FEDERAL COURT OF AUSTRALIA

Bellamy’s Australia Limited v Basil [2019] FCAFC 147

ORDERS

THE COURT ORDERS THAT:

1.    The application for leave to appeal be dismissed.

2.    The Applicant file and serve submissions on the question of indemnity costs within seven days of publication of reasons for judgment.

3.    The Respondent file and serve any short submissions in reply within three days thereafter.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    The application for leave to appeal be dismissed.

2.    The Applicant file and serve submissions on the question of indemnity costs within seven days of publication of reasons for judgment.

3.    The Respondent file and serve any short submissions in reply within three days thereafter.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Revised from the transcript

THE COURT:

A    INTRODUCTION

1    These two applications for leave to appeal are made by Bellamy’s Australia Limited (BAL), which is the respondent in two competing class actions: proceedings VID163 of 2017 (McKay Proceeding) and VID213 of 2017 (Basil Proceeding). The proposed appeals are from orders of the primary judge refusing BAL’s application for orders which would have had the effect of capping the costs that may be recovered by the applicant in the McKay proceeding and the applicant in the Basil proceeding (applicants) by providing, that upon any taxation, the applicants only be allowed a single set of costs between the applicants across both proceedings and that the maximum costs as between party and party that can be recovered in total across the two proceedings be $4,456,550 (or alternatively, in each proceeding, $2,228,275) (the quantum caps).

2    The primary judge rejected the application for five reasons (summarised by his Honour at [16]-[20]):

(a)    first, case management directions were working reasonably well to substantially reduce any duplication in costs and BAL had not approached the primary judge seeking to tighten or strengthen the directions, or established any substantial non-compliance with the directions;

(b)    secondly, if there is any future unjustified duplication, the primary judge could take appropriate action including retrospectively limiting BAL’s adverse costs exposure at a later stage;

(c)    thirdly, his Honour was not, at the time of the hearing of the application, in a position to adequately assess the quantum caps proposed, and BAL had not advanced any compelling reason to deal with those matters prospectively;

(d)    fourthly, any quantum cap should only operate where there was mutuality such that BAL would be subject to a correlative constraint on its costs (and only in relation to costs incurred subsequent to his Honour’s earlier decision to reject a stay and allow both proceedings to go forward); and

(e)    fifthly, any quantum capping could operate unfairly to group members if the applicants were successful at trial; his Honour considered it likely that the differential between the applicants’ solicitor/client costs and the quantum cap would come out of any damages award, but it was unclear to his Honour who would ultimately bear that burden, that is, it was unclear whether it would be the applicants personally, group members, the applicant’s solicitors or the litigation funders; it followed it was better to deal with all costs questions retrospectively and in the interim leave in place a protocol designed to reduce or minimise any duplication or inefficiency.

3    As can be seen, the first and fifth reasons are related such that the primary judge did not shut out BAL from making any later application it wished to make should it consider that it was necessary or appropriate for an order to be made addressing any real issue of duplication. It will be necessary to return to this point below.

4    The relief sought in the draft notices of appeal (prayer 2) no longer seek any form of cost capping. Rather, orders are now sought that “any costs orders” made in favour of the applicants are to be “agreed or assessed” (which presumably means taxed) on the basis that the applicants are treated as being represented by one set of counsel and one firm of solicitors in the one proceeding (with the intent that they be allowed one set of costs).

B    RELEVANT PRINCIPLES

5    Unsurprisingly, given that they are well established, the relevant principles in determining whether leave to appeal should be granted were not in dispute. Recently, in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107 at [15] (Middleton and Beach JJ) and [36]-[49] (Lee J), another case in the context of competing class actions, the Full Court echoed the seminal warning of Sir Frederick Jordan in In re the Will of F. B. Gilbert (Deceased) (1946) 46 SR (NSW) 318 at 323. Their Honours stressed that a tight rein must be kept upon attempts by litigants with long purses or litigious dispositions to transfer exercises of discretion in interlocutory applications from docket judges to the Full Court in matters involving practice and procedure.

6    As was noted in Nationwide News Pty Limited v Rush [2018] FCAFC 70 at [2]-[4] (Lee J with whom Allsop CJ and Rares J generally agreed), the starting point in exercising the power to grant leave to appeal is that regard must be had to the statutory charge in s 37M(3) of the Federal Court of Australia Act 1976 (Cth) (Act) that the power must be exercised or carried out in the way that best promotes the overarching purpose, being the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. The reticence in allowing leave against interlocutory judgments on matters of practice and procedure facilitates this purpose.

