees Pty Ltd v Multiplex Ltd [2007] FCA 1044 at [32] was that “the case [would] proceed in this Court in one form or other, regardless of the outcome of the s 33N application;  see s 33P of the Federal Court Act”.  Section 33P of the Act, to which Heerey J referred, provides for a Pt IVA proceeding to continue as an ordinary proceeding brought by the applicant for its benefit alone, once an application under s 33N has succeeded.  His Honour’s statement is not an indication that the proceeding would continue as a Pt IVA proceeding with a modified group definition.

23                  On the hearing before Finkelstein J, senior counsel for Dawson said that “whatever the outcome, the proceedings will continue ...”.  This statement also cannot be taken as a concession that the proceeding would continue as a Pt IVA proceeding with a group description that omitted Criterion (c).  It is consistent with the proceeding continuing, not under Pt IVA, but in a form by which Dawson could make its own claims.

24                  Accordingly, the primary Judge was correct to say that the appropriate counter factual was 40 or more separate proceedings or perhaps no proceeding at all to vindicate the rights of group members.

Issue 9 – Dorajay

25                  In Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394 (Dorajay) Stone J held that it was not permissible to define the group by reference to persons who had entered into a formal “retainer agreement” with the applicant’s solicitors (in that case, “the MBC criterion”).  Hansen J in Rod Investments (Vic) Pty Ltd v Clark [2005] VSC 449 considered a similar criterion.  In that case, his Honour expressed himself to be “in entire agreement with the reasons and decision of Stone J” in relation to the requirement that in order to be a group member a person must retain MBC (at [39]).  Therefore, with respect to his Honour, it is appropriate for us to refer only to Dorajay 147 FCR 394as the authority of present relevance.

26                  Criterion (c) (set out above at [18]) does not specify a litigation funding agreement in any particular form.  However, there was in evidence before his Honour the primary Judge the particular form of funding agreement that persons were required to sign.  By cl 4.1(a) of that form of funding agreement, a claimant undertook to ILF to retain and to provide instructions to MBC.  There were associated provisions in cl 4, such as provisions to the effect that:

·                    ILF acknowledged that MBC’s professional duties were owed to the group member and not to ILF;

·                    the group member instructed MBC to consult with ILF and to consider its views as to the conduct of the proceedings; and

·                    the group member instructed MBC to provide ILF with information relating to the proceeding.

27                  The hearing before his Honour and his Honour’s reasons proceeded on the footing that what was in issue was both the form of the actual funding agreement with ILF and the form of the actual contract of retainer with MBC.

28                  With respect, I do not think that a criterion that in order to be a group member, a person must have entered into a funding agreement with a particular funder and retained a particular firm of solicitors is impermissible under Pt IVA.  I therefore appear to be in disagreement with the view expressed by her Honour Stone J in Dorajay 147 FCR 394 on this point.

29                  As to both a funding agreement criterion and a solicitors’ retainer requirement, the position can be tested by inquiring what would be objectionable in identifying the group simply as the persons named on a list where those persons were in fact all those persons who had entered into a funding agreement and a contract of retainer as at the commencement of the proceeding.  In my view, there would be nothing objectionable in this, and the composition of the group could not be impugned later once the basis of the list came to light.  A group definition that makes transparent the basis of selection is not to be condemned on that account.

30                  I do not think that the words “representing some or all of them” in s 33C(1) refer only to criteria associated with the nature of the claims, such as, to take the circumstances of the present case, persons who invested more than a certain sum of money or whose loss exceeded a certain sum, or who invested within one period rather than another.  Nor do I think that those words are limited by reference to acts or states of affairs that exclude steps taken in order to become a group member, such as investors who reside in a particular State or are of a certain age, sex or nationality (although a particular criterion may be impermissible as an abuse of process or by reason of the operation of other legislation, for example).

31                  The decision in Dorajay 147 FCR 394,however, is supported on the ground that the group definition allowed opting in after the proceeding commenced, and is distinguishable from the present proceeding in this respect.

Issue 10 – the risk of multiple proceedings

Issue 11 – the s 33N(1)(b) ground

Issue 12 – the grounds stated in s 33N(1)(b), (c) and (d) and the interests of justice

32                  I do not wish to add to what Jacobson J has written in relation to these three issues, beyond the observations that I have already made above.

A recent decision

33                  Since the above reasons were written, judgment was delivered on 12 December 2007 by Young CJ in Eq in Jameson v Professional Investment Services Pty Ltd [2007] NSWSC 1437.  His Honour decided that the investor class action before him should not continue as such “because of the lack of commonality of representation and reliance” (at [123]).  However, in obiter dicta, his Honour expressed a preference for the reasoning of Stone J in Dorojay 147 FCR 394 as against that of Finkelstein J in the present proceeding.  Young CJ in Eq did not discuss the issues raised on this appeal beyond saying (at [106]) that he thought that Finkelstein J had over emphasised the position of the funder and that “[t]he key focus must be on the overriding purpose of the statute”.  I have indicated earlier that I think it necessary, at least in the present case in which the terms of Pt IVA of the Act departed in important respects from the ALRC’s recommendations, to be wary of such notions as “the overriding purpose of the statute”, and to attend closely to the terms of the statute.

Three general observations

34                  Before parting with these appeals, I make the following three general observations.

35                  First, the submissions of counsel for both the Multiplex parties and Dawson touched on many issues relating to the advantages and disadvantages of Criterion (c) from a policy perspective.  Much can be said both ways, but the question before the Court has been the more limited one of whether Criterion (c) was or was not permitted by Pt IVA of the Act.  

36                  Second, it was not suggested that the funding agreement or the contract of retainer was vulnerable to attack on any basis lying outside Pt IVA, and so the Court’s only concern has been with Pt IVA.

37                  Third, the Court’s decision leaves it open to define a represented group to encompass all of the persons (as opposed to some of the persons) referred to in s 33C(1):  the decision merely recognises that this is not the only way in which the group may be defined. 

Conclusion

38                   In general for the reasons given by Jacobson J, as supplemented by my reasons stated above, I agree that leave to appeal should be given, and that the appeals should be dismissed.

