FEDERAL COURT OF AUSTRALIA

Courtney v Medtel Pty Limited (No 5) [2004] FCA 1406

REPRESENTATIVE PROCEEDINGS – proposed settlement – whether fair and reasonable – lack of evidence from an independent costs consultant – possible injustice to sub-group not entitled to compensation – Federal Court of Australia 1976 (Cth), s 33V

Federal Court of Australia 1976 (Cth) ss 33J, 33V, 33X, 33Z, 33ZB

Trade Practices Act 1974 (Cth) ss 74B, 74D

Legal Profession Act 1987 (NSW) s 187

Lopez v Star World Enterprises Pty Ltd [1999] ATPR 41-678 cited

Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 followed

Jarrama Pty Ltd v Caltex Australia Petroleum Pty Ltd [2004] FCA 1114 cited

Williams v FAI Home Security Pty Ltd (No 5) [2001] FCA 399 cited

Deposit Guaranty National Bank of Jackson v Roper, 445 US 326 (1980) referred to

Re General Motors Corp Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F3d 768 (1995) referred to

MJ Legg, ‘Judge’s role in settlement of representative proceedings: Lessons from United States class actions’ (2004) 78 ALJ 58

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

NSD 661 of 2000

SACKVILLE J

SYDNEY

2 NOVEMBER 2004

THE COURT ORDERS THAT:

The matter be re-listed on a date to be notified to the parties.

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

REASONS FOR JUDGMENT

The Motion

1                     These representative proceedings arise out of a ‘Hazard Alert’ issued on 5 June 2000 by the Therapeutic Goods Administration.  The Hazard Alert related to a particular batch of Tempo Pacemakers (‘Pacemakers’) manufactured by the second respondent (‘Pacesetter’) in the United States and distributed in Australia by the first respondent (‘Medtel’).

2                     The applicant (‘Mr Courtney’) and the respondents have now reached agreement on the terms of a proposed settlement of the proceedings.  The respondents have applied by a further  amended notice of motion (‘the motion’) for an order that

‘the settlement agreement embodied in the Deed of Settlement and its attachments, which are annexed hereto and marked … “B”, be approved for the purposes of s 33V of the [Federal Court of Australia 1976 (Cth)].’

3                     The Deed of Settlement sets out the terms upon which the proceedings are to be resolved.  Schedule 1 to the Deed of Settlement contains the ‘Settlement Scheme’, while Annexure A to Schedule 1 sets out the entitlement of each category of represented group members under the Scheme.  Annexure A to Schedule 1 is reproduced as the Appendix to this judgment.  The motion contemplates that upon approval of the settlement agreement the proceedings will be dismissed.

4                     The evidence establishes that on 15 September 2004, when I directed that notice be given to the members of the represented group of the proposed settlement, the represented group consisted of 482 persons (including representatives of the estates of deceased persons, but excluding the applicant).  (I refer to this group of 482 persons as the ‘Remaining Group Members’.)  The Remaining Group Members comprise all members of the represented group who, by 15 September 2004, had not opted out of the proceedings or settled their claims.  Since 15 September 2004, a further four of the Remaining Group Members have opted out of the proceedings.  Nothing turns on this.

5                     The solicitors for Mr Courtney (the ‘Solicitors’) represent 154 of the 482 Remaining Group Members.  The Solicitors have supported the respondents’ motion.  The proposed settlement contemplates, among other things, that the Solicitors will receive approximately $2.3 million in costs and disbursements exclusive of GST.  I shall return to this aspect of the settlement in due course.

6                     Section 33V(1) of the Federal Court of Australia Act 1976 (Cth) (‘Federal Court Act’) provides that a representative proceeding may not be settled without the approval of the Court.  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 the settlement:  s 33V(2).

7                     At the conclusion of the hearing held on 26 October 2004, I indicated that, subject to receiving further information concerning the costs aspect of the proposed settlement, I was inclined to approve the settlement.  However, I also indicated that I wished to consider the material more closely.

8                     Upon further reflection I have some concerns about the position of a sub-group of the Remaining Group Members, being the personal legal representatives of persons who had a Pacemaker surgically implanted but who died before the proceedings were commenced.  I think that further steps should be taken to ensure that all such legal representatives have an opportunity to opt out of the proceedings if they wish or are not bound by the orders.  Once these steps are taken and I am satisfied as to the costs issue I am prepared to approve the proposed settlement.

