FEDERAL COURT OF AUSTRALIA

Courtney v Medtel Pty Limited [2002] FCA 957

REPRESENTATIVE PROCEEDING – whether respondents may make settlement offers directly to unrepresented group members – whether such offers should be subject to approval by applicant’s solicitors – whether notice of such offers should be given in advance to applicant’s solicitors – scope of the power conferred by s 33ZF(1) of the Federal Court of Australia Act 1976 (Cth).

Federal Court of Australia Act 1976 (Cth), ss 33A, 33C, 33E, 33J, 33N, 33P, 33T, 33W, 33V, 33Z, 33ZF, 33ZJ, 43(1A)

Trade Practices Act 1974 (Cth), ss 52, 74B, 75AD, 82

Federal Court of Australia Amendment Act 1991 (Cth)

Law and Justice Legislation Amendment Act (No. 4) 1992 (Cth), s 3

Supreme Court Act 1986 (Vic), s 35

Professional Conduct and Practice Rules (NSW), r 31.1

Courtney v Medtel Pty Ltd (2001) 113 FCR 512, cited.

Femcare Ltd v Bright (2000) 100 FCR 331, cited.

King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) [2002] FCA 872, cited.

Mobil Oil Australia Pty Ltd v Victoria [2002] HCA 27, cited.

Johnson Tiles Pty Ltd v Esso Australia (1999) 166 ALR 731, cited.

Boeing Co v Van Gemert 444 US 472 (1980), cited.

Burns Philip & Co Ltd v Bhagat [1993] 1 VR 203, cited.

Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250, cited.

Carnie v Esanda Finance Corporations Ltd (1995) 182 CLR 398, cited.

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

Cutts v Head [1984] Ch 290, cited.

Williams v FAI Home Security Pty Ltd No 4) [2000] FCA 1925, cited.

West v AGC (Advances) Ltd (1986) 5 NSWLR 590, cited.

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

V Morabito, “Federal Class Actions, Contingency Fees and the Rules Governing Litigation Costs” (1995) 21 Monash Uni LR 231

C Silver, “A Restitutionary Theory of Attorneys’ Fees in Class Actions” (1991) 76 Cornell LR 656.

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in par 1 of the Fifth Amended Statement of Claim v MEDTEL PTY LIMITED & ANOR

N 661 of 2000

SACKVILLE J

SYDNEY

1 AUGUST 2002

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 661 OF 2000

BETWEEN:	KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in paragraph 1 of the Fifth Amended Statement of Claim APPLICANT
AND:	MEDTEL PTY LIMITED FIRST RESPONDENT PACESETTER INC a Delaware corporation with its principal place of business 15900 Valley View Court, Sylmar, California SECOND RESPONDENT
JUDGE:	SACKVILLE J
DATE OF ORDER:	1 AUGUST 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The motion be stood over to 10.15 am on 16 August 2002 for the making of orders in conformity with this judgment.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 661 OF 2000

BETWEEN:

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in paragraph 1 of the Fifth Amended Statement of Claim

APPLICANT

AND:

MEDTEL PTY LIMITED

FIRST RESPONDENT

PACESETTER INC a Delaware corporation with its principal place of business 15900 Valley View Court, Sylmar, California

SECOND RESPONDENT

JUDGE:	SACKVILLE J
DATE:	1 AUGUST 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE MOTION

1 The applicant in representative proceedings commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”) has filed a motion seeking the following orders:

“ 1. Until further order the Respondents be restrained from communicating, either directly, or through their legal representatives, any settlement offer to group members.

2. Until further order the Respondents be restrained from communicating, either directly, or through their legal representatives, with group members.

3. In the alternative to 1 & 2: an order that:

(a) The Respondents notify the Applicant, on a without prejudice basis, the terms of any offer of settlement the Respondents propose to make to the Applicant and/or group members;

(b) Within 7 days of receipt of notification of terms of any such proposed offer, the Applicant inform the Respondents:

(i) whether it is agreed to recommend to group members and the Court acceptance of the Respondents’ proposed offer;

(ii) in the event that agreement is not reached to recommend acceptance for the Respondents’ offer, the Applicant [is] to inform the Respondents, in writing, of the reasons for rejection of such proposed offer;

(iii) within 7 days after the Applicant inform the Respondents of their reasons for rejecting the proposed offer, the Applicant serve on the Respondents the terms of any settlement proposed by the Applicant, on a without prejudice basis;

(c) In the event that the parties do not reach agreement on settlement, the parties are to attend a mediation before a mediator to be agreed by the parties or, in the absence of agreement, appointed by the Court;

(d) The application for orders 1 & 2 to be stood over until a date after the mediation.”

2 Mr Burnside QC, who appeared with Mr Clarke for the applicant, made it clear that the primary relief sought is that set out in par 3 of the motion. Mr Burnside said that the intention was to require a regime of “consultation” before any proposed offer could be put to group members, including those group members who had not engaged the applicant’s solicitors (“MBC”). Paragraph 3, in effect, prevents the respondents putting any settlement offer to group members without the approval of MBC, at least until agreement is reached as to the terms of an offer or a mediation takes place. Paragraph 3 does not explicitly state whether the respondents are to be free to put a settlement offer directly to the unrepresented group members should the mediation fail and the parties not agree as to the terms of an appropriate offer. This ambiguity was not adverted to in the course of argument, although I gained the impression that Mr Burnside’s preferred position was that, in these circumstances, the respondents would still be precluded from putting an offer directly to group members not represented by MBC. If my understanding is correct, par 3 of the motion would give MBC a right of veto over the submission of any offer by the respondents to the group members not represented by MBC.

the representative proceedings

3 The representative proceedings were commenced on 22 June 2000. According to the sixth amended application, the applicant brings the action on his own behalf and on behalf of

“(a) persons who have had a St Jude Medical Tempo Pacemaker, model number 1102, 1902, 2102, 2902…surgically implanted by a doctor in Australia, where that Pacemaker was the subject of a hazard alert issued on or about 5 June 2000 (the “Hazard Alert”), or would have been the subject of the hazard alert had the Pacemaker not already been explanted, including persons who have had or may in the future have surgical removal of the Pacemaker; and

(b) the legal personal representatives of the estates of deceased persons who had a St Jude Medical Tempo Pacemaker, model number 1102, 1902, 2102, 2902, surgically implanted by a doctor in Australia, where that Pacemaker was the subject of the Hazard Alert, or would have been the subject of the hazard alert had the Pacemaker not already been explanted, including persons who had surgical removal of the Pacemaker.”

The application defines the expression “Group Members” to mean “the person or persons who had or have had a Pacemaker implanted, including deceased persons”. I use the expression “Group Members” in the same sense. The expression “Pacemaker” is used in the application and in this Judgment to mean a St Jude Medical Tempo Pacemaker, model number 1102, 1902, 2102 or 2902. According to the applicant’s pleadings there are approximately 992 Group Members.