Associate:

Dated:         21 December 2007

REASONS FOR JUDGMENT

JACOBSON J:

Introduction

39                  On 18 December 2006, P Dawson Nominees Pty Limited (“Dawson”) commenced representative proceedings under Pt IVA of the Federal Court of Australia Act 1976 (Cth)  (“the Act”) against Multiplex Limited (“Multiplex”) and a related company, Multiplex Funds Management Limited (“MFM”).  The proceedings arise out of substantial cost over-runs and delays in the construction of the Wembley Stadium in the United Kingdom, by a subsidiary of Multiplex.

40                  The difficulties experienced by the Multiplex group in the construction of the Wembley Stadium are said to have affected the reliability of forecast profit earnings for the 2005 and 2006 financial years.  The substance of the cause of action alleged by Dawson, on its own behalf and on behalf of group members, is that Multiplex and MFM breached their duties of continuous disclosure under s 674 of the Corporations Act 2001 (Cth).

41                  The essential question which arises on these appeals is whether Finkelstein J erred in refusing to make an order, sought by Multiplex and MFM under s 33N(1) of the Act, that the proceeding no longer continue as a representative proceeding under Pt IVA.

42                  The principal contention of the Multiplex parties was that his Honour ought to have been satisfied that it was in the interests of justice to make an order under s 33N(1)(d) because it was “otherwise inappropriate” that Dawson’s claims be pursued by means of a representative proceeding.

43                  The question of the appropriateness of the representative proceeding was said to turn upon the definition of the class represented by Dawson.  The definition of the class comprised three elements.  The Multiplex parties contended that the third element of the definition was inconsistent with the terms and policy of representative proceedings under Pt IVA.

44                  The third element of the definition brought within the class, as an essential pre-condition for membership, investors who had, at the commencement of the representative proceeding, entered into a litigation funding agreement with International Litigation Funding Partners Inc (“ILF”).

45                  The Multiplex parties made two principal grounds of attack on the compulsory litigation funding requirement.  The first was that it required group members to take the positive step of “opting in” to the proceeding and was therefore contrary to the “opt out” nature of representative proceedings under Pt IVA of the Act.

46                  The second objection was that the litigation funding agreement to be entered into between group members and ILF imposed a real and substantial fetter upon their ability to opt out of the proceeding if they chose to do so.  This was said to be contrary to their rights under s 33 J of the Act.

47                  The Multiplex parties also contended that the discretion under s 33N(1)(c) was enlivened because the representative proceeding would not provide an efficient means of dealing with the claims of group members.  This was because, it was argued, the Multiplex parties will be exposed to the potential of other representative proceedings by other investors who may enter into different funding arrangements made by firms of solicitors other than those who have been retained by the Dawson group members.

48                  In addition, Multiplex and MFM relied upon s 33N(1)(b) under which the Court may order that a proceeding no longer continue as a representative proceeding if it is satisfied that it is in the interests of justice to do so because the relief sought can be obtained by means of a separate proceeding.  However, Dawson contended that this ground was not agitated before the primary judge.

49                  Although the decision of the learned primary judge was made in the exercise of his discretion on a matter of practice and procedure, we granted leave to appeal.   We did so because the matter raises questions of construction of Pt IVA which seemed of sufficient importance to warrant the grant of leave.  This should not be seen as endorsing any departure from the ordinary approach of the Court which leans against appellate review of discretionary judgments on matters of practice and procedure.

The legislation

50                  The principal provisions of Pt IVA which are relevant to these appeals are s 33C(1) and s 33N(1).  It is convenient to set them out in full.

51                  Section 33C(1) provides:

 (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.

52                  Section 33N(1) is in the following terms:

 (1) The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because:

(a)      the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or

(b)      all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or

(c)      the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or

(d)      it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.

53                  There are a number of other provisions which bear upon the issues raised by these appeals.

54                  “Group member” is defined by s 33A as a member of a group of persons on whose behalf a representative proceeding has been commenced.  A “representative proceeding” is defined as a proceeding commenced under s 33C.

55                  Section 33D draws a distinction between the commencement of a proceeding and continuing it.  The effect of s 33D(2) is that a person who has commenced a representative proceeding in accordance with s 33C(1) has a sufficient interest to continue the proceeding.

56                  Section 33E(1) provides that subject to a number of limited exceptions stated in
s 33E(2), the consent of a person to be a group member in a representative proceeding is not required.

57                  Section 33H(1) is intended to facilitate the assessment of whether a representative proceeding satisfies the requirements of s 33C(1): Bright v Femcare (2002) 195 ALR 574 at [126] per Kiefel J.  Section 33H(1) provides that an application commencing a representative proceeding must describe or identify the group members and specify the nature of the claims as well as the common questions of fact or law.

58                  Section 33J contains the entitlement of group members to “opt out” of a representative proceeding.  Section 33J(1) provides for the court to fix a date before which a group member may opt out.  Section 33J(2) provides that:

A group member may opt out of a representative proceeding by written notice given under the Rules of Court before the date so fixed.

59                  There are two other provisions, apart from s 33N, which empower the Court to order that a representative proceeding no longer continue under Pt IVA.   They are s 33L, which applies where there are fewer than seven group members, and s 33M, which is applicable where the cost of identifying group members and distributing the proceeds of a judgment to them would be excessive.

60                  A judgment given in a representative proceeding is binding on all group members other than those who have opted out of the proceeding under s 33J: see 33ZB.

61                  Section 43(1A), which is contained in Part VI of the Act, states the rule which applies to costs orders in an unsuccessful representative proceeding.  Costs may not be awarded against group members except in a number of specific circumstances.  Thus, it is only the representative party who is exposed to the risk of bearing the costs of an unsuccessful proceeding.

62                  Provision is made in s 33ZJ for reimbursement of a representative party’s costs out of the damages awarded in a successful proceeding.

The primary judge’s reasons

63                  The learned primary judge stated that the regime created by s 33N(1) involves two steps.  First, the Court must decide whether one of the conditions stated in s 33N(1)(a) to (d) has been satisfied.  Second, if it has, then, and only then, the Court is to consider whether it is in the interests of justice to make an order of discontinuance because of the existence of the condition: see P Dawson Nominees Pty Ltd v Multiplex Ltd [2007] FCA 1061 at [21].  He referred to the decision of the Full Court in Bright v Femcare as authority for that proposition, citing in particular the reasons of Lindgren J and Finkelstein J’s own reasons for judgment in that case.