The Course of the Litigation

9                     The representative proceedings were commenced on 22 June 2000.  Mr Courtney was substituted for the original applicant on 12 December 2000.  As ultimately pleaded, Mr Courtney brought the proceedings on behalf of himself and

·        persons who had received in Australia a surgical implant of a Pacemaker; and

·        the legal personal representatives of deceased persons in whom such a Pacemaker had been surgically implanted in Australia.

10                  In a judgment delivered on 5 February 2003, I addressed certain questions that had been identified by the parties for separate determination:  Courtney v Medtel Ltd (2003) 126 FCR 219 (‘Courtney (No 1)’).  At the time the judgment in Courtney (No 1) was delivered, the represented group consisted of approximately 616 persons (including the legal personal representatives of deceased persons).  As I have noted, that number has since been reduced in consequence of individual settlements and the opting out of group members from the proceedings.

11                  The Remaining Group Members include at least three different sub-groups, namely:

(i)                  those whose Pacemakers have remained in situ notwithstanding the Hazard Alert (‘in situ sub-group’);

(ii)                those whose Pacemakers have been explanted (before or after the Hazard Alert) and, on examination, the Pacemakers have been found not to be functioning normally (‘non-functioning explant sub-group’);

(iii)               those whose Pacemakers have been explanted and, on examination, the Pacemakers have been found to be functioning normally (‘functioning explant sub-group’).

Of course, each sub-group includes the legal personal representatives of persons who are now deceased.

12                  Mr Courtney himself is within the third sub-group.  His Pacemaker was explanted on 1 September 2000, in consequence of medical advice obtained after the Hazard Alert.  Subsequent testing revealed that the Pacemaker was operating normally.

13                  In Courtney (No 1), I decided that Mr Courtney was entitled to succeed in his personal claim for compensation against Medtel pursuant to ss 74B and 74D of the Trade Practices Act 1974 (Cth) (‘TP Act’).  I held that this was so notwithstanding that the Pacemaker that had been explanted from Mr Courtney was ultimately found not to be defective.

14                  On 3 March 2003, I made orders giving effect to the judgment in Courtney (No 1):  Courtney v Medtel Pty Ltd (No 2) [2003] FCA 129.  The answer to the separate question was to the effect that Pacemakers manufactured using yellow spool solder, as that expression had been used in Courtney (No 1), at 240 [89], were not reasonably fit for their purpose within the meaning of s 74B of the TP Act and were not of merchantable quality within the meaning of s 74D of the TP Act.  That answer was based on a finding that it was Pacemakers manufactured with yellow spool solder that were at risk of malfunctioning. 

15                  I directed that judgment be entered in favour of Mr Courtney, in respect of his individual causes of action against Medtel in the sum of $9,988.20, plus interest of $1,304.19.  The sum of $9,988.20 comprised $7,500 for pain and suffering, $2,420 for past gratuitous services provided by Mrs Courtney to Mr Courtney and $68.20 for past economic loss.

16                  An appeal to the Full Court was dismissed on 7 July 2003:  Medtel Pty Ltd v Courtney (2003) 130 FCR 182.  An application for special leave to appeal to the High Court was refused on 2 December 2003: [2003] HCATrans 496.

17                  On 30 March 2004, I dealt with an application on behalf of Mr Courtney seeking costs of the proceedings up to that time: Courtney v Medtel Pty Ltd (No 3) [2004] FCA 347.  I ordered that:

1.      Medtel pay Mr Courtney’s costs of the proceedings to the date of judgment in Courtney (No 1) in respect of both his individual and representative claims (save for those costs that were already the subject of orders), on a party and party basis;

2.      Mr Courtney be entitled to have his bill of costs taxed notwithstanding that the principal proceedings had not concluded; and

3.      the above orders be without prejudice to Mr Courtney’s entitlement to seek an order for payment of his costs on an indemnity basis.

18                  On 15 September 2004, I approved, pursuant to s 33Y(2) of the Federal Court Act,  the form of a notice to be sent to the remaining group members:  Courtney v Medtel Pty Ltd (No 4) [2004] FCA 1233 (‘Courtney (No 4)’).  The schedule to the notice set out the substance of the proposed settlement.  Directions were given for the notice to be sent by prepaid post to the Remaining Group Members at their last known addresses.  Where a notice was returned to sender, provision was made for the legal representatives to take steps to identify the correct addresses for the Remaining Group Members concerned.  No provision was made for the notice, or a summary of it, to be advertised in the press.