4 The applicant pleads that the first respondent (“Medtel”), a company incorporated in New South Wales, was in the business of importing, marketing and distributing medical devices in Australia, including the Pacemaker, under the business names “Cardiac Rhythm Solutions” and “Medtel Australia”. The third respondent (“Pacesetters”) is said to be the manufacturer of the Pacemaker. Pacesetters is incorporated in the United States. The corporation originally named as the second respondent is no longer a party to the proceedings.

5 The statement of claim describes the Pacemaker as

“a cardiac device manufactured and used for the particular purpose of being surgically implanted on the advice of doctors inside the human body attached to the heart so as to restore and maintain a normal heart beat by providing an electrical impulse or energy or beat that is carried through leads to the heart. The Pacemaker is triggered by an irregular pulse in the user to send a series of light electric pulses activating a regular heart beat.”

It is alleged that the Pacemakers had a fault, namely that they

“were prone to a circuitry problem, resulting or likely to result in accelerated battery depletion and consequential failure of the device, whereby the Pacemaker may cease to function without any prior warning or indication.”

6 It is further alleged and, indeed, admitted that on or about 5 June 2000 the Pacemakers were the subject of a hazard alert at the direction of the Therapeutic Goods Administration.

7 The applicant pleads that the Pacemaker was not reasonably fit for its purpose within the meaning of s 74B of the Trade Practices Act 1974 (Cth) (“Trade Practices Act”) and had a “defect” within the meaning of s 75AD of the Trade Practices Act, by reason of which the applicant and the Group Members suffered injury. Each of the respondents is also said to have engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act and to have breached a duty of care owed by them to the applicant and the Group Members. The applicant seeks declaratory relief, compensation pursuant to ss 74B and 75AD of the Trade Practices Act and damages under s 82 of the Trade Practices Act and under the general law.

factual background

8 It was common ground that nearly 400 Group Members have opted out of the proceedings, leaving approximately 600 on whose behalf the applicant is conducting the proceedings. I refer to these remaining 600 Persons as “the remaining Group Members”. Of the 600 remaining Group Members, it seems that about 125 have given MBC instructions to act on their behalf in the proceedings. (The transcript of argument contains references to both 125 and 175 remaining Group Members as having given instructions to MBC, but I understand the former figures to be more accurate.) I refer to the other 475 remaining Group Members as the “unrepresented remaining Group Members” although, of course, it is possible that some have instructed solicitors, other than MBC, to act on their behalf in relation to the proceedings.

9 The evidence indicates that prior to the date fixed by the Court by which Group Members could opt out of the proceedings pursuant to s 33J(2) of the Federal Court Act, the respondents communicated settlement offers to some Group Members who were not represented by MBC. It appears that those offers were communicated by telephone, although it may be that each of the Group Members concerned first contacted the respondents’ solicitors (the evidence does not address the point). Be that as it may, some of the Group Members who opted out of the proceedings did so in consequence of accepting offers of settlement put to them directly by the respondents’ solicitors. In a judgment delivered on 25 September 2001, Stone J dismissed a motion filed by the applicant seeking an order, inter alia, that the respondents not communicate, either directly or through the respondents’ legal representatives, with Group Members except with the leave of the Court: Courtney v Medtel Pty Ltd (2001) 113 FCR 512. The grounds on which the applicant relies in support of the present motion are different from those relied on before Stone J.

10 The respondents’ intentions in relation to the unrepresented remaining Group Members (or a segment of them) are set out in a letter dated 23 May 2002 from their solicitors to MBC. In that letter, the respondents’ solicitors express the view that

“no solicitor/client relationship exists between group members and the solicitor representing the representative applicant save for those group members who have expressly retained that solicitor in relation to the matter. Similarly, we are of the view that there is nothing per se which prohibits a respondent from communicating with a group member for the purpose of attempting to resolve a dispute in the absence of a solicitor client relationship.”

The letter continues as follows:

“As you are also aware our clients have, from the outset, denied that they have any liability in relation to the matters alleged in these proceedings. While our clients are keen to avoid incurring unnecessary legal expenses in relation to the defence of these proceedings, the sums that you have demanded on behalf of the various categories of group members are, quite frankly, excessive and unreasonable. This is particularly so in relation to those group members who have not even had the allegedly defective pacemaker removed or replaced to this day.

Accordingly, in an attempt to simplify these proceedings, our client intends to make an offer to those group members who have not had their pacemakers removed in order to settle their claims without the necessity for further litigation. To that end, our clients intend to communicate that offer to those group members in not less than three business days time from the date of this letter.

Having regard to the information available to us, we think it unlikely that any of the group members to whom we propose to communicate this offer have expressly retained you to act on their behalf in these proceedings. Nevertheless, we wish to take all possible steps to ensure that we do not communicate directly with a group member who has retained you to act on their behalf in relation to this matter. Accordingly, would you please provide us with the name or names of any group member who has expressly retained you to act on their behalf in these proceedings as soon as possible and, in any event, by no later than 5.00 pm on Monday, 27 May 2002. In the event that you have been retained to act on behalf of any group member who has not had their pacemaker explanted we will, of course, communicate the offer to you so that you might take their instructions.” (Emphasis added.)

11 The evidence suggests that of the approximately 600 remaining Group Members (that is, all Group Members who have not opted out), about half have not had their Pacemakers removed. The respondents propose to put offers of settlement to the approximately 300 remaining Group Members in this category:

in the case of those represented by MBC, by communicating the offers to MBC; and
in the case of those not represented by MBC, by direct communication with the individuals concerned.

Although the letter of 23 May 2002 does not say so, Mr Finch SC, who appeared with Mr Loveday for the respondents, expressly stated that the respondents accepted that any offers of settlement to the unrepresented remaining Group Members should be communicated only in writing.

12 I should add that, although not all affidavit evidence has yet been filed, the pleadings (to use Mr Burnside’s phrase) are “fully developed”, if not closed. Several weeks have been set aside for a hearing in October 2002, although it has not yet been decided whether that hearing will address all issues raised by the pleadings.

the legislation

13 Part IVA of the Federal Court Act, which provides for representative proceedings, was introduced by the Federal Court of Australia Amendment Act 1991 (Cth), which commenced on 4 March 1992. In Femcare Ltd v Bright (2000) 100 FCR 331, at 334, the Full Court said this of Part IVA:

“Part IVA of the Federal Court Act follows broadly, but by no means precisely, the scheme for grouped proceedings proposed by the Law Reform Commission of Australia…in its report Grouped Proceedings in the Federal Court, Report No 46 (1988) (Grouped Proceedings): see Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487. The general objectives of Pt IVA were identified in the second reading speech for the Federal Court of Australia Amendment Bill 1991 (Cth) (Australia, House of Representatives, Debates (1991), pp 3174-3175) in a passage quoted by the High Court in Wong v Silkfield Pty Ltd (1999) 199 CLR 255 at 264; 165 ALR 373 at 379:

‘The Bill gives the Federal Court an efficient and effective procedure to deal with multiple claims. Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person’s loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action.