64                  In the present proceeding, the primary judge engaged in some discussion of the interests of justice but he recognised that this was unnecessary because he found that the preconditions necessary for the exercise of the power under s 33N(1) were not satisfied: see [53] of his Honour’s reasons.

65                  His Honour could see nothing “inappropriate” about the claims going ahead in a representative proceeding.  He regarded it as a good example of litigation that was best suited for class action procedures, stating that the “counter-factual” was 40 or more separate actions, or perhaps no action at all, either of which would be unacceptable: at [53] of his Honour’s reasons.

66                  In adopting this approach to the matter, his Honour applied the statement of principle of Lindgren J in Bright v Femcare that s 33N(1) raises practical questions which require the Pt IVA proceeding to be compared with other proceedings that are available to group members: see at [21] of the reasons of the primary judge.

67                  The reason his Honour selected the counter-factual of 40 separate proceedings was that the group comprises approximately 40 investors, each of whom has entered into a contract of retainer with the law firm Maurice Blackburn Cashman (“MBC”).  It is a condition of each contract of retainer with MBC that the group member has entered into a funding agreement with ILF: see [30] – [31] of his Honour’s reasons.

68                  His Honour referred to the terms of the funding agreement.  It provides that a group member may terminate the retainer of MBC only after consultation with ILF.  The funding arrangement also provides for ILF to pay all costs and disbursements and for any sum received in satisfaction of the claim to be paid in the following order:

·        first, in payment of the costs and disbursements of the proceedings;

·        then, in payment of “a not insignificant percentage to ILF by way of a fee”;

·        and finally, the balance to the group members: see his Honour’s reasons at [32].

69                  The primary judge found that the proceedings are “factually intense and highly complex”.  They involve a consideration of the rate of progress of the construction of the Wembley Stadium and the reasonableness of representations made by the Multiplex group in light of what was known to its officers: see [27] of his Honour’s reasons.

70                  His Honour also found that the proceedings will be very expensive to run; the action is one “that few people could afford”.   It is not one that Dawson could run on its own: see [28]-[29] of his Honour’s reasons.

71                  His Honour pointed to the advantages of the retainer of MBC and the funding agreement to each group member.  He said at [34] that if it were not for those agreements and the class action procedure “the action would probably not have gotten off the ground.”  His Honour also found, implicitly, that Dawson could only pursue its claim against the Multiplex parties because it is a representative proceeding in which Dawson’s costs were funded by ILF: see his Honour’s reasons at [34].

72                  The primary judge made an express finding at [38] that the funding agreement with ILF is not illegal for being contrary to public policy, nor is it an abuse of process.

73                  His Honour gave four principal reasons for rejecting the submission of the Multiplex parties that the condition of entering into the funding agreement was an illegitimate method of defining the group.

74                  First, his Honour stated that it is not necessary under Pt IVA for the represented group to include all persons who have claims against the defendant that arise out of the same or related facts and circumstances.  He pointed at [15] to the words in s 33C(1), “as representing some or all of them”, in support of this conclusion.

75                  His Honour expanded on this later in his judgment.  He observed at [47] that the group members could have been identified by name but instead they were identified by the factors that brought them together.

76                  The primary judge went on to say:

[48]    The second thing to observe is that the only persons excluded from the group are free riders, that is persons who make no direct or indirect contribution toward the costs of the action.  In my opinion this is not inconsistent with Part IVA.  When Parliament rejected the LRC’s recommendation that the represented group should include all persons with common claims, it must have had in mind the likelihood that the represented group would be selected by criteria that bore no necessary relationship to the causes of action being pursued.  There may be circumstances in which the factors that define a particular group are inconsistent with Part IVA in the sense that a group proceeding instituted to benefit only that group is not a proceeding which was contemplated by Part IVA.  Putting that possibility (which on any view must be remote) to one side, a group that excludes free riders cannot be criticised.  On the contrary, there are economically rational reasons to establish such a group. …

 [49]  I acknowledge that in the usual case a class action is brought without the express consent of all of group members.  Section 33E contemplates that course, except in presently irrelevant circumstances.  While consent to bring an action is not required by Part IVA, it is not forbidden.  In effect the question raised by the respondents is whether a class action can be commenced consensually by a self selected group that has decided to exclude others who also have claims against the respondents.  The basis for the selection seems to be irrelevant.  I see no reason why that course should not be permitted.

77                  His Honour’s second reason for rejecting the attack on the legitimacy of the definition of the group was that the prior agreement of persons to commence a representative proceeding is not “opting in” to the proceeding: see his Honour’s reasons at [50].

78                  Third, his Honour was of the view that the funding agreement did not prevent a group member from opting out of the representative proceeding: see his Honour’s reasons at [50].  There was, accordingly, no inconsistency with s 33J(2).

79                  Fourth, the primary judge was of the view that the practical and financial impediments to “opting out” of the proceeding, arising from the litigation funding agreement with ILF, were not inconsistent with, or contrary to, the provisions or policy of Part IVA: see his Honour’s reasons at [52].

80                  His Honour did not consider that the decision of Stone J in Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394 required a different outcome.

81                  Although the primary judge distinguished the decision in Dorajay, he criticised her Honour’s reasons for judgment.  In particular, his Honour considered that the reasons given by Lindgren J in Bright v Femcare required the Court to make a comparison between the existing representative proceeding and other proceedings that are available.  Finkelstein J said at [63] that in Dorajay, Stone J did not undertake that task. 

82                  Finally, his Honour did not address, directly, the ground under s 33N(1)(c) which was raised by the Multiplex parties.  However, it is evident that his Honour did not consider that the “inefficiency” ground was made out.  This is to be found in his Honour’s observations at [55]-[56] about the possibility of multiple proceedings.

83                  In dealing with this issue, his Honour referred to the evidence which disclosed that MBC was looking for further investor claimants.  He recorded a concession made by counsel for Dawson that it is possible that an application will be made to join further persons and that other proceedings might be brought in respect of the claims.

84                  His Honour referred to the submission of the Multiplex parties that it was unfair to expose them to the risk of having to defend multiple representative proceedings.  However, he was not convinced that this was worse than facing multiple individual actions.  In any event, he considered at [55] that if other investors initiate a separate proceeding, this could be accommodated in various ways, such as by hearing the new proceeding with the existing one.