19                  In Courtney (No 4), I also directed, pursuant to s 33J(3) of the Federal Court Act, that the date by which the 482 Remaining Group Members (other than Mr Courtney) could opt out of the proceedings be extended until 11 October 2004.  I set down the application for approval of the settlement for hearing on 26 October 2004.

Notices

20                  The evidence satisfies me that diligent searches have been made to locate the correct names and addresses of all Remaining Group Members for the purpose of serving notice of the proposed settlement.  Despite these searches, it appears that some 17 Remaining Group Members cannot as yet be located.  Notices have been sent to all other Remaining Group Members, although it appears that because of difficulties in tracing some Remaining Group members a small number of notices may not have been sent until after the extended opt out date (11 October 2004).

An Amendment

21                  Mr Clark filed the motion in court at the hearing held on 26 October 2004.  The Settlement Scheme attached to the motion was not identical to that referred to in the notice sent to the Remaining Group Members in accordance with the directions of the Court.  The amendments to the Settlement Scheme introduce a requirement that each Remaining Group Member, as a precondition to payment of the sum due under the Scheme, provide certain identification to the respondents.  I was informed that the amendments were thought to be necessary because difficulties had been experienced in ascertaining the precise identity of some of the Remaining Group Members who are entitled to receive payment under the Settlement Scheme.

22                  I have given consideration to whether these amendments, which do not affect the substantive entitlements of Remaining Group Members, require further notice to be given of the proposed settlement.  In my view, further notice is not required, since the amendments make no substantial difference to the operation of the Settlement Scheme.  If I am wrong about that, I am nonetheless satisfied, for the purposes of s 33X(4) of the Federal Court Act, that it is just to determine the application for approval of the proposed settlement without requiring further notice to be given to the Remaining Group Members.

Remaining Group Members

23                  There were originally 1039 members of the represented group in these proceedings.  As I have noted, this had been reduced to about 616 when judgment in Courtney (No 1) was delivered and was further reduced to 482 by the time the notice of motion to approve the proposed settlement was filed.

24                  The evidence shows that there are 175 Remaining Group Members within the in situ sub-group.  Of these, 95 are alive and 80 are the legal personal representatives of deceased persons (counting each set of representatives as one).

25                  The two explant sub-groups account for 307 of the Remaining Group Members.  Of these it appears that 260 are alive and 47 are the representatives of deceased persons who had their Pacemakers explanted.

26                  Mr Courtney’s solicitors act for 154 of the 482 Remaining Group Members.  Of these, 16 are in the in situ sub-group (seven are alive and nine are representatives of deceased estates).  The other 138 are in the two explant sub-groups (115 are alive and 23 are representatives of deceased estates).  Accordingly, there are 328 Remaining Group Members who appear not to have retained a lawyer, although of course some may well have done so without notifying the parties to the proceedings.

The Proposed Settlement

Compensation

27                  Under the Settlement Scheme, living members of the in situ sub-group are to receive $750 and do not have to contribute to payment of Mr Courtney’s costs.  The estates of deceased persons within the in situ group are to receive $375 and do not have to contribute to the Solicitors’ costs, provided the persons died after the proceedings were instituted on 22 June 2000.  If the persons died before that date, their estates receive no compensation.

28                  Living members of the non-functioning explant sub-group are to receive $10,000, less $2,000 by way of contribution to the Solicitors’ costs.  The estates of deceased members of this sub-group are to receive $6,500, less $1,250 by way of contribution to those costs, provided that the deceased persons died after 22 June 2000.  If they died before that date, their estates are to receive no compensation.

29                  Living members of the functioning explant sub-group are to receive $10,000 compensation, less $2,000 by way of contribution to the Solicitors’ costs, provided the Pacemaker was explanted:

·        after the issue of the Hazard Alert, but before 31 December 2001; or

·        on or after 31 December 2001, but not more than four years after the date of implantation, if the Pacemaker was removed because of the Hazard Alert.