The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of persons wish to sue the respondent. The new procedure will mean that groups of persons, whether they be shareholders or investors, or people pursuing consumer claims, will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions’.”

14 The Full Court in Femcare Ltd v Bright explained at some length the operation of Part IVA: see at 335-338. It is necessary here to refer only to certain features of the legislation.

15 Section 33A of the Federal Court Act defines a “representative proceeding” to mean a proceeding commenced under s 33C. Section 33C(1) specifies the criteria that must be satisfied at the commencement of the proceedings. It provides as follows:

“(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

a proceeding may be commenced by one or more of those persons as representing some or all of them.”

16 It is not necessary for an applicant to name or specify the number of group members in an application or a document filed in support of such an application: s 33H(2). Nor is the consent of a person to be a group member in a representative proceeding required, except for limited classes of persons: s 33E(1), (2). While a person’s consent is not required to be a group member, such a person may opt out of the representative proceeding by giving written notice: s 33J(2). The Federal Court Act specifies a procedure for fixing a date by which a group member may opt out: s 33J(1), (3), (4).

17 If, on application by a group member, it appears to the Court that a representative party is not able adequately to represent the interests of the group members, the Court may substitute another group member as representative party: s 33T(1).

18 Section 33V deals with settlement and discontinuance of representative proceedings:

“(1) A representative proceeding may not be settled or discontinued without the approval of the Court.

(2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.”

The Court has power to order that a proceeding not continue as a representative proceeding in certain circumstances: s 33N. Where such an order is made, the representative party may continue the proceeding on his or her own behalf: s 33P(a). In such circumstances a group member may apply to be joined in the proceeding: s 33P(b).

19 Section 33W is concerned with settlement of the individual claim of a representative party:

“(1) A representative party may, with leave of the Court, settle his or her individual claim in whole or in part at any stage of the representative proceeding.

(2) A representative party who is seeking leave to settle, or who has settled, his or her individual claim may, with leave of the Court, withdraw as representative party.

…

(5) The Court may grant leave to a person to withdraw as representative party subject to such conditions as to costs as the Court considers just.”

20 The Full Court in Femcare Ltd v Bright described s 33ZB as the “pivotal provision” of Part IVA. It provides for the effect of the judgment in representative proceedings:

“A judgment given in a representative proceeding:

(a) must describe or otherwise identify the group members who will be affected by it; and

(b) binds all such persons other than any person who has opted out of the proceedings under section 33J.”

21 The Court’s powers, in determining a matter in a representative proceeding, include making an award of damages for group members or individual group members, being damages consisting of specified amounts or amounts worked out in such manner as the Court specifies: s 33Z(1)(e). The Court may also award damages in an aggregate without specifying amounts awarded in respect of individual group members (s 33Z(1)(f)), but may do so only if “a reasonably accurate assessment can be made of the total amount to which group members will be entitled under the judgment”: s 33Z(3).

22 In a representative proceeding, the Court is not to award costs against a group member: s 43(1A). This is subject, however, to two exceptions. A costs order may be made in a determination under s 33Q of issues common only to the claims of some group members. A costs order can also be made against an individual group member in a determination under s 33R of an issue relating only to that member.

23 Section 33ZJ provides a procedure in certain circumstances for a representative party’s costs to be reimbursed. Section 33ZJ provides as follows:

“(1) Where the Court has made an award of damages in a representative proceeding, the representative party or a sub-group representative party, or a person who has been such a party, may apply to the Court for an order under this section.

(2) If, on an application under this section, the Court is satisfied that the costs reasonably incurred in relation to the representative proceeding by the person making the application are likely to exceed the costs recoverable by the person from the respondent, the Court may order that an amount equal to the whole or a part of the excess be paid to that person out of the damages awarded.”

24 Section 33ZF(1) confers a general power on the Court to make orders in a representative proceeding. It provides as follows:

“(1) In any proceedings (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.”

25 Section 53A of the Federal Court Act empowers the Court to refer any proceedings to a mediator, even without the consent of the parties. Mr Burnside relied on s 53A as the source of power for the order referring the proceedings to mediation sought in par 3(c) of the applicant’s motion.

the submissions

the applicant’s submissions

26 In his written submissions, the applicant contended that the Court should not permit the respondents to make “ex parte contact” with unrepresented remaining Groups Members. The applicant pointed to a number of factors which were said to justify the orders sought by him:

Most remaining Group Members are elderly and would be unlikely to have a sophisticated understanding of their rights. They would also be unlikely to have ready access to legal advice in order to assess any offer made by the respondents. MBC, as the applicant’s solicitors, owes fiduciary duties to the unrepresented remaining Group Members, and therefore has an important role to play in protecting their interests in the representative proceedings.
Even if an unrepresented remaining Group Member engages his or her own solicitor, that solicitor would be at a “grave disadvantage” compared with MBC. The latter firm, because of its extensive research and investigations undertaken in the course of the litigation, has the information necessary to evaluate any offers made by the respondents.
The settlements effected thus far between the respondents and Group Members involve, in each case, payment of only a “modest amount”. Moreover, there was evidence that unrepresented Group Members who had spoken directly with the respondents’ solicitors had been told that the respondents could not provide compensation for pain and suffering because to do so might be construed as an admission of liability. This was “potentially misleading” and demonstrated that there was a risk that offers made to any unrepresented remaining Group Members by them might be couched in terms that might mislead, thereby creating the possibility that individual settlements might subsequently be challenged as having been induced by misleading conduct.
Piecemeal settlement of claims in a representative proceeding potentially could have serious adverse affects on the remaining Group Members who are not invited to, or do not, settle their claims. In particular, the remaining Group Members whose claims are not settled would have a greater exposure to costs. This would come about for two reasons. First, the unrepresented remaining Group Members who settle their claims may be immune from an order made under s 33ZJ of the Federal Court Act requiring a contribution to the cost incurred by the applicant which cannot be recovered from the respondents. (Such an order can only be made in respect of an “award of damages” by the Court; the settlement may not involve any such award by the Court.) If they are immune, they effectively enjoy a “free ride” so far as the costs of the litigation are concerned. In other words, they are “freeloaders”, enjoying the benefits of litigation for which the applicant and represented Group Members are paying or are liable to pay. Secondly, a significant diminution in the pool of Group Members (whether unrepresented or represented) could threaten the viability of the representative proceedings, since the ongoing costs would have to be borne by an ever-diminishing number of Group Members, especially those Group Members represented by MBC.

