FEDERAL COURT OF AUSTRALIA

Watson v AWB Limited [2009] FCA 215

COSTS – exercise of discretion in respect of costs – Notice of Motion abandoned – in substance each party had some success – percentage costs order justified and appropriate

Federal Court of Australia Act 1976 (Cth) Part IVA,  s 33N  

Multiplex Funds Management Limited v P Dawson Nominees Pty Limited and Another (2007) 164 FCR 275

JOHN WATSON AND KAYE WATSON IN THEIR OWN RIGHT AND AS REPRESENTATIVES OF THE GROUP MEMBERS v AWB LIMITED (ACN 081 890 459)

NSD 2020 of 2007

FOSTER J

10 MARCH 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  The respondent pay 80 per cent of the applicants’ costs of and incidental to the respondent’s Notice of Motion filed on 12 December 2008, which costs are to include the costs incurred by the applicants in respect of retaining Counsel and one solicitor in respect of one hour of the hearing before the Court on 9 March 2009.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                     These proceedings were commenced on 9 October 2007. 

2                     In the proceedings, the applicants sue on their own behalf and on behalf of certain investors in the respondent pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) (the Act). 

3                     In very brief terms, the applicants claim that the respondent failed to disclose matters which it was required to disclose or ought to have disclosed and thus left the market ignorant of the true facts concerning the business and affairs of the respondent.  This conduct on the part of the respondent, it is said, caused the price of the relevant shares in the respondent to be inflated above the true value of those shares resulting in the group members suffering loss when they invested in the respondent. 

4                     In December last year I fixed for hearing yesterday (9 March 2009) a Notice of Motion which the respondent had filed on 12 December 2008 (the respondent’s Notice of Motion).  That Notice of Motion was filed pursuant to a direction made by me on 31 October 2008.  The direction which I made then was designed to compel the respondent to decide sooner rather than later whether it intended to seek an order that these proceedings not continue as a representative proceeding under Part IVA of the Act and whether it intended to make any other interlocutory applications.  When I made that direction it was my intention to hear and determine as soon as possible all interlocutory applications which were then in prospect. 

5                     There was also returned before me yesterday a Notice of Motion filed by the applicants in which the applicants sought certain interlocutory orders designed to ready the matter for final hearing.  The final hearing has been fixed to commence on 31 August 2009.

6                     The applicants’ Notice of Motion was largely disposed of yesterday.  The parties are to agree on the form of orders which flow from the views which I expressed yesterday in respect of that Notice of Motion and to lodge Short Minutes of Order embodying their agreement by close of business today.  If any issues remain from that Notice of Motion, those issues will be addressed when the matter is next before me on 25 March 2009. 

7                     Shortly before the matter was called on yesterday, I was informed that the respondent had abandoned its Notice of Motion.  I was told that the only issue remaining in respect of that Notice of Motion was the question of costs.  In light of the respondent’s abandonment of its Motion, the applicants sought an order that the respondent pay its costs of and incidental to the respondent’s Motion.

8                     The respondent resisted the making of any costs order against it.  It argued that the applicants should pay its costs, or at the very least, that there should be no order as to costs.

9                     In its Notice of Motion the respondent sought the following orders:

1.         Pursuant to section 33N of the Federal Court Act 1976 (Cth) (the Act), (order) that the proceeding no longer continue as a proceeding under Part IVA of the Act.

2.         (Order) that the applicants pay the Respondent’s costs including the costs of this Motion.

3.         Such further or other orders that this Honourable Court considers appropriate.

10                  Section 33N is in the following terms:

33N  Order that proceeding not continue as representative proceeding where costs excessive etc.

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

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

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

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

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

(2)       If the Court dismisses an application under this section, the Court may order that no further application under this section be made by the respondent except with the leave of the Court.

(3)       Leave for the purposes of subsection (2) may be granted subject to such conditions as to costs as the Court considers just.

11                  It became clear in February 2009, when the respondent filed and served an Outline of Submissions, that the respondent intended to rely upon s 33N(1)(c) and (d) in support of the orders which it sought in its Notice of Motion.  The respondent also indicated at that time that it would confine its arguments to those two subsections.

12                  The respondent’s Notice of Motion was initially supported by the affidavit of Duncan Geoffrey Travis sworn on 11 December 2008.  A second affidavit, sworn by Mr Travis on 5 February 2009, was also to be relied upon.  It is apparent from the evidence contained in the two Travis affidavits that the solicitors for the applicants and the solicitors for the respondent had corresponded extensively for at least the second half of 2008 about the appropriateness of the definition of the group formulated by the applicants for the purposes of these proceedings.  The respondent had asserted that the definition in the applicants’ pleadings was defective.