7    Consistently with the facilitation of a just resolution, an applicant must usually show that: (a) in all the circumstances, the decision to be appealed is attended with sufficient doubt to warrant its reconsideration on appeal; and (b) supposing the decision to be wrong, substantial injustice would result if leave were refused: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-399 (Sheppard, Burchett and Heerey JJ). The sufficiency of the doubt in respect of the decision proposed to be appealed and the question of substantial injustice bear upon each other so that the degree of doubt which is sufficient in one case may be different from that required in another. It has also been said that the considerations are cumulative such that leave ought not be granted unless each limb is made out: Rawson Finances Pty Ltd v Deputy Commissioner of Taxation [2010] FCAFC 139; (2010) 81 ATR 36 at 38 [5] (Ryan, Stone and Jagot JJ); Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2017] FCAFC 98; (2017) 252 FCR 1 at 4 [3] (Jagot, Yates and Murphy JJ).

8    It is convenient to deal with BAL’s applications by reference to each of the cumulative Décor limbs but by initially considering the second.

C    SUBSTANTIAL INJUSTICE?

9    Five grounds of appeal are proposed which will be referred to below, but BAL submitted that the proposed appeals give rise to “one key issue” being:

…should a respondent be exposed to the duplicated costs of multiple lead applicants that inevitably arise when those applicants bring separate class actions against that respondent making identical or substantially similar claims and are separately represented, in circumstances where there is no conflict between the applicants’ interests and no trade rivalry justifying separate representation?

10    The difficulty for BAL is that this “key issue” is not apt to be resolved in an interlocutory appeal from the primary judge’s orders. If BAL is exposed to substantial duplicative costs occasioned by two class actions proceeding, its interests are, or will be, protected. This protection is evident when one considers the likely circumstances in which the applicants’ costs will become payable by BAL.

11    Such costs are most likely to be payable in three circumstances: first, pursuant to orders made in favour of the applicants at an initial trial or at some interlocutory stage prior to an initial trial; secondly, and rarely, pursuant to an order in favour of a group member or in favour of a former group member following an initial trial including after any declassing, that is, being an order made during the course of the determination of a group member or former group member’s claim; or thirdly, an amount representing costs to be paid as part of a settlement of the whole or part of the matter, with such settlement being subject to Court approval pursuant to s 33V of the Act.

12    In the first and second circumstances, subject to any order made to the contrary, the taxation of any costs will be subject to the application of Pt 40 of the Federal Court Rules 2011 (Cth) (FCR) including:

(a)    FCR 40.06 (which would relevantly allow BAL to seek an order that any unreasonably incurred costs be disallowed or directing an inquiry as to whether any costs have been so incurred and providing for the costs of such inquiry); and

(b)    FCR 40.30 (which relevantly provides that a taxing officer is not to allow on taxation costs that in the opinion of the taxing officer have been incurred or increased through unreasonableness or any other unnecessary expense).

13    In the third circumstance, in approving a class action settlement, the Court will, as part of its protective and supervisory role in relation to group members, only allow the deduction of costs from the settlement sum in an amount that the Court is satisfied is fair and reasonable (viewed from the perspective of the group members, being those likely bearing the ultimate burden of the costs from an inclusive settlement sum). An assessment of whether costs are fair and reasonable would perforce include consideration as to whether they are duplicative or excessive.

14    The primary judge was clearly cognisant of these protections. Moreover, his Honour expressly reserved the position of BAL by noting (see [2] above) that his Honour would entertain any application for a bespoke order retrospectively limiting BAL’s adverse costs exposure at a later stage based on what his Honour described (at [17]) as the then “known world”.  As we read his Honour’s interlocutory judgment, he contemplated no barrier to BAL making an application for orders in relatively identical terms to those now sought in the draft notices of appeal.

15    In the light of the fact that the rejection of BAL’s application did not finally determine any substantive rights as to any unnecessary or duplicative costs that might be able to be recovered, it was hardly surprising that the primary judge concluded (at [17]) that no compelling reason was advanced by BAL “to deal with these [costs] matters prospectively and now”.  His Honour considered (at [20]) that the better practical solution was to address the cost questions retrospectively rather than then imposing “on insufficient material and with insufficient justification a crude costs cap”. That conclusion was almost inevitable given that another of BAL’s principal arguments concerning the advantages of dealing with the matter prospectively (that the increased adverse costs were an impediment to settlement) was far from compelling. That argument is inconsistent with the accumulated experience of the Court in duplicative securities class actions which, to date, have invariably settled. As counsel for BAL accepted during the course of oral submissions, the suggested prejudice to BAL is the present lack of certainty that a future costs order may thereafter be taxed on a particular basis. We do not consider that this is a prejudice of any substance and we share the apparent scepticism of the primary judge that the lack of any prospective order will operate as a fetter in the parties engaging in settlement discussions. The commonplace of duplicative class actions settling in this Court no doubt informed his Honour’s conclusion that BAL’s argument in this regard was overstated.