27 The applicant’s written submissions, although perhaps not entirely clear on the point, appeared to suggest that the source of the Court’s authority to make the orders sought by him could be found in s 33V of the Federal Court Act. They argued that the language in s 33V(1) – “[a] representative proceeding may not be settled or discontinued without the approval of the Court” – is broad enough to require Court approval for a settlement between a respondent and an individual remaining Group Member. In oral submissions, Mr Burnside did not seek to support such a broad construction of s 33V(1), although he maintained that there might be circumstances in which a settlement of claims made by remaining Group Members would require Court approval, for example because the settlement threatens the viability of the representative proceedings or because the settlement involves all members of a sub-group. Rather, Mr Burnside contended that the Court has power to make the orders sought in par 3 of the motion under s 33ZF(1) of the Federal Court Act, which allows the Court to “make any order [it] thinks appropriate or necessary to ensure that justice is done in the proceeding”. In addition, as I have noted, Mr Burnside relied on s 53A of the Federal Court Act as the source of power for an order requiring the parties to attend a mediation.

28 The applicant’s preferred position was that the respondents’ solicitors should be precluded from making an offer of settlement directly to unrepresented remaining Group Members. His “fallback” position was that orders should be made requiring that

“a) the proposed terms of communication [of the settlement offer] should be supervised and approved by the Court, after considering submissions from the legal representatives of the applicant, and

b) any proposed individual settlement should be subject to approval of the Court, on such terms as the Court considers appropriate.”

29 Mr Burnside submitted that s 33ZF(1) of the Federal Court Act empowers the Court to reject a settlement between the respondents and a remaining Group Member if it is unfair or the product of unfair conduct on the part of the respondents. He also submitted that the Court has a power to reject a settlement if it fails to make provision for a contribution to the costs incurred by the applicant in instituting and maintaining the proceedings. Otherwise, so he argued, the purpose of s 33ZJ, which is to allow the applicant to recover the differential between party and party and solicitor and client costs out of a damages award, could be frustrated by a series of settlements with individual remaining Group Members.

the respondents’ submissions

30 The respondents’ written submissions identified the critical issue before the Court as

“whether the solicitor for the applicant in a representative proceeding has the right to control communications, including settlement discussions, with group members (or their solicitors) even though those group members have not retained the applicant’s solicitor to act for them in the proceeding”.

The respondents argued that the policy of the law is to encourage settlement negotiations between the parties to a dispute, including the unrepresented parties in a representative proceeding. Accordingly, in the absence of evidence of misleading conduct by or on behalf of the respondents, there is no basis for the Court to supervise the content of any communications between the respondents’ solicitors and the unrepresented remaining Group Members. The respondents accepted that, in accordance with rule 31.1 of the Professional Conduct and Practice Rules (NSW), they can communicate with the remaining Group Members whom they know to have engaged solicitors (whether MBC or another firm) only through those solicitors. But they resisted the notion that the applicant or MBC should be given a position of “primacy” in the relationship between the respondent and the unrepresented remaining Group Members.

31 The respondents contended that there is no basis for a requirement that the Court approve any settlement entered into between them and any unrepresented remaining Group Member. They submitted that s 33V(1) of the Federal Court Act applies only to the settlement or discontinuance of a representative proceeding, not to the settlement of individual claims of Group Members. In so far as the applicant relied on discretionary considerations to enliven the Court’s power under s 33ZF(1) of the Federal Court Act, the respondents submitted that it would not be appropriate to make orders designed to preserve a fund as a means of ensuring the payment of MBC’s fees. According to the respondents, the unrepresented Group Members are entitled to compromise their claims at any stage of the proceedings and to do so without reference to MBC, a firm of solicitors they have never engaged.

32 In his oral submissions, Mr Finch SC, although adhering to his written submissions, contended that if the Court is to supervise any element of the settlement process, the supervision should take place only after the respondents and the remaining Group Member have reached agreement in principle. Even then, the Court’s role in approving the offer would be limited to ensuring that the remaining Group Member concerned has made an informed decision and has not been misled. In making this submission, however, Mr Finch seemed to acknowledge that s 33ZF(1) of the Federal Court Act is broad enough to allow the Court to make orders requiring the settlement of individual claims of remaining Group Members to be subject to the approval of the Court, if the Court forms the view that such an order “is necessary to ensure that justice is done in the proceeding”. He also seemed to accept that in determining whether or not to approve a settlement with an unrepresented Group Member the Court has power, as a condition of approval, to require a portion of any damages component of the settlement to be withheld as a fund in respect of which an order could subsequently be made pursuant to s 33ZJ(2) of the Federal Court Act for reimbursement of some or all of the applicant’s otherwise irrecoverable costs.

reasoning

Some legislative history

33 I have set out the main elements of the scheme established by Part IVA of the Federal Court Act, insofar as it bears on the questions before the Court. Further background to the legislation is, however, of assistance in understanding those questions.

34 First, subject to considering the effect of s 33V(1), Part IVA of the Federal Court Act does not expressly require a settlement effected directly between a respondent and a group member to receive approval of the Court. This is consistent with the approach proposed by the Australian Law Reform Commission (“ALRC”) in its report, Grouped Proceedings in the Federal Court (Report No 46, 1988) (“Grouped Proceedings”) which considered (at par 218) that

“the Court’s approval should be required for the settlement by the principal applicant of a group member’s proceeding, but a group member should be able, at any stage before judgment is given, without leave, to settle the group member’s proceeding”. (Emphasis added.)

See also Grouped Proceedings, App A, cl 28(2), (5)(b). The ALRC argued that the Court’s approval should be required when an applicant settles group members’ claims on their behalf, in order to ensure that the settlement is fair to the group members and that it addresses all relevant issues: Grouped Proceedings, at par 218. The ALRC appears to have taken the view, however, that the same safeguards are not necessarily required when a group member (as distinct from the representative party: see s 33W(1)) settles his or her individual claim directly with the respondent.

35 Not all the ALRC’s recommendations have been implemented in Part IVA of the Federal Court Act. Indeed, there are some important differences. As Moore J has pointed out in King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) (“King v GIO”) [2002] FCA 872,at [37], the ALRC made its recommendations relating to the settlement of claims in the context of a proposed scheme which required each represented person to be a party to his or her “own separate proceedings”. A representative applicant was to be entitled to commence proceedings between other applicants and the same respondent, but the other applicants were to be parties to those proceedings: Grouped Proceedings, at pars 94-95. The ALRC adopted this approach because it doubted whether, under Chapter III of the Constitution, a group member can be validly bound by a determination in proceedings unless he or she is actually a party to the proceedings: Grouped Proceedings, at par 93.