30                  The estates of deceased members of the functioning explant sub-group are to receive $6,500 compensation, less $1,250 contribution to the Solicitors’ costs, provided the Pacemaker was explanted in the circumstances identified in the previous paragraph.  However, the estate will not be entitled to compensation if the person died before the proceedings were instituted.

31                  The Remaining Group Members entitled to compensation will be indemnified by the respondents for any amounts they might have to pay to the Health Insurance Commission or any private insurers in relation to the explant procedure.

32                  The Remaining Group Members who are not to receive any compensation, in summary, are those:

(i)                  whose Pacemaker was explanted before the Hazard Alert (unless it was found on examination not to be functioning normally);

(ii)                whose Pacemaker was explanted after 31 December 2001 and more than four years after the implant (unless it was found on examination not to be functioning normally); and

(iii)               who represent persons who died before the proceedings were instituted.

Costs

33                  The Settlement Scheme provides for the respondents to pay the Solicitors $1,930,073.61, plus GST, in full and final satisfaction of the legal costs and disbursements incurred by Mr Courtney and the group members in relation to the proceedings.  This amount is in addition to the sum of $441,000 (inclusive of GST) paid to the Solicitors in April 2003 on account of their costs.  Accordingly, the total costs to be paid by the respondents to the Solicitors amount to approximately $2,330,000, plus GST.

34                  In addition, as I have already explained, the Settlement Scheme contemplates that most of the Remaining Group Members entitled to compensation will contribute to the costs payable to the Solicitors.  The Settlement Scheme allows the respondents to deduct the specified sums in respect of costs ($2,000 or $1,250, as the case may be) from the amounts of compensation.  I was told that the Settlement Scheme was structured in this way for ease of administration. 

35                  The costs to be recouped from Remaining Group Members will amount to between $500,000 and $600,000.  Accordingly, the net contribution by the respondents to the Solicitors’ costs will be in the order of $1,800,000 (plus the GST payable on the sum of $2,330,000).  In other words, the respondents will ultimately bear about 80 per cent of the Solicitors’ costs, while the Remaining Group Members will bear about one fifth of those costs.

36                  I should add that as part of the settlement of the proceedings, the Solicitors have agreed to accept a cut off on their entitlement to fees and disbursements as at 11 August 2004.  They have also agreed to carry out all additional work after that date for the purpose of obtaining the approval of the Court and implementing the terms of the Settlement Scheme at no cost to the respondents, Mr Courtney or the Remaining Group Members.  In addition, the sum of $1,930,073.61 (plus GST) is said to represent a discount of approximately $50,000 on the amount of costs the Solicitors are entitled to charge pursuant to the fee agreements entered into with Mr Courtney and the Remaining Group Members whom they represent.

The Principles

37                  The task of the Court in determining whether to approve a settlement under s 33V of Federal Court Act is, as Finkelstein J observed in Lopez v Star World Enterprises Pty Ltd [1999] ATPR 41-678, at 42,670, ‘an onerous one especially where the application is not opposed’.  As his Honour pointed out, the principal difficulty concerns the position of group members, particularly those who are not legally represented.  While they are able to opt out of the proceedings, often they will not appreciate the significance of that course or indeed of remaining as part of the represented group.  It is for this reason that the Court must be alert

‘to protect both the absent class and the integrity of the judicial process by monitoring the actions of the parties before it’:

Deposit Guaranty National Bank of Jackson v Roper, 445 US 326 (1980), at 331, per Berger CJ.

38                  In a recent article, Michael Legg has pointed out that the experience in the United States has been that

‘traditional adversarial positions dissipate in the settlement approval context and [that] the judge must be alive to the possibility of conflict and collusion – class counsel may collude with defendants, and there may be a conflict between the representative plaintiff and other plaintiffs, or between class categories’:

MJ Legg, ‘Judge’s Role in Settlement of Representative Proceedings: Lessons From United States Class Actions’ (2004) 78 ALJ 58, at 70.  Examples of potential conflict of interest include cases where the amount offered by a defendant has to be distributed among a large number of group members, many of whom have relatively minor injuries, but a few of whom have serious injuries.  How is the fund to be divided?  Another kind of potential conflict of interest may arise between the legal representatives and the group members.  The legal representatives have an interest in receiving their fees in full (however the fees are to be calculated), while the interest of the group members is in maximising the compensation paid to them.  As Legg notes (at 70), defendants are interested primarily in the total pay-out figure, not how it is to be divided consequently, settlements in the United States are sometimes structured so as to increase the fees paid to the lawyers, at the expense of the represented group.

