FEDERAL COURT OF AUSTRALIA

Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 13) [2012] FCA 370

THE COURT:

1.    Approves the payment of $175,563.44 as forming part of the “Administration Costs” for the purposes of clause 10.1.2 of the Settlement Distribution Scheme.

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

REASONS FOR JUDGMENT

1    The present proceeding was commenced on 23 December 2008 by the filing of an “Application Under Part IVA of the Federal Court of Australia Act 1976”. A Statement of Claim was also filed on that date.

2    On 25 March 2011 reasons for decision were given approving a settlement: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277. Orders were made on 14 April 2011 and entered on 11 May 2011.

3    The present application is an Interlocutory Application filed on 30 March 2012 seeking approval for the payment of “Administration Costs” in the sum of $175,563.44.

4    On its face, the present Interlocutory Application is perhaps no different to a number of like applications which have previously been made and approved.

5    The potential importance of the present application to the Group Members, however, cannot be underestimated. The present Interlocutory Application is (hopefully) the last such application in the present proceeding. Once approval is given for the payment of the “Administration Costs”, the final distribution of settlement monies can proceed and the proceeding will assume a degree of finality. Once the monies have been distributed, any future question or dispute as to the manner in which the Settlement Distribution Scheme has been administered may be largely academic.

6    When the Interlocutory Application was called on for hearing on 4 April 2012, the proceeding was called outside the hearing room. The only Group Member known to be present was Australian Naturopathics Pty Ltd (“Australian Naturopathics”).

7    Notwithstanding the importance of the present application, orders were made on 4 April 2012 as sought in the Interlocutory Application. This was done in order to enable the expeditious distribution of settlement monies. It was indicated at that time that reasons would be published as soon as possible thereafter. These are those reasons.

Applications Resolved to Date

8    Now is perhaps an appropriate time to review – at least in very summary form – the progress of this representative proceeding.

9    In between the commencement of the proceeding and now, a number of judgments have been published.

10    At the outset there were a number of preliminary skirmishes questioning the particulars which had been provided in the Statement of Claim and the adequacy of the pleadings. Applications were made (in summary form) to:

    Amend, strike out or summarily dismiss the Application and Statement of Claim (Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 3) [2010] FCA 361, 267 ALR 494); and

    strike out or seek an order for particulars (Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 5) [2010] FCA 1204).

11    Thereafter there were also a number of applications arising in respect to the Settlement Distribution Scheme which had been approved in April 2011. Those applications largely fell into two categories, namely:

(i)    applications to correct or vary the terms of the Settlement Distribution Scheme: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 8) [2011] FCA 745; Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 9) [2011] FCA 1111; and Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 10) [2011] FCA 1510; and

(ii)    applications seeking approval for the payment of costs and expenses incurred in the administration of the Scheme: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 7) [2011] FCA 715; Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 8) [2011] FCA 745; Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 9) [2011] FCA 1111; and Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 11) [2012] FCA 105.

12    The most recent decision was in respect of an application made by Australian Naturopathics seeking dispensation pursuant to r 1.34 of the Federal Court Rules 2011 of the need to comply with r 4.01(2): Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 12) [2012] FCA 289. That application was rejected. A director of Australian Naturopathics unsuccessfully sought to appear on its behalf and sought to question the assessment of its claim in the manner set forth in the Settlement Distribution Scheme.

13    Recounting the applications that have come before the Court serves as a partial checklist of issues which emerged at the outset and during the administration of the settlement.

The Final Approval Sought

14    The sum of $175,563.44 which is the subject of the present Interlocutory Application is comprised of the following amounts (inclusive of GST):

15    The sum of $106,045.64 is in turn comprised of the following amounts (all inclusive of GST except for some sundry disbursements):

Each of these sums is also further specifically addressed and is the subject of evidence supportive of the appropriateness of each. Moore Stephens, it should be noted, are the external accountants retained by the Administrator to give accounting and taxation advice; Sapere Research are the forensic review expert accountants retained by the Administrator to conduct such applications for review as were made by Group Members.

16    The approach previously employed when considering whether approval should be given for the payment of “Administration Costs” and the requirement that those amounts be verified by way of affidavit was adopted with respect to this Application and it was concluded on 4 April 2012 that approval for the payment of $175,563.44 was appropriate. Each of the amounts constituting that total sum was appropriately verified and expert evidence was provided confirming that the amounts were “fair and reasonable” and not “incurred unnecessarily or inappropriately”.