36 Part IVA of the Federal Court Act clearly departs from the ALRC’s recommendation that all persons “with relevant and related claims be made parties to their own separate proceedings”. In some respects, a representative proceeding instituted pursuant to Part IVA affects group members in much the same way as if they were parties to the litigation. In particular, s 33ZB provides that a judgment given in a representative proceeding binds all group members affected by it, other than those who have opted out of the proceeding pursuant to s 33J. It appears to be generally accepted, however, that group members are not parties to a representative proceeding. In Mobil Oil Australia Pty Ltd v Victoria [2002] HCA 27, at [50], a case involving Victorian legislation in substantially the same terms as Part IVA of the Federal Court Act, Gaudron, Gummow and Hayne JJ noted that a “group member is not a plaintiff”. In Johnson Tiles Pty Ltd v Esso Australia (1999) 166 ALR 731, at 738, Merkel J regarded ss 43(1A), 33A, 33C, and 33ZJ of the Federal Court Act as demonstrating that group members are not parties to a representative proceeding for the purposes of costs or otherwise. But the departure from the ALRC’s proposals concerning the party status of group members does not detract from the fact that Part IVA in substance adopts the ALRC’s approach to settlement of group members’ claims.

37 Secondly, the ALRC seems not to have directed its attention to the circumstances, if any, in which a respondent’s legal representatives should be permitted to contact a group member directly, for example with a view to settling the individual group member’s claims. The ALRC contemplated that the “principal applicant” would have the conduct of all group members’ proceedings, although this was not intended to make the principal applicant a party to the group members’ proceedings: Grouped Proceedings, par 163. The ALRC also contemplated, as I have noted, that settlement of a group members’ proceeding by the principal applicant should be subject to Court approval. But although recognising that grouped proceedings will often involve “unidentified parties whose interests need to be protected” (par 157), the ALRC did not recommend any restrictions on dealings between respondents and individual group members.

38 Thirdly, the ALRC addressed the problem of group members who obtain a “free ride” from representative proceedings: see V Morabito, “Federal Class Actions, Contingency Fees and the Rules Governing Litigation Costs” (1995) 21 Monash Uni LR 231, at 235-239; C Silver, “A Restitutionary Theory of Attorneys’ Fees in Class Actions” (1991) 76 Cornell LR 656. The ALRC recommended that Australia should follow the general approach taken in the United States to extracting contributions towards solicitor-client costs from group members with whom the solicitor has no contractual arrangement: Grouped Proceedings, at par 289. In the United States, the so-called “common fund doctrine” allows an attorney to recover an award of reasonable fees out of a fund created by a monetary judgment in the representative proceedings: Boeing Co v Van Gemert 444 US 472 (1980). The doctrine rests (at 478):

“on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant’s expense”.

39 The ALRC considered (at par 289) it

“fair that, although a group member has not contracted with the solicitor representing the principal applicant, he or she should have to contribute to the solicitor-client costs where monetary relief is awarded, whether by way of aggregate or individual assessment. But any commitment or part of the monetary relief recovered by group members to costs must be subject to appropriate regulation by the court to protect the group member.”

Section 33ZJ of the Federal Court Act implements, in substance, the ALRC’s recommendation, although the draft legislation incorporated in the ALRC’s report did not contain a provision expressed in the same terms.

40 The ALRC recognised that the “free rider” problem can arise in other circumstances, for example where the applicant in representative proceedings does not seek monetary relief on behalf of group members. However, the ALRC chose to make no recommendation as to how group members might be required to contribute to the costs incurred by the representative applicant in such proceedings: Grouped Proceedings, at par 288.

41 Fourthly, Part IVA of the Federal Court Act, as originally enacted, did not expressly give effect to the Australian Law Reform Commission’s recommendation that group members should not be liable to an order to pay the respondent’s costs: Grouped Proceedings, App A, cl 31(1). Section 43(1A) of the Federal Court Act, which prevents such an award of costs against a group member (subject to limited exceptions), was introduced by the Law and Justice Legislation Amendment Act (No 4) 1992 (Cth), s 3. The amendment was said to be necessary to overcome a decision of the Appeal Division of the Supreme Court of Victoria, which held that an order for costs could be made against group members in a proceeding brought by a representative party under s 35 of the Supreme Court Act 1986 (Vic): Burns Philip & Co Ltd v Bhagat [1993] 1 VR 203; Cth Parl Deb, HR, 14 October 1992, at 2157; King v GIO, at [49]-[51], per Moore J; cf V Morabito, above, at 239 (describing the enactment of s 43(1A) as an “overreaction to the Supreme Court’s ruling).

42 Fifthly, s 33ZF of the Federal Court Act, which allows the Court to make any order it “thinks appropriate or necessary to ensure that justice is done in the proceedings”, was not enacted in consequence of the ALRC’s recommendations. It was included for the first time in the Federal Court of Australia Amendment Bill 1991 which, when enacted, introduced Part IVA into the Federal Court Act.

construction of the legislation

43 It can be seen that Part IVA of the Federal Court Act, in its present form, does not explicitly address important issues that are bound to arise in some representative proceedings. In particular, Part IVA does not establish a regime governing the communications that a respondent may make directly to unrepresented group members. Nor does the legislation (leaving s 33V(1) to one side for the moment) expressly require settlements reached directly between respondents and group members to be approved by the Court, or create a mechanism for overcoming the “free rider” problems arising where group members obtain benefits from the legislation otherwise than in the form of an “award of damages” within the meaning of s 33ZJ(1) of the Federal Court Act. The approach to these issues in a particular case must depend on the construction of provisions such as s 33ZF(1) of the Federal Court Act and on principles derived from the nature of the representative proceedings contemplated by Part IVA of the Federal Court Act.

Section 33V

44 A convenient starting point is s 33V(1) of the Federal Court Act. As will be recalled, it provides that a “representative proceeding may not be settled or discontinued without the approval of the Court”. A “representative proceeding” is defined in s 33A to mean “a proceeding commenced under section 33C”. The term “proceeding” is in turn defined in s 4 to mean

“a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal”.

45 If the language of s 33V(1) of the Federal Court Act is given its ordinary meaning, it appears to be concerned, at least primarily, with the settlement or discontinuance of the entire representative proceeding. There is, however, authority to the effect that s 33V(1) has a broader scope. In Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250, Branson J held that consent orders resolving claims made by the ACCC, as the representative party, against one of three respondents was caught by s 33V(1) and therefore required approval of the Court. Her Honour said this (at 258):

“The purpose to be served by s 33V(1) is obvious. It is appropriate for the Court to be satisfied that any settlement or discontinuance of representative proceedings has been undertaken in the interests of the group members as a whole, and not just in the interests of the applicant and the respondent. In my view, s 33V proscribes not only complete settlement of proceedings without the approval of the Court, but also settlement of claims against a joint respondent, or settlement of any substantive claim against a respondent”. (Emphasis added.)