39                  In this Court it has been said that the task of the Court under s 33V of the Federal Court Act is to determine whether the proposed settlement is fair and reasonable, having regard to the claims of the group members who will be bound by the settlement:  Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459, at 465 [19].  In that case, Goldberg J identified the matters the Court will ordinarily take into account as including:

‘the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement.’

40                  His Honour found useful the nine factor test stated by the United States Court of Appeals in Re General Motors Corp Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F3d 768 (1995), at 785, as follows:

‘(1)      the complexity and duration of the litigation;

(2)       the reaction of the class to the settlement;

(3)       the stage of the proceedings;

(4)       the risks of establishing liability;

(5)       the risks of establishing damages;

(6)       the risks of maintaining a class action;

(7)       the ability of the defendants to withstand a greater judgment;

(8)       the range of reasonableness of the settlement in light of the best recovery; and

(9)       the range of reasonableness of the settlement in light of all the attendant risks of litigation.’

41                  The approach taken in Williams (No 4) has been subsequently endorsed:  see Jarrama Pty Ltd v Caltex Australia Petroleum Pty Ltd [2004] FCA 1114, at [10], per Crennan J.

42                  In Williams (No 4), Goldberg J also observed (at 473 [47]), correctly in my respectful opinion, that the part of the settlement which required the respondents to pay the applicants’ solicitors specified sums in respect of their costs and disbursements was:

‘as much subject to the approval of the court as is the proposal that each known group member receive $1,000 in one form or another’.

His Honour pointed out that no evidence had been placed before the Court in that case as to the manner in which the amount had been ascertained, nor that the amount was fair and reasonable having regard to the work undertaken and performed by the solicitors.  His Honour thought it necessary that such evidence be led as to these matters (at 473 [47]).  In the event, an affidavit was filed by an independent experienced legal costs consultant.  That consultant reviewed the files of the applicants’ solicitors, together with their time records, and expressed the view that the costs to be paid to the applicants’ solicitors were fair and reasonable.  Goldberg J accepted that evidence:  Williams v FAI Home Security Pty Ltd (No 5) [2001] FCA 399, at [19].

Should the Settlement be Approved?

Compensation

43                  The proposed settlement has been formulated in the light of the findings and the award of compensation made to Mr Courtney in Courtney (No 1).  The Settlement Scheme, which provides different levels of compensation for different categories of Remaining Group Members, also takes into account a number of issues that have not as yet been resolved in the litigation.  These include the following:

·        The respondents contend that not all the implanted Pacemakers were manufactured with yellow spool solder and that therefore not all Remaining Group Members will be able to establish that the Pacemakers implanted into them or the deceased persons whose estate they represent were unfit for the relevant purpose or not of merchantable quality.

·        The respondents wish to argue that, as a matter of law, the legal personal representatives of deceased persons are not entitled to claim compensation under ss 74B and 74D of the TP Act.  They have filed a motion seeking leave to amend their defences to raise this issue.

·        Mr Courtney says that the respondents are estopped from raising the yellow spool solder question and should not be permitted to plead the new defences.

·        Mr Courtney wishes (unless the matter is settled) to pursue his claim for indemnity costs.

·        The respondents dispute that individual Remaining Group Members will be able to establish compensable loss, or at least loss of the same magnitude as that incurred by Mr Courtney.  In particular, they say representatives of deceased persons are likely to experience difficulty in proving loss or damage. 

44                  Subject to the exceptions noted earlier in this judgment ([32] above), each living Remaining Group Member whose Pacemaker was explanted is to receive $10,000 (less a contribution to the Solicitors’ costs).  This is so regardless of whether the Pacemaker, on inspection was found to be defective.  The absence of any distinction between the living members of the explant sub-groups accurately reflects the reasoning in Courtney (No 1).  The proposed compensation of $10,000 to each of these Remaining Group Members is close to the award of compensation made in favour of Mr Courtney.

45                  It seems to me that the proposed settlement is fair and reasonable so far as the living members of the two explant sub-groups are concerned.  It is true that some might well be able to recover more than $10,000 if their individual claims were pursued to finality.  Others, however, may receive less than this amount.  Moreover, it is necessary to weigh a number of other factors in the balance.  These include the following:

(i)                  An assessment of the loss or damage sustained by each member of the explant sub-groups would involve considerable uncertainty and, in any event, would be very expensive to undertake.  It would also involve delays, a matter of some significance given that the median age of the living Remaining Group Members (other than legal personal representatives) is about 75.