The Claims of Group Members

17    The approval of the payment of these “Administration Costs” now paves the way for the remainder of the settlement monies to be distributed amongst Group Members in accordance with the Settlement Distribution Scheme.

18    The evidence relied upon in support of the present Interlocutory Application canvassed the number of Group Members participating in the proceeding, the overall quantum of the claims made and the claim figures as finally assessed.

19    This evidence started with a recognition that the Application as originally filed in 2008 was ultimately brought on behalf of 162 Group Members.

20    Of this 162, there were 102 Group Members who were found to have “Pan Admitted Claims” as defined by the Settlement Distribution Scheme; 101 Group Members had “Additional Claims”. A number of those with “Pan Admitted Claims” also had “Additional Claims”.

21    The quantum of “Additional Claims” made by Group Members is $135,717,143.34. The quantum of “Additional Claims” which were admitted by Counsel and/or the forensic Accountant in accordance with the Scheme was $44,590,573.37. The quantum of the “Final Assessed Value” of all claims is $107,395,974.32.

22    Not surprisingly, the “Final Assessed Value” of all claims exceeds the amount for which the proceeding was settled.

23    Of the total 162 Group Members, 9 claims were submitted by the Administrator to the “Review Expert” (namely the forensic accountant) to conduct a review. A summary of the outcome of those reviews is as follows:

24    The outcome of the review sought by Australian Naturopathics gave rise to the most recent decision in this proceeding: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 12) [2012] FCA 289.

The Proposed Distribution of the Settlement Sum

25    The “Settlement Sum” offered by the Commonwealth and previously approved was $67,500,000. The remaining task for the Administrator is to distribute this amount between the Group Members.

26    The claims of Group Members, assessed at $107,395,974.32, will obviously not be paid in full.

27    The monies available for distribution may be summarised as follows:

28    In respect to this summary form of table, it should be noted that:

    in excess of $26 million is payable to IMF Australia Ltd (“IMF”) (i.e., $5,347,552.70 paid to date; $5,026,200.63 paid in respect of costs actually incurred and $15,961,793.51 which will be paid prior to distribution of the settlement);

    the sum of $5,026,200.63 for Pharm-a-Care’s costs actually incurred was the subject of orders made on 14 April 2011. Initially the amount ordered was $5,031,541.85 but was later reduced to $5,026,200.63 by orders made on 22 June 2011;

    the sum of $275,720.51 paid to Group Members in respect of expense claims was also the subject of orders made on 14 April 2011;

    the sum of $1,536,196.90 was the subject of previous orders of the Court made on 22 June 2011 ($33,354.12), 1 July 2011 ($30,000), 29 September 2011 ($310,138.77) and 17 February 2012 ($1,162,684.01);

    the sum of $10,171,618.56 represents a preliminary payment of those “Pan Admitted Claims” which had been admitted by the liquidator;

    the sum of $175,563.44 is the subject of the orders made on 4 April 2012 and the subject of the present Interlocutory Application; and

    the sum of $780,713.30 is addressed in an affidavit sworn by an Associate in the Taxation Advisory Group of Moore Stephens and represents an amount recommended to be set aside on account of income tax that is to be paid for the 2011 year less the expected BAS refunds due for the March and June 2012 quarters.

29    After the sums set forth in the Table are taken into account, it follows that the total amount which will ultimately be distributed to Group Members is the sum of those monies which have already been distributed to Group Members ($10,171,618.56) and those monies which will be distributed to Group Members at the final distribution ($31,795,339.59), namely $41,966,958.15.

30    Having rechecked the monies received and distributed, Group Members can be satisfied that the settlement monies have been and will be distributed in the manner approved by the Court.

The Final Grant of Approval – Outstanding Issues?

31    Having approved the payment of those monies sought in the present Interlocutory Application and provided reasons setting forth the manner in which monies have been distributed and will soon be distributed, Counsel for the Administrator contended that the task of the Court was now complete.

32    But whether that is so may be queried. A question of principle was raised with Counsel for the Administrator at the outset of the present Application.

33    The question focussed upon the role that the Court should adopt when considering approval being granted to the last of the payments to be made in respect of Administration Costs. If approval was granted, the balance of the monies held by the Administrator could then be distributed in accordance with the Settlement Distribution Scheme. Thereafter, there would then be no future occasion for the Court to review the manner in which the Scheme had been administered. Even if there was a future occasion, there would most probably be no money left to satisfy any outstanding claim by any Group Member.