In King v GIO, Moore J interpreted (at [41]) the bolded words in this passage as referring to the settlement of one of a number of claims against a respondent of the type comprehended by s 33C of the Federal Court Act. His Honour thought that s 33V(1) might also apply where individual offers were made directly to and accepted by all group members, since this would have the practical effect of settling the representative proceedings: King v Gio at [42]. But Moore J did not suggest that s 33V(1) applies to the settlement of claims of individual group members where the settlement does not effectively dispose of the proceedings. It is difficult to apply the language of s 33V(1) to the settlement of some individual claims of group members, at least where the settlement does not entirely resolve one category of claims comprehended by s 33C. Moreover, the legislative history of Part IVA tells against the suggestion that s 33V(1) is intended to apply to the settlement of the claims of individual group members without the involvement of the applicant. That suggestion is also difficult to reconcile with the specific requirement in s 33W, that a representative party requires the leave of the Court to settle his or her individual claims. Had Parliament intended the same requirement to apply to settlement of the individual claims of group members, it might have been expected to say so.

46 Determining the precise outer limits of s 33V(1) may pose some difficult issues. It is not, however, necessary to pursue them here. The evidence indicates that the respondents intend to make offers only to the remaining Group Members whose Pacemakers have not been removed. As yet none of those Group Members has received an offer, let alone accepted it. Even if they were all to receive and accept an offer, the case would not be brought within the circumstances identified by Branson J in ACCC v Chats House or by Moore J in King v GIO. It follows that s 33V(1) of the Federal Court Act would not, of itself, render any of the settlements so reached invalid unless approved by the Court. To this extent, there was common ground between the applicant and the respondents.

Section 33ZF

47 If s 33V(1) of the Federal Court Act does not confer power on the Court to make the orders sought by the applicant, the only other available source of power, as Mr Burnside acknowledged, is s 33ZF(1). This raises the question of the scope of the Court’s power to make any order it thinks “appropriate or necessary to ensure that justice is done in the proceeding”.

48 There are good reasons to give s 33ZF a generous interpretation. The section is couched in broad terms. Moreover, the Court is given power to act on its own motion. The language, which is described in the Explanatory Memorandum as “wide”, doubtless reflects the drafter’s perception that the new statutory procedure for representative proceedings was likely to throw up novel problems that would require close supervision by the Court.

49 In construing s 33ZF, it is also appropriate to recognise the unusual position of group members in a representative proceeding brought pursuant to Part IVA. Group members may benefit from the representative proceeding but their rights also might be adversely affected, since they are bound by any judgment in the proceeding unless they have opted out: s 33ZB(b). Consent is not required for a person to become a group member: s 33E(1). A group member must be given notice of his or her right to opt out of the proceeding (s 33X(1)(a)), but the group member will not necessarily receive personal notice of that right: s 33Y(5); Femcare v Bright, at 348-349. In a representative proceeding involving substantial numbers of group members, it is very likely that some, whether by choice, lack of means or lack of information, will not engage a lawyer. In certain cases, of which this is an example, the group is likely to include a disproportionate number of aged or infirm people.

50 A further factor to bear in mind is that, although Part IVA of the Federal Court Act established a new statutory procedure for representative proceedings, representative actions themselves are not novel. The judgments in Carnie v Esanda Finance Corporations Ltd (1995) 182 CLR 398, describe the emergence of the representative action in Chancery and the operation of the modern rules which build on the practice of the Court of Chancery: see at 415 ff, per Toohey and Gaudron JJ (with whom Mason CJ, Deane and Dawson JJ agreed; at 427-429, per McHugh J; see, too, Wong v Silkfield Pty Ltd (1999) 199 CLR 255, at 261-263, per curiam; Femcare Ltd v Bright, at 344-346, per curiam. More recently, the High Court has again emphasised the lack of novelty in the concept of representative proceedings, pointing out that the use of such proceedings in Chancery extended to cases in which the members of the represented group were ignorant of the proceedings and what was happening in them: Mobil Oil v Victoria, at [6], [21], [22], per Gleeson CJ; at [32-34], [51], per Gaudron, Gummow and Hayne JJ.

51 In Carnie v Esanda, Brennan J observed (at 408) that

“it is precisely because of the flexible utility of the representative action that judicial control of its conduct is important, to ensure not only that the litigation as between the plaintiff and defendant is efficiently disposed of but also that the interests of those who are absent but represented are not prejudiced by the conduct of the litigation on their behalf.”

Gleeson CJ in Mobil Oil v Victoria, at [21], cited those words as apposite to provisions of the kind found in Part IVA of the Federal Court Act. While Brennan J was primarily concerned with the conduct of the “self-proclaimed carrier of a litigious banner”, his comments indicate that judicial control of a representative proceeding may be essential to protect the interest of group members. Section 33ZF is directed to just such an issue.

52 While s 33ZF(1) of the Federal Court Act should be given a broad construction, that does not mean it can or should become a vehicle for rewriting the legislation. For example, in my view s 33ZF(1) cannot be read as prohibiting the respondent to a representative proceeding from communicating with a group member unless the Court has given prior approval. The provision itself merely confers power on the Court to make any order it thinks appropriate or necessary to ensure that justice is done in the proceeding; it does not prohibit conduct which is otherwise lawful. Accordingly, neither s 33ZF(1) nor any other provision in Part IVA prevents a respondent communicating with a group member in a manner which is not misleading or otherwise unfair and which does not infringe any other law or ethical constraint (such as a professional conduct rule which requires solicitors to communicate with a represented group member through the latter’s own legal representatives). The principle also applies, in my opinion, to an offer made by a respondent to settle the claims of individual group members. This reflects the general policy of the law to encourage out of court settlement of disputes and to promote the individual’s right to enter negotiations for settlement without inhibition: Cutts v Head [1984] Ch 290 at 306, per Oliver LJ, S McNicol, Law of Privilege (1992) at 438.

53 Similarly, there is nothing in s 33ZF(1), or in any other provision in Part IVA of the Federal Court Act, which invalidates any settlement reached between an individual group member and the respondent without prior approval of the Court (unless s 33V(1) or s 33W applies to the settlement). Of course, if a settlement is reached in consequence of misleading, unfair or unlawful conduct by or on behalf of a respondent, it may be liable to be set aside. Indeed, s 33ZF(1) itself would seem to empower the Court to make an order setting aside such a settlement if the Court forms the view that such an order is appropriate to ensure that justice is done in the proceeding. For this reason, a respondent might be well advised to ensure that each unrepresented group member receiving an offer understands the desirability of obtaining independent advice in relation to that offer and has sufficient opportunity to do so. The important point for present purposes, however, is that s 33ZF(1) of the Federal Court Act does not necessarily prevent a binding agreement being reached between a respondent to a representative proceeding and an individual group member as a consequence of direct communications between them.