16    Supposing the interlocutory decision to be wrong, substantial injustice would not result if leave was refused. The issue of an adverse costs order against BAL may never arise and, even if it did, as explained above, a range of procedural options are available to BAL to protect its position. This conclusion is sufficient to refuse the applications for leave to appeal but notwithstanding this, we will briefly turn to the first Décor limb issue as to whether the decision to be appealed is attended with sufficient doubt to warrant its reconsideration.

D    SUFFICIENT DOUBT?

17    To assess whether the first Décor limb is made out, it is sufficient to consider the proposed appeal at a reasonably impressionistic level and assess whether the proposed appeal is sufficiently arguable. Obviously enough, it will seldom be in the interests of the administration of justice (or consistent with promoting the overarching purpose in accordance with s 37M of the Act) to grant leave where an appeal has little prospect of success: MZABP v Minister for Immigration and Border Protection [2015] FCA 1391; (2015) 242 FCR 585 at 597-598 [62]-[63] (Mortimer J).

18    The issue that arose below was one of case management peculiar to the context of competing class actions. As the Full Court observed in Perera v GetSwift Ltd [2018] FCAFC 202; (2018) 263 FCR 92 at 125-126 [146]-[147]:

First, Pt IVA contemplates that there may be more than one proceeding against the same respondent in respect of the same subject matter and the same cause(s) of action (Bellamy’s at [34]). A claimant has a choice whether to bring representative proceedings on behalf of “some or all” persons. If that choice is not made, one or more claimants may bring separate individual proceedings against the one respondent in respect of the same claims or may aggregate their claims into another representative proceeding. Thus the Part contemplates the possibility of a multiplicity of proceedings.

Moreover, even if representative proceedings are brought, one or more group members may opt out and bring their own individual proceedings, resulting in multiple proceedings against the same respondent. Indeed, such group members who have opted out may bring their own separate representative proceedings. Nothing in Part IVA precludes such an option. And to do so would neither be invalid nor an abuse of process. In other words, the structure of Part IVA permits of multiple proceedings including multiple representative proceedings.

19    Part IVA recognises the possibility of multiple class action proceedings and does not mandate that the respondent will only face one proceeding or one set of adverse legal costs. Having said this, the undesirability of multiple class actions for the one alleged wrong and the desirability of avoiding duplication of costs in the interests of the respondent and also group members is obvious.

20    As has been repeatedly stressed, the remedial expedient to be adopted when the Court is faced with competing class actions calls for discretionary judgments informed by all the circumstances of the case. Unsurprisingly, such judgments are ones upon which minds can (and do) legitimately differ. What is evident from the recent decisions of the Full Court in GetSwift and Klemweb is that not only do docket judges have considerable latitude to fashion a solution to deal with multiplicity of class actions, but also that the issue of potential duplication of costs is a relevant discretionary factor in fastening upon the appropriate case management solution.

21    One of the potential consequences of a case management decision which allows more than one class action to proceed is at least some duplication for costs, and mitigating any unfairness that might flow to a respondent or group members is part of the case management role of the docket judge implementing the decision which permitted more than one case to proceed. This is precisely what occurred in the circumstances of this case and the applications for leave to appeal must be considered in this context.

22    Each of the five proposed grounds of appeal interrelate and can be dealt with shortly.

23    The first proposed ground is that the primary judge erred by applying incorrect legal principles in determining whether the proposed costs limitation order should be made. In summary, the contention is that: (a) a “general principle” or “rule” exists to the effect that in the absence of an identified exception (being an actual or potential conflict of interest between multiple applicants or any trade rivalry justifying separate representation), where separate representation is allowed, multiple applicants cannot choose to be separately represented at the respondent’s expense; and (b) the fact that both class actions were allowed to proceed was not a reason to decline to apply the general principle, but rather it enlivened its operation.