13                  On 6 February 2009, the respondent filed and served an Outline of Submissions in support of the orders which it sought in its Notice of Motion.  Paragraphs 2 and 3 of that Outline were in the following terms:

(2)        AWB submits that two matters, each on its own sufficient, justify the order sought:

(a)        the first is that the non-common questions raised by the claims of the applicants (Watsons) and group members are such that the proceeding will not provide an efficient and effective means of dealing with the claims of group members (common questions issue);

(b)        the second is that an element of the definition of the group members on whose behalf, as well as their own, the Watsons have commenced the proceeding – specifically, that element which defines the group by reference to persons who have entered into a litigation funding agreement with IMF (Australia) Limited in relation to the proceeding on or before 30 October 2008 - has the effect that the proceeding will not provide an efficient and effective means of dealing with the claims of group members or it is otherwise inappropriate that those claims be pursued by means of a representative proceeding (group definition issue).

 (3)       As is apparent from this statement of issues on the motion, AWB relies only on s 33N(1)(c) and (d) of the Act and not on s 33N(1)(a) or (b).

14                  Most of the respondent’s Outline of Submissions was devoted to supporting the ground which it had described as the common questions issue.  The submissions which the respondent made in respect of that issue were directed to persuading the court that the applicants’ claims raise non-common questions of such significance and number that the use of Part IVA of the Act as a means of advancing those claims would not provide an efficient and effective means of dealing with the claims of group members. 

15                  Alternatively, the respondent contended that, in any event, it was no longer appropriate for the claims of group members to continue as a representative proceeding. 

16                  These propositions repeat the language of s 33N(1)(c) and (d) of the Act. 

17                  In the Outline of Submissions filed on behalf of the respondent, the respondent’s Counsel analysed the Application and the Amended Statement of Claim in order to:

(a)           Identify the so-called non-common questions;

(b)          Demonstrate that those questions were significant in the group members’ cases; and

(c)           Persuade the court that the proceeding should not continue as a representative proceeding.

18                  In the respondent’s Outline of Submissions it was also submitted that the solicitors for the applicants had been unable to provide the detailed information concerning group members sought by the solicitors for the respondent and that this fact was making it difficult for the respondent to meet the applicants’ case – a difficulty which was likely to continue.  Such a problem, so it was submitted, would not exist, or not exist to the same extent, if the claims were pursued individually. 

19                  The group definition issue was submitted to be a separate but sufficient ground for the making of the s 33N order sought by the respondent. 

20                  The group definition set out in the Statement of Claim filed at the commencement of the proceedings was as follows:

The applicants and the Group Members

1.         This proceeding is commenced by the applicants on their own behalf and on behalf of persons who:

(a)        between 11 March 2002 and 13 January 2006 inclusive (“Relevant Period”) obtained an interest in the respondent’s “B class” securities (“AWB securities”), being an interest that was the result of a purchase of AWB securities on the financial market (“ASX”) operated by the corporation then known as Australian Stock Exchange Limited and now known as ASX Limited (trading as Australian Securities Exchange);

(b)        at the close of business on 13 January 2006 held an interest in AWB securities obtained during the Relevant Period;

(c)        suffered loss and damage by reason of the Contravention, as defined below;  and

(d)        have, as at the date of the commencement of this proceeding, entered into a litigation funding agreement with IMF (Australia) Limited in relation to this proceeding

(“Group Members”).

21                  That definition was altered in a material respect when the Amended Statement of Claim was filed on 31 October 2008.

22                  In the amended pleading, subparagraphs (a), (b) and (c) of the definition remained the same.  Subparagraph 1(d) was altered to read as follows:

(d)        have entered into a litigation funding agreement with IMF (Australia) Limited in relation to this proceeding on or before 30 October 2008 (emphasis added).

23                  It was submitted on behalf of the respondent that the definition of Group Member in the Amended Statement of Claim permitted group members to “opt in” to the proceeding at any time in the period between the date when the proceedings were commenced (9 October 2007) and 31 October 2008, simply by entering into a funding agreement with IMF (Australia) Limited.  Such a post-commencement right to “opt in” is impermissible, so it was submitted, because it is inconsistent with one or more of ss 33C, 33H, 33J and 33K of the Act (see also Multiplex Funds Management Limited v P Dawson Nominees Pty Limited and Another(2007) 164 FCR 275 at [142] per Jacobson J, with whom French J (as he then was) and Lindgren J agreed). 

24                  On the present state of the authorities, this submission was plainly correct.

25                  The respondent also argued that, even in its original form, the definition of Group Members was bad.  However, the respondent accepted that I would be obliged to reject this latter submission because it runs counter to the reasoning of the Full Court in Multiplex (2007) 164 FCR 275, by which I am bound. 

26                  Unsurprisingly, the applicants resisted the respondent’s Motion. 

27                  On 2 March 2009, the solicitors for the applicants filed a lengthy affidavit sworn by Ben Slade, who is the solicitor for the applicants, and an Outline of Submissions.  Mr Slade provided a detailed analysis of the relevant facts, matters and circumstances, and the reasons which, in his view, justified a conclusion that the Part IVA procedure was the cheapest and most efficient way of dealing with the claims of the Group Members.

28                  In their Outline, the applicants made detailed submissions in answer to the submissions made by the respondent on the common questions issue.  When addressing the group definition issue, the applicants stated that they proposed to seek leave to amend the group definition yet again by deleting subparagraph 1(d) and replacing it with a new subparagraph 1(d).  Subparagraph 1(d) is the subparagraph which stipulated for the funding criterion. 