The issues on the appeals

85                  The principal issues which arise on the appeals are as to the proper construction and operation of ss 33C(1) and 33N(1) and the relationship between those sections.

86                  The appeals also raise for consideration the definition and composition of the group, in particular whether a group defined by reference to the requirement of execution of the funding agreement is contrary to the provisions of Pt IVA.

87                  The issues that fall for consideration are as follows:

(i)                whether a proceeding which satisfies the requirements of s 33C(1) may nevertheless be subject to the operation of s 33N(1);

(ii)              whether, in considering the “otherwise inappropriate ground” in s 33N(1)(d), the Court may have regard to the definition of the group which passes the threshold test stated in s 33C(1);

(iii)             whether the words “representing some or all of them” in s 33C(1) provide a complete answer to the contentions of the Multiplex parties;

(iv)            whether, in considering the grounds stated in s 33N(1)(a) to (d), the Court is required to compare the benefits available under the existing representative proceeding with those that would be offered by other available proceedings;

(v)              whether the definition of the group is contrary to the “opt out” nature of representative proceedings because it requires the members to take the step of signing the litigation funding agreement with ILF;

(vi)            whether the practical effect of the litigation funding agreement is to prevent group members from opting out of the proceeding contrary to
s 33J;

(vii)           whether the Multiplex parties established by evidence a comparator representative proceeding that would have served as a counter-factual;

(viii)         whether the primary judge chose the correct comparator;

(ix)            whether the decision in Dorajay is distinguishable, and whether, in any event, the reasons for the decision in that case are flawed;

(x)              whether the risk of multiple representative proceedings enlivened the inefficiency ground contained in s 33N(1)(c).

(xi)            whether the s 33N(1)(b) ground was enlivened; and

(xii)           if any of the grounds under s 33N(1)(b), (c) or (d) is enlivened, whether it is in the interests of justice to make a discontinuance order.

Issue 1 – the relationship between ss 33C(1) and 33N(1)

88                  The Multiplex parties submitted that the opening words of s 33C(1) “Subject to this Part” indicate that the operation of s 33C(1) is subject to the control mechanism contained in the provisions of s 33N(1).

89                  This approach was rejected by Dawson which submitted that the entire focus and subject matter of s 33C is the commencement of a representative proceeding.  Attention was drawn to the distinction between commencement and continuation reflected, inter alia, in s 33D.  It was submitted that s 33N(1), which is concerned with continuation, cannot be a control mechanism on the operation of s 33C(1).

90                  However, the construction that was urged upon us by Senior Counsel for Dawson appears to be contrary to the observations made by the High Court in Wong v Silkfield Pty Ltd (1999) 199 CLR 255 at [26] and [29], and the remarks of Kiefel J in Bright v Femcare at [128].

91                  In Wong, the High Court described s 33C(1) as a threshold requirement.  Their Honours said at [29] that proceedings which pass the threshold requirement of s 33C may later be terminated as representative proceedings by an order under s 33N.  Kiefel J’s observations in Bright v Femcare at [128] were to the same effect.

92                  Whether or not their Honours’ observations in Wong and Bright were part of the ratio of those authorities, I respectfully adopt them as indicating the proper construction of the inter-relationship between ss 33C and 33N.

93                  I would add that this approach gives effect to the natural meaning of s 33C(1) and
s 33N(1).  It avoids reading the words “may be commenced” in s 33C(1) in a narrow way.  To do so would be contrary to a long line of cases which establish that provisions which confer jurisdiction upon, or grant powers to, a court should be construed as amply and liberally as the words and context permit: Knight v FP Special Assets Limited (1992) 174 CLR 178 at 205; PMT Partners Pty Limited (in liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 313.

94                  Indeed, in Wong, at [11]-[12], the High Court stated that this principle of construction applies to the provisions of Pt IVA of the Act.

95                  I agree with Lindgren J that the words “subject to this Part” in s 33C(1) do not mean that the right to commence a proceeding under Pt IVA is qualified by the grounds stated in s 33N(1).  There are other provisions, to which his Honour refers, which bear upon the right granted by s 33C(1).

Issue 2 – s 33N(1)(d) and the definition of a group that satisfies s 33C(1)

96                  Senior Counsel for Dawson, Mr Hutley SC, submitted that a group defined in a way that satisfies the requirements of s 33C(1) cannot be attacked on the “otherwise inappropriate” ground in s 33N(1)(d).

97                  He gave three principal reasons for this, apart from the issue of construction which I considered under “Issue 1”.   The first reason was that s 33N(1)(d) uses the indefinite article in stating the ground that it is otherwise inappropriate that the claims be pursued by means of “a representative proceeding”.

98                  Mr Hutley submitted that the attack made by the Multiplex parties on the definition of the group substituted the definite article “the” for the indefinite article which appears in the subsection.

99                  The second reason relied on the approach to construction taken by Lindgren J in Bright v Femcare at [74].  This was that the grounds stated in s 33N(1)(a) to (d) require the Court to compare the existing proceedings with other available proceedings.  That is to say, the focus must be on a comparator, not upon the definition of the group which satisfies the requirements of s 33C(1).

100               Third, Mr Hutley pointed to the observation of Gleeson CJ in Nicholls v The Queen (2005) 219 CLR 196 at [8], that the search for legislative intention may sometimes be illusory, particularly where Parliament adopts a compromise in the legislation.  There, a court may be left with the text as the only safe guide to determination of the legislative purpose.

101               This third aspect of Mr Hutley’s approach was directed in particular at the submission of the Multiplex parties that the “otherwise inappropriate” ground may be invoked where the group is defined in a way that is repugnant to the policy of Pt IVA.

102               I reject the submission that the indefinite article in s 33N(1)(d) precludes consideration of the terms of the group comprised in the existing proceeding.  It seems to me that the approach taken by Dawson to this question does not accord with the language of
s 33N(1)(d).

103               This is because the term “a representative proceeding” in s 33N(1)(d) is defined in s 33A as “a proceeding commenced under s 33C”.   It follows that s 33N(1)(d) requires the Court to consider whether it is inappropriate for the claims to be pursued by means of a representative proceeding commenced under s 33C.  This must permit the Court to have regard to the way in which the group has been defined, even if it is defined in a way that satisfies the threshold of s 33C. 