24    This ground does not have substantive merit. As counsel for BAL accepted, the so-called general principle as to double representation said to have been developed in the different context of ordinary inter partes litigation did not mandate the proper exercise of the primary judge’s discretion. The Court’s discretion as to costs issues is often described as unfettered although, given the requirement imposed by s 37M(3) of the Act to exercise any practice and procedure discretion in a way that promotes the overarching purpose, this may no longer be strictly accurate in this Court: see LFDB v SM (No 2) [2017] FCAFC 207 at [7] (Besanko, Jagot and Lee JJ). What is evident, however, is that given the broad discretion as to costs generally, the existence of two class actions did not require his Honour to deal with the issue in the way BAL sought it to be dealt with. The primary judge was correct to proceed on the basis that there is no rule which invariably dictates the approach required to be adopted to the costs awarded when more than one class action is brought in relation to the same alleged civil wrong, notwithstanding any general notion that ordinarily multiple applicants cannot choose to be separately represented at the respondent’s expense without good reason.

25    In reaching this conclusion, the primary judge, with respect correctly, understood that there was some risk of duplication consequent on his Honour’s decision to allow two proceedings to go forward but, as his Honour noted, he had a range of case management tools to prevent duplicative costs of substance being incurred and, to the extent that such prophylactic steps were insufficient, any prejudice (to either BAL or group members) could be addressed later.

26    Much emphasis was placed in oral submissions by counsel for BAL on the very recent decision of the High Court in Northern Territory v Sangare [2019] HCA 25 in which Kiefel CJ, Bell, Gageler, Keane and Nettle JJ explained at [24] that it “is well established that the power to award costs is a discretionary power, but that it is a power that must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation” and, notwithstanding the width of the discretion, the “formulation of principles to guide the exercise of the discretion avoids arbitrariness and serves the need for consistency”. In that case, the important guiding principle was that the successful party is generally entitled to its costs and there was no suggestion of any conduct on the part of the successful party that could have justified refusing the successful party an order for its costs.

27    No comparable error is evident here. We do not consider the primary judge did anything other than exercise his discretion by reference only to considerations relevant to its exercise and upon facts connected with the litigation with which his Honour was dealing; indeed we would respectfully agree with the pragmatic approach adopted by his Honour. In the context of the present case, the concern regarding duplicative costs was better dealt with by case management directions aimed at reducing duplicative or excessive costs and by permitting the issue to be addressed later to the extent necessary. It is certainly preferable to making an order capping the quantum of potentially recoverable costs the applicants could spend vindicating the claims while BAL would have no equivalent fetter on the sum it could spend in the defence of those claims. The asymmetry and unfairness of a one-sided order of that nature is manifest (although we note that a “cost capping” order in such terms is no longer sought in the proposed appeals).

28    The second proposed ground is that the primary judge erred in misstating and misapplying the legal principles “under what [his Honour] described as the ‘English approach’” (which the primary judge characterised as only providing for such of the costs of the applicants to be disallowed as were unreasonably duplicated). It is somewhat difficult to understand what this second proposed ground adds. Although the primary judge considered there was some difference between the relevant Australian and English authorities, BAL submits that in circumstances (such as those found by the primary judge) where there is no conflict or potential conflict between the multiple parties and their relationship does not otherwise justify joint representation, an application of the English principles will produce the same result as under Australian law. Whether there is some difference between the position here and in the United Kingdom is not to the point: the issue is whether recognisable error is disclosed in the exercise of his Honour’s discretion not to make the costs capping order now. For reasons explained above, there was no such error.

29    The third, fourth and fifth proposed grounds also add little.

30    The third proposed ground posits that because the primary judge applied the wrong legal test, his focus was on whether there had been (or would be) unnecessary or unreasonable duplication of work and costs by the applicants. Similarly, the fourth proposed ground is that because the wrong legal test was applied, the primary judge failed to take account of a relevant consideration, which, in effect, was said to be the authorised exceptions to the so-called general principle (the absence of any conflict or trade rivalry) were not present. Finally, the fifth proposed ground (the alleged error in finding there was no compelling reason for the proposed costs limitation order being made prospectively) is also said to be a result of the primary judge being diverted from the correct test. As set out above, these grounds cannot succeed once it is appreciated that it was open to his Honour, in the exercise of his discretion, to reject cost capping and making orders which would apply on a taxation that may never take place. It was open to the primary judge to address any duplication of costs occasioned by the decision to allow two class actions to be addressed as his Honour did.

E    ORDERs

31    Neither Décor limb is made out and the applications for leave to appeal must be dismissed. The Court will make orders facilitating the receipt of submissions as to costs.

Associate:

Dated:    26 August 2019