54 But just as s 33ZF(1) of the Federal Court Act does not prohibit communications between the respondent and a group member in a representative proceeding, the provision does empower the Court to impose constraints on such communications if these are considered necessary or appropriate to ensure that justice is done in the proceeding. If, for example, there is evidence that an offer is about to be or has been made to group members in terms that are misleading or in circumstances that are unfair to the group members, the Court may take the view that its intervention is necessary or appropriate to avoid injustice to the group members. Where intervention is considered appropriate, the form of intervention must depend on the circumstances of each case.

the present case

55 It will be recalled that the relief sought by the applicant includes orders requiring the respondents to notify the applicant of the terms of any settlement offer they propose to make to remaining Group Members and preventing the respondents communicating such an offer unless the applicant agrees that the offer should be dispatched. The applicant’s alternative claim is for orders requiring the terms of any settlement offer to be supervised by the Court and any individual settlement to be subject to approval by the Court.

56 The applicant relied principally on what was said to be the risk that unrepresented remaining Group Members would be misled or treated unfairly if the respondents could make offers directly to them without the prior approval or endorsement of the applicant (presumably acting on the advice of MBC). Mr Burnside placed particular emphasis upon the risk that the respondents would make unduly low offers which the unrepresented remaining Group Members would not be in a position to evaluate properly. The only way to ensure a fair offer was made, so it was argued, was to give the applicant, on the advice of MBC, an effective veto over the terms of any offer that could be put to the unrepresented remaining Group Members.

57 It seems to me that the applicant’s proposal, if accepted, would give the applicant and his solicitors a role in the settlement process that is not justified by the terms of Part IVA of the Federal Court Act or the interests of justice. MBC are not the legal representatives of the unrepresented remaining Group Members. Indeed, Mr Burnside expressly refrained from suggesting that there is any solicitor-client relationship between MBC and those remaining Group Members who have not retained them for the purposes of the representative proceeding. It may be true, as Mr Burnside submitted, that MBC, as the applicant’s solicitors, owe fiduciary duties to the unrepresented remaining Group Members. Doubtless MBC could not, for example, legitimately seek to narrow the definition of the represented group so as to exclude unrepresented remaining Group Members from a settlement, if the object was to prefer the firm’s own interests to those of the unrepresented remaining Group Members: cf Williams v FAI Home Security Pty Ltd No 4) [2000] FCA 1925, at [22] (the example is hypothetical only). But the fact that MBC may owe some fiduciary duties to the unrepresented remaining Group Members does not mean that the firm has become the de facto solicitors for those Group Members. Much less does it mean that MBC should be able to determine what offers the respondents should be permitted to put to the unrepresented remaining Group Members.

58 Despite assertions made from the bar table, there is no evidence to justify a finding that the settlement offers made to Group Members who accepted the offers and subsequently opted out were inadequate. Let it be assumed, however, that the respondents are contemplating making offers to unrepresented remaining Group Members that could reasonably be regarded by an informed observer as too low. In my view, provided the respondents’ conduct is not misleading and the offer is not communicated in circumstances that are unfair to the recipient, I see no reason why the respondents should be prevented from making the offer or subjected to a veto exercisable, in effect, by MBC. It does not seem to me that the fact that an offer could reasonably be regarded as too low, of itself, warrants the Court preventing the respondents putting an offer to the unrepresented remaining Group Members. There may be many perfectly rational and sensible reasons why such Group Members might be prepared to accept (or discuss further) an offer that others (including MBC) might consider inadequate. I do not think that, as a general proposition, it should be assumed that group members in representative proceedings are incapable of handling their own affairs.

59 I appreciate that some unrepresented remaining Group Members (including some to whom the respondents wish to make a settlement offer) are likely to be aged or infirm or both. This may be a very good reason for the Court to take care to ensure that the recipients of any settlement offer understand that there are independent sources of advice available to them (including MBC) and that they have an adequate opportunity to evaluate the offer or take advice. I do not think that it provides a reason for MBC to have the right to decide whether the respondents should be permitted to put a settlement offer.

60 Everything I have said thus far is predicated on the assumption that the respondents, in making offers to unrepresented remaining Group Members, will not engage in misleading conduct or act unfairly towards the Group Members. I do not of course suggest that the respondents intend to act in this way. But if they were to engage in misleading conduct, or make offers in circumstances that are unfair to recipients, there is an obvious risk that justice will not be done to some Group Members in the proceeding. Is this a risk that warrants any action by the Court at this stage of the proceeding?

61 The respondents submitted that there was no evidence that they had engaged in misleading or unfair conduct and that, in the absence of such evidence, it was inappropriate for the Court to intervene. I shall return shortly to the validity of the evidentiary assumption underlying this submission. Accepting it for the moment, I do not think that the absence of evidence of past misleading or unfair conduct necessarily makes it inappropriate for the Court to take steps to ensure that group members can make a free and informed decision in relation to any settlement offer a respondent proposes to put to the group members. It is true, as Mr Finch pointed out, that any question of misleading or unfair conduct in relation to a settlement (should any such question arise), could be resolved in a challenge to any agreement reached between a respondent and individual group members. This approach, however, may generate unnecessary disputation and uncertainty. It might also cast an unreasonable onus on unrepresented group members who may not appreciate that they have accepted a settlement offer on the basis (by hypothesis) of misleading or unfair conduct. In principle, it is better to avoid potential injustice if this can be done without unduly limiting the freedom of action of parties to a representative proceeding.

62 Speaking generally, it seems to me that it may be appropriate, in order to ensure that justice is done in a representative proceeding, to require a respondent to advise the applicant’s solicitors of the terms of any offers that are to be communicated to unrepresented group members, together with details as to the manner in which they are to be communicated, in advance of the offer being made. This may be so even where there is no evidence to suggest that a respondent has acted or will act in a misleading or unfair manner in dealing with group members. (It must be remembered that s 33ZF(1) allows the Court to act of its own motion.) Such a requirement would provide the applicant with an opportunity, should he or she be so advised, to apply to the Court for orders restraining the respondent from making the offers to unrepresented group members. An application might be based on the ground, for example, that the offers are presented in misleading terms, or are made in circumstances that are unfair to the group members. If the applicant makes out a case of misleading conduct or what might be described as “procedural unfairness” (cf the notion of “procedural injustice” referred to by McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 590, at 620) the Court might consider it appropriate to make orders pursuant to s 33ZF(1) of the Federal Court Act restraining the respondent from conducting itself in the offending manner.