104               Indeed, the learned primary judge recognised that this must be so in the passage at [48] of his judgment which I have set out above.  He said that there may be circumstances in which the factors that define the group are inconsistent with the provisions of Pt IVA in the sense that a representative proceeding instituted to benefit only those members of the group is not a proceeding that was contemplated by Pt IVA.

105               Moreover, the approach taken by Mr Hutley does not seem to us to be supported by the remarks of Kiefel J in Bright v Femcare.  Her Honour rejected a submission that the operation of s 33N(1) is confined to circumstances where there is an abuse of the procedures under Pt IVA.  She said at [130] that:

…it is clear from the terms of the subsection that it permits the court a much wider consideration, as to what purpose the representative proceeding might serve.

106               Kiefel J also drew attention at [129] to the decision in Zhang v Minister for Immigration, Local Government and Ethnic Affairs (1993) 45 FCR 384.  There, French J made an order of discontinuance under s 33N(1)(d) where a proceeding had no further utility as a representative proceeding after determination of a threshold question.

107               The observations of Kiefel J at [129] – [130] and the decision of French J in Zhang support the view that in considering whether it is “otherwise inappropriate”, the Court may look to the purpose served by a continuation of the proceeding.  This would extend to a consideration of the way in which the group is defined.

Issue 3 – whether the words “representing some or all of them” in s 33C(1) provide a complete answer to the Multiplex parties’ contentions

108               Part IVA was enacted in response to Report No. 46 of the Australian Law Reform Commission, entitled “Grouped proceedings in the Federal Court, 1988”.  However, Parliament did not adopt all the recommendations made by the ALRC.

109               One of the recommendations of the ALRC which was not adopted in Pt IVA was that grouped proceedings would be brought on behalf of all members of the group who were alleged to have suffered harm by the conduct of the respondent.  Clause 14 of the ALRC’s draft Bill provided for the Court to be able to order a stay of proceedings where the group was incomplete.  Indeed, the heading to the ALRC’s cl 14 was “Addition of further group members: incomplete groups”.

110               The rejection of this recommendation is to be found in the words of s 33C(1).  That subsection permits a representative party to commence a proceeding by one or more of the persons who satisfies the threshold requirements of paragraphs (a) to (c) “as representing some or all of them.”

111               These words expressly permit the representative party to commence a proceeding on behalf of less than all of the potential members of the group.  This construction, though sufficiently clear from the wording of s 33C(1), is reinforced by the fact that in enacting
s 33C, Parliament rejected the ALRC’s recommendation.

112               The primary judge said, in the passage which I have quoted above, that when Parliament rejected the ALRC’s recommendation, it must have had in mind the likelihood that the group would be selected by criteria that were unrelated to the causes of action.

113               With respect, I do not accept that Parliament must have turned its mind to that possibility.  The state of the parliamentary mind is, in any event, a metaphor and a matter of attribution based upon the construction of the statute according to its terms, the purposes it discloses and, where appropriate, those disclosed by extrinsic material.  The problem which arises in the present proceeding comes about as the result of the relatively new phenomenon in Australia of litigation funding. There is nothing to suggest that this phenomenon was considered by the ALRC in recommending Pt IVA or by Parliament in enacting it.

114               This is borne out by the fact that the ALRC made its own recommendations for funding of class actions.  It proposed the creation of a special fund to provide for the costs of the proceedings and the allowance of an uplift in fees payable to solicitors who entered into conditional fee agreements with their clients.  Both proposals were rejected by Parliament: see Morabito V, “Class actions instituted only for the benefit of the clients of the class representative’s solicitors” (2007) 29 Sydney Law Review 5 at 33.

115               Professor Morabito’s article addresses the decision in Dorajay.  The problem in that case arose, at least in part, because the group was defined in terms that comprised a small category of shareholders who were allegedly harmed by the conduct of the respondent.  The same problem arises here.

116               Professor Morabito pointed out, at 22, that restricting the ambit of class proceedings to those persons who have taken the step of expressly instructing the class representative’s solicitors to act on their behalf, constitutes:

…a far cry from the class action landscape…envisaged by the ALRC and by the Federal Parliament when they selected the opt out mechanism.

117               The same observation may be made about the ambit of representative proceedings brought on behalf of a group defined by the criterion of the positive step of signing a litigation funding agreement with a named funder.  It is difficult to see how this can be reconciled with the goals of enhancing access to justice and judicial efficiency in the form of a common binding decision for the benefit of all aggrieved persons.

118               It is not for the Court to determine the question of inappropriateness or inefficiency by reference to policy considerations that are not expressed or apparent from the language and scheme of Pt IVA.  As French J said, speaking extra-judicially: 

In the law policy can be difficult magic.  It has a protean character … In the discovery of the law … the first resort is to its words be they expressed in a statute or as the statement in the cases of a rule of the common law.  Policy gives life to the rules but the words of the rules must first be found.  Policy divorced from law has no voice in the courts.  (The Hon. Justice R S French, “Dolores Umbridge and the Concept of Policy as Legal Magic”, Australian Law Teachers’ Association – National Conference Perth, 24 September 2007).

119               The ordinary rules of the Australian common law of statutory interpretation are expressed in the authorities collected and set out by a Full Court in Braverus Maritime Inc v Port Kembla Coal Terminal (2005) 148 FCR 68 at [36].  As the Full Court stated, fundamental to the task is the giving of close attention to the text and structure of the language used by Parliament.

120               The term “inappropriate” is something of an empty vessel.  It invites a normative judgment made by reference to the scope and purpose of the Act as ascertained by consideration of its language and the extrinsic materials already mentioned.  It is not to be used to graft onto the legislation a rule prohibiting a class defined by criteria otherwise within the language of the Act.

121               The question which falls for determination is one of construction and application of the provisions of s 33N(1).  That subsection empowers the Court to make an order of discontinuance if, and only if, the Court is satisfied that it is in the interests of justice to do so on one or more of the grounds stated in paragraphs (a) to (d) of s 33N(1): Bright v Femcare at [74].  The word “because”, which precedes the statement of the grounds, points to the need for a causal nexus between the specified grounds and the interests of justice.

122               In considering whether the grounds stated in s 33N(1)(c) or (d) are enlivened, the Court may look to the inefficiency or inappropriateness of the proceeding in the terms stated in those paragraphs.