29                  Yesterday, the applicants applied for leave to make that amendment, both to the Amended Application and to the Amended Statement of Claim.  When I come to make the other orders and directions arising out of yesterday’s hearing, I will grant that leave.

30                  The applicants also made submissions as to the correct interpretation of s 33N of the Act in the present context.  In particular, it was submitted on behalf of the applicants that, in order to succeed in its Motion, it was incumbent upon the respondent to satisfy me that it is in the interests of justice to “declassify” the proceeding for the reasons encapsulated in s 33N(1)(c) and/or (d) of the Act.

31                  Mr Scerri QC who, with Mr Darke, appeared for the respondent, referred to the history of this dispute (including the fact that there had been earlier representative proceedings commenced pursuant to the Rules of Court).  Those earlier proceedings had ultimately been dismissed.  Mr Scerri went on to submit the following:

(a)                By the amendment made on 31 October 2008, the applicants had changed the group definition in such a way as to enliven the principles in Multiplex (2007) 164 FCR 275 and thus render the proceedings liable to be declassified for that reason;

(b)               The applicants had had ample time to come to a considered final position on the definition of the group;

(c)                The deletion of the funding criterion proposed in the amendment sought yesterday, and which was foreshadowed by the applicants in their Outline of Submissions filed on 2 March 2009, would inevitably lead to a significant enlargement of the group in terms of the number of persons comprising the group;

(d)               Thus, because the number of persons comprising the Group Members was likely to dramatically increase, the common questions would also increase (not because the questions themselves would increase but simply because there would be more people in the group);

(e)                The common questions would inevitably outweigh the individual questions;  and

(f)                 Accordingly, the respondent now accepted that it could no longer satisfy me that the requirements of s 33N(1)(c) and (d) were met in light of the applicants’ change in position concerning the definition of Group Members.

32                  Mr Scerri’s ultimate submission was that:

(i)                  The respondent had acted reasonably and promptly when it became clear that it could not succeed in its Motion; and

(ii)                It was the applicants’ change of position in respect of the definition of Group Members that had dramatically changed the context in which the Motion was to be considered and it was that change of position which had brought about the respondent’s decision to abandon the Motion.

33                  The applicants submitted that their change of position in relation to the definition of Group Members did not have the consequences for which the respondent contended.  The applicants submitted that because the respondent had abandoned its Motion, it should pay the applicants’ costs of that Motion. 

34                  I am not persuaded that the applicants’ latest change in position in respect of the definition of Group Members has had or will have the consequences for which the respondent contends.  The claims by the group made in this case involve many common issues and many matters of fact.  Those claims also involve some issues which may be aptly described as individual issues, that is to say, issues which will almost certainly need to be resolved by a consideration of each claimant’s individual circumstances.  The nature and number of this latter group of issues are not likely to be substantially affected by an increase in the number of persons comprising the group.  Nor do I think that the significance of the common issues when compared with the significance of the non-common issues will change a great deal simply because the number of persons comprising the group has increased.

35                  It is neither necessary nor appropriate for me to resolve the merits of the respondent’s Motion for the purpose of determining the question of costs.  The simple fact is that the respondent has abandoned the Motion and has sought to justify that abandonment by asserting that abandonment of its Motion became inevitable once the applicants notified their intention to seek leave to change their position in relation to the definition of Group Members in the manner foreshadowed on 2 March last. 

36                  I do not think that the respondent’s decision to abandon its Motion can be attributed to the applicants in the way in which the respondent has contended.

37                  The applicants’ change of position in relation to the definition of Group Members has rendered the second ground relied upon by the respondent in support of its Motion nugatory.  By bringing forward in the Motion and advancing the group definition submissions which it did in support of its Motion, the respondent has been successful in forcing the applicants to address an obvious defect in the definition of Group Members. 

38                  On this point, the respondent has had success.  However, I think that most of the work done by both parties in relation to the respondent’s Motion was done in relation to the common questions issue.  On that issue, in substance, the applicants have succeeded since the respondent’s arguments directed to that issue and claims for relief based upon those arguments have now been abandoned.  On the other hand, as I have said, the respondent has had success on the group definition question.

39                  I do not think that it would be appropriate in the present case to make specific costs orders directed individually to each of the two broad sets of arguments raised by the respondent in support of the relief which it sought in its Motion.  Such an approach would inevitably make the taxation of costs in the present case unnecessarily complicated and would also unreasonably add to the costs of that taxation.

40                  Taking into account the various factors to which I have referred, I think that the appropriate order in relation to the costs of the respondent’s Motion is that the respondent pay 80 per cent of the applicants’ costs of and incidental to the respondent’s Notice of Motion filed on 12 December 2008, which costs are to include the costs incurred by the applicants in respect of retaining Counsel and one solicitor in respect of one hour of yesterday’s hearing.  That is the order which I will now make.

Associate:

Dated:         12 March 2009