(ii)                If the claims of the explant sub-groups are to be litigated to finality there are some potentially difficult legal and evidentiary issues to resolve.

(iii)               No Remaining Group Member has opposed the Settlement Scheme.

(iv)              Counsel have advised that the Settlement Scheme is appropriate.

46                  The representatives of deceased persons within the two explant sub-groups are to receive $6,500, rather than $10,000.  The justification for this difference is in essence twofold.  First, there is a serious question to be tried as to whether the estate of a deceased person is entitled to claim any compensation under ss 74B or 74D of the TP Act.  Secondly, if the entitlement of the estate of each deceased member of the explant sub-groups has to be assessed individually, the claimant, in the absence of the deceased member of the sub-group, may well encounter serious difficulties of proof.

47                  In my opinion, these factors justify a different outcome for those Remaining Group Members who represent the estates of deceased persons within the explant sub-groups.  Taking into account the factors to which I have referred, I think that the Settlement Scheme is fair and reasonable so far as they are concerned.

48                  The justification for denying compensation to those Remaining Group Members whether alive or deceased, whose Pacemakers were explanted before the Hazard Alert (unless the Pacemaker was found to be faulty) is straightforward.  It is that the explantation could not have been in consequence of the Hazard Alert; nor could it have been in consequence of the defect in the Pacemakers found to have existed in Courtney (No 1).  The absence of compensation in these circumstances is fair and reasonable.

49                  The justification for denying compensation to those Remaining Group Members whether alive or deceased, whose Pacemakers were explanted on or after 31 December 2001 and after the Pacemakers had been in situ for at least four years (unless the Pacemaker was found to be faulty) is explained by the parties as follows:

‘The reason for including the date 31 December 2001 is that the great majority of group members who have had their pacemaker explanted (274 of 306) had it explanted prior to 31 December 2001, being approximately 1½ years after the Hazard Alert was issued. … The reason for including the 4 year cut off date is that the service life expectation of Tempo Pacemakers, as represented to group members … is that the Pacemaker will last for 2 to 10 years.’

In my view, this explanation is convincing and it is fair and reasonable for the Settlement Scheme not to provide compensation for this sub-group.

50                  The only other category of Remaining Group Members to be denied compensation comprises the representatives of persons who received Pacemaker implants but who died prior to the commencement of the proceedings.  The justification for excluding this sub-group from compensation is said to be that the deceased persons could have had no personal interest in the proceedings, since they did not know of the litigation.  In any event, so it is said, they could have opted out of the proceedings. 

51                  This is the sub-category about whom I have most concern, since the legal nature of their claims, in principle, seem to be no different from the claims of those who died after the proceedings commenced and who are to receive compensation of up to $6,500 (less a contribution to costs).

52                  The evidence does not establish how many of the 127 deceased persons whose legal personal representatives are Remaining Group Members died before the proceedings were commenced.  Of particular concern, in my view, are the 47 deceased persons whose Pacemakers were explanted (since their estates are potentially entitled to $6,500).  The evidence does not reveal how many of the 47 died before the proceedings were commenced.

53                  I would regard the Settlement Scheme as fair and reasonable, so far as this sub-group is concerned, if it was clear that all 47 members of the sub-group had received notice of the proposed settlement and had not opted out of the proceedings.  While there is no clearcut legal distinction between Pacemaker recipients who died before the proceedings were commenced and those who died after that date, there may be practical reasons to distinguish between them.  However, I think that fairness demands that the representatives of the deceased persons who died before the proceedings were commenced have an opportunity to make an informed judgment about whether they should opt out of the proceedings.

54                  A particular difficulty arises out of the fact that 17 Remaining Group Members have not been located and thus have not been notified of the proposed settlement.  If any of these Remaining Group Members represent the estates of members of the explant sub-group who died before the proceedings were commenced, there is a possibility of injustice.  The injustice is that the Settlement Scheme would deny them any compensation, yet they would not have had an opportunity to opt out of the proceedings with full knowledge that the proposed settlement excludes them from compensation.  (An order in a representative proceeding binds all group members other than those who have opted out of the proceeding under s 33J: s 33ZB(b).)