123               In my view, the definition of the group is one of the matters to which the Court can look in determining those questions.  However, the mere fact that the group does not include the entirety of the class of persons with claims against the respondent cannot provide an answer to the question.  This follows from what I have said about s 33C(1).

124               Accordingly, the question of inefficiency or inappropriateness is to be determined in the light of all of the circumstances of the proceeding, including reference to any relevant “comparator” proceeding.

Issue 4 – s 33N(1): whether comparison required with other proceedings

125               In Bright v Femcare at [74], Lindgren J considered that a comparison was required between the Pt IVA proceedings and other proceedings that are available.  Kiefel J did not specifically address that question, but it follows from what her Honour said at [128]-[130] that, at least in relation to s 33N(1)(c) and (d), wider considerations may inform the exercise of the power.

126               Section 33N(1)(a) and (b) call in express terms for a comparison of the costs that would be incurred, and the relief that can be obtained, in other proceedings.  However, no such comparison is expressly contemplated by the language of s 33N(1)(c) or (d).

127               Section 33N(1) confers power to make an order of discontinuance of the proceeding under Pt IVA.  Implicit in this is that the Court will consider whether it is in the interests of justice that the proceeding be determined as a non-representative action, or as a number of such actions.  Indeed, s 33P provides for that consequence.

128               Thus, s 33N(1) envisages that the Court will engage in a comparison between how the factors specified in grounds (a) to (d) apply to the existing representative proceeding and how they would apply to a hypothetical non-representative proceeding.  This is explicit in grounds (a) and (b).  It is implicit in grounds (c) and (d).

129               But it does not follow that the weighing exercise involved, in particular, in grounds (c) and (d), will always entail detailed evidence of the likely course or form, of the comparator proceeding.  I do not consider that the remarks of Lindgren J at [76] in Bright v Femcare were intended to state an invariable rule of practice.

130               The considerations applicable to grounds (c) and (d)will vary greatly, depending upon the facts and the form of each representative proceeding.  It is plain from what Kiefel J said in Bright v Femcare at [128]-[130] that in considering the “inefficiency” or “inappropriateness” grounds, the Court will focus more closely on matters such as the commonality and non-communality of issues raised in the representative proceeding, as well as the purpose of that proceeding.  See also Wong at [33], citing the observations of Spender J at first instance.

131               In my view, nothing in the language or context of s 33N(1) requires the Court, as a necessary pre-condition to the exercise of the power in s 33N(1)(c) or (d), to give detailed consideration to the likely course of the comparator proceeding.  It may be that in some cases the inefficiency or inappropriateness of the claims as a representative proceeding will be so great that the only possible order is to “de-class” the proceeding and permit it to proceed as a separate action or a series of separate actions.

132               Section 33N(1)(c) calls for a consideration of the efficiency and effectiveness of the representative proceeding as a means of dealing with the claims.  So too, s 33N(1)(d) calls for consideration of the appropriateness of “a representative proceeding”, as a vehicle by which the claims are to be pursued.

133               The focus therefore of both of those grounds is “the claims” of the group members.  What is required to enliven those grounds is a consideration of the efficiency or appropriateness of the claims in the existing representative proceeding.  The enquiry is a wide one as was explained by Kiefel J in Bright v Femcare at [128] and [130].

Issue 5 – opting in

134               As Stone J observed in Dorajay at [110], it is plain from the terms of ss 33E and 33J, and the relevant extrinsic material, that Parliament made a deliberate policy choice to adopt the “opt out” procedure for representative proceedings under Pt IVA.

135               The Multiplex parties submit that the definition of the group in the present case subverts the aims of Parliament in establishing the “opt out” model.  They submit that the third element of the definition which requires group members to take the positive step of entering into a funding agreement with ILF is inconsistent with the “opt out” nature of a Pt IVA proceeding.  They point to the statements of the Attorney-General in the Second Reading Speech set out at [106] in Dorajay.

136               The primary judge was of the view that the third element of the definition did not amount to an “opting in” requirement, because at the time when the step was to be taken there was nothing to opt into.  That is to say, the expressions “opting in” and “opting out” apply to an existing action: see his Honour’s reasons at [40] and [50].

137               There is force in the submission of the Multiplex parties that the definition of the group in terms which exclude those who do not sign the funding agreement does not facilitate access to justice for all those claimants who have suffered loss.

138               However, whether or not the definition of the group is inconsistent with the requirements of Pt IVA cannot be determined by resort to broad arguments about the aims or policy of the legislation.  The question is whether it is inconsistent with ss 33C, 33E or 33J.

139               For reasons already mentioned, the definition of the group is not inconsistent with s 33C(1).  Nor does it contravene s 33E.  As the primary judge said at [49], although the consent of group members to bring a proceeding is not required by Pt IVA, it is not forbidden.

140               Moreover, it is plain that the right of a group member to opt out under s 33J(2) is a right that relates to existing representative proceedings.

141               I can see nothing in the language of those provisions, construed in the context of the whole of the provisions of Pt IVA, which precludes a definition of the group in accordance with the third element of the definition in this case.

142               Part IVA does not use the expression “opt in”.  But a group definition that allowed a person to take a positive step of “opting in” after the commencement of the proceeding would be inconsistent with one or more of ss 33C, 33H, 33J and 33K.  Senior counsel for Dawson accepted that a post-commencement right to opt in was not permissible.  However, no such question arises in the present case because the third element of the definition restricts the class to persons who have entered into the funding agreement at the commencement of the proceeding.

143               Dorajay is distinguishable because group membership could change after the commencement of the proceedings.  Stone J found that the provision for group members to opt into the proceeding was contrary to the terms and policy of Part IVA: see Dorajay at [125].  However, the opting in that was allowed in that case extended to include persons who retained MBC after the date of commencement of the proceeding.

144               It seems to me that her Honour’s reasons in Dorajay at [125] are explicable in that way.  I will deal further with her Honour’s reasons for judgment later. 

Issue 6 – whether the funding agreement prevents opting out

145               Clause 15.3 of the funding agreement provides that the agreement terminates upon the claimant giving a notice of opting out before the date set by the Court for opting out of the proceedings.

146               Accordingly, the funding agreement does not prevent a group member from exercising the entitlement to opt out of the proceedings in accordance with s 33J(2).