63 It is implicit in what I have already said that I do not see the Court as having a role in endorsing or approving any settlement offer made by a respondent to a group member. As I have explained, I do not think that Part IVA of the Federal Court Act envisages the Court playing such a role. Moreover, there are obvious difficulties in the Judge responsible for managing and hearing a representative proceeding being asked, before the final hearing, to determine whether a respondent’s offer is or is not adequate or fair. I appreciate that the Court might be required to approve a settlement during the currency of the proceeding in the particular circumstances envisaged by s 33V(1) or s 33W, but that fact does not justify extending the Court’s role to other circumstances not specifically addressed in the legislation.

64 I do not think it appropriate to attempt to set out exhaustive guidelines in advance as to the form that a settlement offer to unrepresented group members might take in order to avoid the risk of being characterised as misleading or unfair. In the present case, however, I think that there is much to be said for respondents’ offers of settlement to the unrepresented remaining Group Members meeting the following standards:

the offer and any accompanying material be in writing (a proposition the respondents accept);
the documentation accurately explains the consequences of accepting and not accepting the offer;
the offer allows a period for acceptance that is sufficient to the Group Member with a genuine opportunity to obtain legal advice, should the Group Member wish to do so; and
the documentation makes it clear that the Group Member is entitled to seek and might benefit from independent legal advice.

65 I have indicated that I think that, in general, it may well be appropriate, in order to ensure that justice is done in the proceeding, to require a respondent proposing to make an offer of settlement directly to a group member, to advise the applicant’s solicitors in advance of the terms of the proposed offer and of the manner in which it is to be communicated. This approach will give the applicant an opportunity to apply to the Court for further orders should he or she wish to argue that what is proposed is misleading or presented in an unfair manner. As with any general proposition, its applicability to any given case must depend on the particular circumstances.

66 In the present case, there are particular reasons for the Court to intervene. The evidence demonstrates that the respondents put offers directly to individual Group Members before the opt out period expired. These offers were made by telephone, apparently in the hope that the Group Members concerned would accept the offer more or less immediately. The notes of the telephone conversations suggest that the respondents’ representatives stated to Group Members, as a matter of course, that the respondents were unable to pay compensation because to do so could be seen as an admission in the representative proceeding. It is neither necessary nor appropriate for me to make a finding that these representations were misleading, nor that they induced any particular Group Member to settle his or her claims. It is enough to say that, depending on the particular circumstances, the representations may have been misleading and may have induced settlements. The fact that the representations were made in telephone conversations that were designed to yield immediate acceptance of the offers heightens my concern about the fairness of the approaches made by the respondents to Group Members prior to the opt out period.

67 Because of this evidence, I think that this a stronger case for the Court intervening than one where there is nothing to indicate that a respondent has acted unfairly towards group members. The conduct of the respondents in relation to Group Members prior to the closure of the opt out period raises questions in my mind as to whether any further approaches to Group Members might involve conduct that is arguably misleading or unfair. In these circumstances I think it is appropriate, in order to ensure that justice is done in the proceedings, to require the respondents to notify the applicant’s solicitors of the terms of the offers they intend to make and of the manner in which the offers are to be communicated.

68 I appreciate that, in some circumstances, orders of the kind I have foreshadowed might give rise to questions as to the confidentiality of the communications between a respondent and group members. In this case, I did not understand the respondents to make any such claim. As I followed the evidence, they intend to make offers to all remaining Group Members who retain their original Pacemakers. A substantial proportion of those Group Members have retained MBC as their solicitors and thus will receive the offer through their legal representatives. There has been no suggestion that the terms of the offers will vary depending on whether the Group Member is or is not represented. Thus MBC will become aware of the terms of the offers in a short time in any event.

69 For these reasons, I think it would be appropriate to make the following orders pursuant to s 33ZF(1) of the Federal Court Act:

the respondents, by themselves, their servants or agents, be restrained from making offers of settlement to any unrepresented remaining Group Members in the representative proceeding until 21 days after they provide to the applicant’s solicitors:

(i) a copy of any written offer the respondents or their representatives propose to make to such Group Members; and

(ii) a copy of any documentation relating to the offer that the respondents or their representatives propose to send to such Group Members.

As the respondents have done nothing to suggest that they would not comply with directions of the Court, I would be prepared to defer making orders if appropriate undertakings are given by their counsel.

70 I should add this observation. The applicant did not seek an order precisely in the terms I have foreshadowed, although his motion does make an alternative claim for “such further or other orders as the Court thinks fit”. In oral argument, reference was made to the possibility that an order, broadly to the effect of the one I have foreshadowed, might be made. Neither party suggested that such an order, if otherwise appropriate, should not be made because it fell outside the terms of the specific relief sought in the applicant’s motion.

the freeloader issue

71 In my view, it is premature to deal with the “freeloader” issue. Mr Finch, as I followed his argument, recognised that there was force in the applicant’s concern that settlement offers might be constructed so as to deny the applicant the opportunity to apply to the Court for an order under s 33ZJ(2) of the Federal Court Act for otherwise irrecoverable costs to be paid out of “an award of damages in a representative proceeding”. As yet, however, I do not know what the respondents intend to do, if anything, about the applicant’s concern.

72 At this stage, I simply do not know the terms of the offers the respondents propose to make to the remaining Group Members who retain their Pacemakers. It may be that the offers will provide for the Court to make orders, by consent, for the payment of money to the Group Members concerned. If so, a question may arise as to whether the orders provide for “an award of damages in a representative proceeding” for the purposes of s 33ZJ of the Federal Court Act. If there is such an award, it may be that the applicant’s position, in relation to an order for reimbursement of excess costs under s 33ZJ(2) of the Federal Court Act, is adequately protected. Alternatively, the offers of settlement may not involve any payments that could be described as an award of damages. If that turns out to be the case, other questions may arise. If the settlement offers are so constructed as to deprive the applicant of the opportunity that otherwise would or might be available to make an application under s 33ZJ(2) of the Federal Court Act, there may be an issue as to whether the form of the settlement has any significance for any costs orders that may be made against the respondents later in the proceedings.

conclusion

73 I shall stand over the motion for a short time in order to enable the respondents’ representatives to determine whether they can give the undertakings to which I have referred in [69] above. As neither party has succeeded in establishing its preferred position, my present view is that there should be no order as to the costs of the motion.

I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Associate:

Dated: 1 August 2002

Counsel for the Applicant:	Mr J Burnside QC with Mr J Clarke

Solicitor for the Applicant:	Maurice Blackburn Cashman

Counsel for the Respondent:	Mr S Finch SC with Mr C Loveday

Solicitor for the Respondent:	Clayton Utz

Date of Hearing:	17 July 2002

Date of Judgment:	1 August 2002

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