55                  It seems to me that there are three ways in which this difficulty might be overcome (although the parties may suggest others).  First, evidence may be available that none of the 17 Remaining Group Members to whom I have referred represents the estate of a person who died before the proceedings were commenced (or at least none represents the estate of a member of the explant sub-group who died before that date but after the Hazard Alert was issued and whose Pacemaker was found to be faulty).  Alternatively, it may be feasible to place a newspaper advertisement directing attention to the fact that the proposed settlement does not provide compensation in respect of persons whose Pacemakers were explanted before the proceedings were commenced and advising them of their right to opt out.  (A further extension of the date for opting out would be required if this were to be done.)  A third possibility is that the (few) Remaining Group Members who represent the estates of persons whose Pacemakers were explanted and who died before the proceedings were commenced simply be excluded from the represented group.  Whether this approach is available may depend on the construction of s 33Z(1)(g) of the Federal Court Act which allows the Court, in determining a matter in a representative proceeding, to make such other orders as the Court thinks just.

Costs

56                  The evidence indicates that, subject to the qualifications to which I have referred ([36] above), the fees and disbursements of the Solicitors have been calculated in accordance with the fee and retainer agreements entered into by the Remaining Group Members who engaged the Solicitors.  The agreements provide, inter alia, for hourly charge out rates for lawyers and paralegals, standard fees for photocopying and other ancillary services, interest to be charged at the rate of one per cent per month on the value of work carried out (charged from the end of the month in which the work is carried out, whether or not an account is rendered) and an ‘uplift’ factor of 25 per cent (to take account of the ‘no-win no-fee’ arrangement accepted by the Solicitors): see s 187 of the Legal Profession Act 1987 (NSW).

57                  Dr Cashman, who appeared for Mr Courtney, read an affidavit from a solicitor of six years standing with experience in the area of costs assessment.  Her affidavit was to the effect that the amount to be paid to the Solicitors under the proposed settlement is fair and reasonable and that it accurately reflects the method of calculating fees and disbursements specified in the fee and retainer agreements.  It is important to note, however, that the solicitor is employed by the Solicitors and that her review of the files was apparently undertaken in the course of her employment.

58                  On the evidence, I have no particular reason to doubt that the terms of the fee and retainer agreements (including the uplift factor) accord with the fee arrangements generally applicable to litigation of this kind.  Nor do I have any reason to believe that the Solicitors have rendered accounts that are inappropriate or excessive, having regard to the work undertaken in the proceedings on behalf of Mr Courtney and the represented group.

59                  Nonetheless, having regard to the onerous responsibilities imposed on the Court, I think that there are special circumstances in a case such as the present which warrant the Court insisting on evidence from an independent experienced solicitor or costs consultant as to the reasonableness of the costs, as Goldberg J received in Williams (No 5).  The particular circumstances of the present case include the following:

·        a proposed settlement which provides for the solicitors to receive an apparently large amount by way of fees and disbursements;

·        the settlement provides that a portion of the fees and disbursements is to be borne by members of the represented group; and

·        the represented group includes persons who are themselves not legally represented in the proceedings.

These circumstances create at least the possibility of a conflict of interest between the Solicitors and some Remaining Group Members.

60                  In making these observations, I should make it clear that I intend no adverse reflection either on the Solicitors or on the solicitor whose evidence was read in the proceeding.  Nor do I have any reservations about the respective proportions of the total costs to be borne by the respondents and the Remaining Group Members.  The proportions appear to me to be fair and reasonable bearing in mind the distinction between party and party and solicitor and client costs.

61                  It is for the reasons I have given that I suggested to Dr Cashman that evidence should be presented from an independent solicitor or costs consultant, directed to the following matters:

(i)                  the reasonableness of the terms of the fee and retainer agreements (including the provisions for ancillary services, interest and an uplift factor);

(ii)                whether the fees and disbursements actually charged by the Solicitors have been calculated in accordance with the fee and retainer agreement;

(iii)               confirming that, so far as the solicitor or costs consultant can determine, no significant portion of the fees and disbursements charged by the Solicitors have been inappropriately or unnecessarily incurred in conducting the proceedings on behalf of Mr Courtney and the represented group.