147               However, the effect of cll 8.3, 10.1 and 15.5 is that if a group member opts out of the proceeding, he or she remains liable to pay the “Resolution Sum” to MBC; the costs and disbursements of the proceeding and ILF’s “not insignificant” percentage fee are payable out of that sum.

148               Thus, MBC and ILF continue to be entitled to a portion of any sum received by the former group member in respect of the claims, irrespective of whether MBC or ILF has played any role in the person obtaining the Resolution Sum.

149               The execution of the funding agreement, as a condition of inclusion in the represented group, therefore operates as a substantial practical disincentive to a group member to exercise the right to opt out of the proceeding.

150               The Multiplex parties submit that this subverts a fundamental principle of Pt IVA that a group member should be free to opt out of the proceeding whenever he or she chooses to do so, up to the date fixed pursuant to s 33J(1).  However, the plain fact, as I have stated, is that group members are entitled to opt out.  I do not see that the language of the “otherwise inappropriate” ground extends to a consideration of practical disincentives to exercise the right granted by s 33J(2).

Issue 7 – whether the Multiplex parties established by evidence a hypothetical comparator proceeding

151               The Multiplex parties emphasised the inefficiencies arising from the narrow definition of the class and the inappropriateness of the compulsory litigation funding requirement.

152               For reasons set out above, I do not think that it was essential for the Multiplex parties to adduce evidence of a comparator proceeding to support these grounds.

153               The Multiplex parties submitted that the appropriate counter-factual was not 40 separate proceedings.  Rather, it was said to be a representative proceeding in the same terms as the existing proceeding, with the exception that the compulsory ILF funding requirement be removed from the definition of the group.

154               I do not consider that this approach ought properly to be described as a counter-factual.  To the extent that s 33N(1) expressly calls for a comparison between proceedings, it is a comparison between the existing representative proceeding and non-Part IVA proceedings.  The submission of the Multiplex parties does not envisage that type of comparison.  Rather, the Multiplex parties’ complaint is about the definition of the group.  However, the nature of that complaint makes it inevitable that, indirectly, a comparison will in fact be made between the group as defined in the existing Pt IVA proceeding, and a hypothetical similar Pt IVA proceeding with a modified group definition.

155               For reasons set out above, I am of the view that the definition of the group is a factor which the Court can take into account in considering the “efficiency” or “appropriateness” of the proceeding continuing under Pt IVA. 

156               Support for this proposition is to be found in the remarks of the ALRC which were cited by Stone J in Dorajay at [103].  The ALRC rejected a certification procedure for representative proceedings but it recommended that there be adequate provision to ensure that the procedure is not used inappropriately or inefficiently.  It said, interalia, that:

[The] grouped procedure may be inappropriate because the principal applicant has excluded potential group members by defining the group too narrowly.

157               I agree with Lindgren J that the answer to the contention of the Multiplex parties is that the determination of the group in the present case does not offend any provision of Pt IVA.

Issue 8 – the comparison chosen by the primary judge

158               The primary judge said that the appropriate counter-factual is 40 or more separate proceedings, or perhaps no proceeding at all to indicate the rights of group members.

159               The Multiplex parties attacked this analysis by calling in aid the remarks of Heerey J in P Dawson Nominees Pty Ltd v Multiplex Ltd [2007] FCA 1044.  That was an interlocutory application in these proceedings which was heard and determined during the period that the primary judgment was reserved in the application under s 33N.

160               Heerey J said at [32] that he was assured by counsel for Dawson that the case would proceed in one form or another, regardless of the outcome of the application under s 33N.

161               It is true that this statement suggests that the primary judge was incorrect to say that there may be no alternative action to vindicate the rights of group members.  But it does not affect the counter-factual of 40 separate proceedings.

162               In any event, the primary judge’s statement that there may be no alternative action was not central to his reasoning process.

Issue 9 – Dorajay

163               The application in Dorajay turned solely upon the construction and application of s 33N(1)(c) and (d).  There was no complaint that the proceeding failed to satisfy the requirements of s 33C: Dorajay at [88].

164               Her Honour found two valid objections to the “MBC Criterion”.  The first was that it required group members to opt into the proceeding by taking the positive step of retaining MBC.  The second was that it dictated the identity of the firm of solicitors who should represent group members: Dorajay at [117], [118], [125] and [126].

165               In her conclusion on the first objection, her Honour did not identify which provision of Pt IVA was contravened but she was of the view that the MBC criterion was contrary to the “terms and policy of Part IVA” and that it “subvert(ed) the opt out process”: Dorajay at [125].

166               Her Honour accepted that the words “representing some or all of them” in s 33C(1) authorise a narrowing of the group so that it comprises only some of the persons who have common claims: Dorajay at [115].  The essence of her Honour’s first objection was the “subversion” of the opt out process.

167               Although her Honour did not say so expressly, the definition of the group in Dorajay extended to persons who retained MBC before and after the commencement of the proceeding.  I do not consider that insofar as the requirement applied prior to the commencement of the proceeding, it contravened s 33J(2).  That provision is limited to existing representative proceedings.

168               However, the ambulatory nature of the MBC criterion in Dorajay brought within the definition of the group persons who retained MBC after the commencement of the proceedings.  As noted above under “Issue 5”, this was inconsistent with one or more of the various provisions in Pt IVA there mentioned.

169               I therefore consider that her Honour’s decision was correct, even though she did not refer specifically to the reasons I have identified.  However, the funding criterion in the present case is not an ambulatory requirement and Dorajay is therefore distinguishable.

170               Her Honour’s second objection was limited to the requirement of the retainer of a particular firm of solicitors.  I do not consider that this aspect of her Honour’s reasons applies to the retainer of a particular funder.   She appears to have accepted that in her reasons at [118].

171               In my view, therefore, Dorajay was correctly decided but it does not dictate the result of the present proceedings.

172               I would add that, for reasons given earlier, I do not consider that Stone J’s reasons were flawed by a failure to undertake a comparison with other available proceedings.

Issue 10 – the risk of multiple proceedings

173               As I have said above, the primary judge rejected the submission of the Multiplex parties that it was unfair to expose them to the risk of having to defend multiple representative proceedings.

174               It seems to me that the short answer to the appeals against his Honour’s rejection of this ground is that there was no evidence that other proceedings were on foot or were imminent.  The risk of such proceedings did not rise above the concession made by counsel for Dawson that it was possible that other proceedings might be brought: see the primary judge’s reasons at [56].

175               In my view this disposes of the appeals against the rejection of the ground under
s 33N(1)(c).

176               The learned primary judge, in my view, went further than was necessary in stating that he was not concerned that many representative actions is worse than facing multiple individual actions.  With respect, in my opinion that conclusion could only be made after considering evidence of the nature of the claims and the definition of the group.

177               In any event, whilst doubting the likelihood of multiple proceedings, his Honour considered that if that were to arise, the Court’s processes could be adapted to meet the inefficiencies that may be demonstrated.

178               Nor do I think that the risk of multiple proceedings, per se, is sufficient to raise the inefficiency or the inappropriateness ground upon the basis that it defeats the goal of a common binding judgment.  That possibility is an inherent risk of the regime established under Pt IVA.  Section 33C(1) permits claims to be brought by persons comprising less than the entire class of persons affected by the conduct.  Also s 33J permits opting out by persons who do not wish to be bound by the judgment.

Issue 11 – the s 33N(1)(b) ground

179               The Multiplex parties accept that the s 33N(1)(b) ground was not raised before the primary judge.  At any rate, I do not consider that s 33N(1)(b) assists the argument of the Multiplex parties.

180               The express terms of s 33N(1)(b) would seem to apply to every representative proceeding.  Accordingly, it was submitted on behalf of Dawson, that this ground requires more than a theoretical possibility of the proceeding contemplated by s 33N(1)(b).

181               There was considerable debate before the Court as to whether the alternative proceedings postulated by the Multiplex parties were really available.  The two alternatives to which the Multiplex parties referred were: (i) joining the group members as party to the proceedings under O 6 r 2 of the Federal Court Rules; or (ii) representative proceedings under O 6 r 13 of the Federal Court Rules.

182               Although there was some discussion of the feasibility of the first alternative, I do not think the position was sufficiently clear.  The Multiplex parties emphasised the concession recorded by Heerey J to which I referred above.  I do not think this assists them, if only because the statement was made after the primary judge reserved his judgment in the present case.

183               I do not consider that the second alternative suggested by the Multiplex parties is available.  Such a proceeding would be contrary to the decision of White J in O’Sullivan v Challenger Managed Investments Limited [2007] NSWSC 383 at [41] and [53].

184               The correctness of the decision of White J was not argued before us.  The decision is the subject of an appeal to the New South Wales Court of Appeal.  In the circumstances, I do not consider it is appropriate to doubt that the decision of White J was correct.

Issue 12 – the grounds stated in s 33N(1)(b), (c) and (d) and the interests of justice

185               The interests of justice stated in s 33N(1) are not at large.  As I have said, the Court must reach the requisite state of satisfaction of a causal link between the interests of justice and the grounds stated in s 33N(1)(a), (b), (c) or (d).

186               Ground (a) was not raised.  Ground (b) was not argued before the primary judge, and as noted above, I do not consider that it was made out.

187               The learned primary judge did not deal separately with the issue of s 33N(1)(c).  He did not address the question of construction of the subsection, although he apparently proceeded on the basis that evidence was required of a comparison between the efficiencies or inefficiencies of the representative proceeding and other proceedings.

188               Ultimately, his Honour seems to have disposed of the s 33(1)(c) ground on the basis of the interests of justice because he found that there was no unfairness in the risk of the Multiplex parties’ exposure to the risk of other proceedings.

189               As I have said above, I have a different view of the proper approach to
s 33N(1)(c) from that adopted by the primary judge.  However, for reasons stated above under “Issue 10”, I do not consider that this ground was enlivened.

190               I have a different view from his Honour as to the construction of s 33N(1)(d).  I do not consider that it is a vehicle for determination of policy questions to be weighed against a public interest in favour of class actions.

191               To the extent that there is such a public interest, it is expressed in the language of Pt IVA, in particular the threshold requirements of s 33C(1) and the other provisions including s 33N(1), which regulate the continuation of representative proceedings.

192               It seems to me that s 33N(1)(d) invites attention, not only to a comparison with other available proceedings, but to the purpose and effect of continuing the proceedings under Pt IVA.  In the present case, this called for a consideration of the implications of the narrow definition of the class and its impact upon the course of the proceedings in their present form.

193               His Honour did not engage in this exercise but I have come to the view that the Multiplex parties have not demonstrated any appellable error.

194               First, I do not consider that the funding criterion imposed an “opt in” requirement.  This is because s 33J(2) relates only to existing proceedings.  There is nothing in Pt IVA which precludes persons from reaching agreement, prior to the commencement of the proceeding, as to the definition of the group, apart from the threshold requirements of
s 33C(1).  At the risk of repetition, this allows a proceeding to be commenced by less than the entirety of the potential class.

195               Second, for reasons given above, I do not consider that the practical impediments to opting out, created by the funding agreement, contravene s 33J(2).

196               Third, the thrust of the other submissions of the Multiplex parties as to the “inappropriateness” of the proceeding stemmed from the definition of the class and its implications for the course of the proceedings.  However, the implications, to which the Multiplex parties objected, were theoretical and not demonstrated by evidence.

197               The principal implication to which the Multiplex parties pointed was the risk of other representative proceedings.  There was some overlap on this issue with the “inefficiency” ground.

198               There is force in the submission that the narrowness of the group and its self-interest may provide legitimate concerns for the administration of justice.  But the regime laid down in Pt IVA permits such proceedings to be commenced.  What is required to enliven the discretion to order a discontinuance under s 33N(1)(d) is that the risks have been established to the extent necessary for the Court to attain the requisite state of satisfaction.

199               In the absence of evidence of other proceedings which might have pointed to real inconvenience or inappropriateness, the ground was not made out.  The concession on behalf of Dawson that other proceedings were possible was not sufficient.

200               It was not for Dawson to demonstrate the appropriateness of the proceeding continuing as a representative proceeding under Pt IVA.  It was for the Multiplex parties to demonstrate that it was inappropriate for Dawson to pursue the claims by a proceeding under Pt IVA.  In my view the Multiplex parties did not do so.

Conclusion

201               The appeals must be dismissed with costs.

Associate:

Dated:         21 December 2007

Proceeding VID 692 of 2007

Proceeding VID 693 of 2007