I made it clear that I did not expect the evidence to involve an exhaustive review of the files maintained by the Solicitors.  I had in mind an overview that could be undertaken over a period of about two days.

Conclusion

62                  It follows from what I have said that, subject to the resolution of two matters, I am prepared to approve the proposed settlement.  The two matters requiring attention are these:

(i)                  steps should be taken to ensure that the few Remaining Group Members who are to receive no compensation in respect of the explantation of a Pacemaker, because the persons they represent died before proceedings were commenced (but after the Hazard Alert was issued), have a fully informed opportunity to opt out of the proceedings; and

(ii)                an affidavit is provided from an independent solicitor or costs consultant addressing the issues I have identified.

63                  I propose to re-list the matter when the foreshadowed additional affidavit is received.

Associate:        

Dated:              2 November 2004

Appendix

Annexure "A" to Schedule 1

Settlement Categories

1.                          Group Members living as at the date of settlement being approved by the Court whose Hazard Alert Pacemaker has been removed and replaced

1.1                       Group members whose Hazard Alert Pacemaker was removed and replaced:

(a)                        prior to the issue of the first Hazard Alert (13 June 2000) and the device was found upon examination to suffer the fault;

(b)                        after the issue of the first Hazard Alert (13 June 2000) and prior to 31 December 2001;

(c)                        on or after 31 December 2001 and the device was found upon examination to suffer the fault; or

(d)                        on or after 31 December 2001 but not more than four (4) years after the date of implantation provided that the device was removed and replaced because of the Hazard Alerts even if the device was examined and, upon examination, found not to suffer the fault;

will be entitled to receive $8,000 (being $10,000 in compensation less $2,000 in contribution to the Applicant's legal costs).

1.2                       Group members whose Hazard Alert Pacemaker was removed and replaced:

(a)                        prior to the issue of the first Hazard Alert (13 June 2000), unless the device was found upon examination to suffer the fault; or

(b)                        on or after 31 December 2001 and on or after the day four (4) years after the date of implantation unless the device was found upon examination to suffer the fault;

will not be entitled to receive compensation.

2.                          Estates of deceased patients whose Hazard Alert Pacemaker had been removed and replaced

2.1                       The estates of patients who died on or after the date of commencement of the proceedings (14 June 2001) and whose Hazard Alert Pacemaker was removed and replaced:

(a)                        prior to the issue of the first Hazard Alert (13 June 2000) and the device was found upon examination to suffer the fault;

(b)                        after the issue of the first Hazard Alert (13 June 2000) and prior to 31 December 2001;

(c)                        on or after 31 December 2001 and the device was found upon examination to suffer the fault; or

(d)                        on or after 31 December 2001 but not more than four (4) years after the date of implantation provided that the device was removed and replaced because of the Hazard Alerts even if the device was examined and, upon examination, found not to suffer the fault;

will be entitled to receive $5,250 (being $6,500 in compensation less $1,250 in contribution to the Applicant's legal costs).

2.2                       The estates of patients who died:

(a)                        prior to the commencement of the proceedings (14 June 2001);

(b)                        on or after the date of commencement of the proceedings (14 June 2001) and whose device had been removed and replaced prior to the issue of the first Hazard Alert (5 June 2000) unless the device was found upon examination to suffer the fault; or

(c)                        on or after the date of commencement of the proceedings (14 June 2001) and whose device had been removed and replaced on or after 31 December 2001 and on or after four (4) years after the date of implantation unless the device was found upon examination to suffer the fault;

will not be entitled to receive compensation.

3.                           Group Members living as at the date of settlement being approved by the Court whose Hazard Alert Pacemaker has not been removed and replaced

3.1                       Group members whose device has not been removed and replaced at the date of the settlement being approved by the Court will be entitled to receive compensation in the amount of $750 and will not be required to contribute to payment of the Applicant's legal costs.

4.                           Estates of deceased patients whose Hazard Alert Pacemaker had not been removed and replaced

4.1                       The estates of patients who died prior to the commencement of the proceedings (14 June 2001) will not be entitled to receive compensation.

4.2                       The estates of patients who died on or after the date of commencement of the proceedings (14 June 2001) whose Hazard Alert Pacemaker had not been removed and replaced as at the date of their death will be entitled to receive compensation in the amount of $375 and will not be required to contribute to payment of the Applicant's legal costs.