34    In the absence of what could broadly be characterised as maladministration, Counsel maintained that the function of the Court on such a final application was no different to that which it had previously discharged – if the fees and expenses were considered appropriate, approval should be granted. The Court had no further charter to review the manner in which the Scheme had in fact been administered or to venture observations in respect to any matter not relevant to the decision to grant or refuse approval to the fees and expenses under consideration.

35    It may be doubted, however, whether the role of the Court is so limited. If, for example, the manner in which the Scheme has been administered exposed substantive or procedural difficulties which could be avoided in future schemes proposed pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth), it would be of potential benefit to identify those difficulties.

36    The two instances which were canvassed with Counsel by way of example were:

    whether the Settlement Distribution Scheme could have been drafted in a manner to more fully expose the quantum of fees to be paid to IMF. The details as to the payments to be made to IMF were set forth in litigation funding agreements. The group on whose behalf this proceeding was commenced was confined to those persons who had entered into a litigation funding agreement with IMF as at the commencement date of the proceedings. Group Members were accordingly provided with a copy of that Agreement at the outset. Its terms were known to Group Members. Further, the amount payable to IMF was also indicated in the Notice of Settlement issued pursuant to s 33X of the Federal Court of Australia Act. Nevertheless, it was queried whether the Scheme itself should more transparently disclose those details or at least the more fundamental terms of that funding agreement; and

    whether the Settlement Distribution Scheme should have been drafted to provide for a further right of review by the Court in the event that a Group Member remained dissatisfied with the final assessed quantum of their claim following the review process set forth in the Scheme.

37    Counsel for the Administrator quite properly urged caution upon the Court before it embarked upon any such exercise. The Court, he maintained, did not have either the benefit of more detailed and extensive evidence than was presently available or the benefit of detailed submissions in respect to either concern.

38    Three things (at least) were of course to be accepted, namely:

    approval had been given to the settlement of the proceeding in the sum of $67,500,000;

    the manner in which those monies were to be distributed in accordance with the Settlement Distribution Scheme had also been approved; and

    the not inconsiderable amount of monies to be paid to IMF had also been the subject of prior consideration and approval.

Now was too late to revisit any of those matters. And in the absence of any suggestion of maladministration – and there certainly was no such suggestion in the present proceeding – it was to be queried what finding of fact was or could be made and what finding would be relevant to the exercise of any residual power or function left to be discharged by the Court.

39    Even if attention were to be confined to the two issues canvassed with Counsel for the Administrator, the caution that he advocated is well heeded.

40    Although considerable concern has previously been expressed as to the quantum of monies paid to the present litigation funder, and is still felt, it would be imprudent to venture into that area of concern without the benefit of evidence and submissions. The concern raises fundamental questions as to access to justice. It is an area which will some day have to be carefully examined. Perhaps greater scrutiny should be exercised at the outset of a proceeding and when approval is being given to a settlement under Part IVA of the Federal Court of Australia Act. But now is not the time for that examination.

41    Even the second of the two areas of concern raised with Counsel was not free of difficulty. The task to be undertaken by a Court if it wished to consider the assessment and review process of claims undertaken by the Review Expert was not self-evident. The factual basis upon which the Court should proceed and the basis or principles to be applied in a review of the process were also not self-evident. Whether such judicial oversight was envisaged by the terms of Part IVA, or even consistent with its terms, was not free of difficulty.

42    Again, the caution advocated by Counsel for the Administrator was well founded.

43    Moreover, it should be noted that there was no suggestion that the assessment and review process had been carried out other than in accordance with the terms of the Settlement Distribution Scheme. If attention is directed to the outcomes of the reviews sought by the 9 Group Members who invoked the process provided for by the Scheme, what is revealed is a genuine process of review. Some of the claim assessments were increased; some were assessed in the same amount as that initially determined.

44    There is no reason to conclude that the Settlement Distribution Scheme has worked anything but fairly and to the satisfaction of all but one of the Group Members. Given that background, Counsel for the Administrator could well have asked: what provision of the Scheme, even with the benefit of hindsight, would now be changed?

45    When granting approval to the then proposed settlement, consideration was then given to the form of notice to be given to Group Members. The importance was recognised of ensuring as far as possible that a notice as first given was to be “properly drafted” and necessarily not be “misleading or inaccurate”: Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 at [9] to [10]. It was envisaged that if a “deficiency” in the form of notice emerged, a further notice could be ordered. No issue emerged throughout the proceeding which required any further notice be given to Group Members.

Conclusions

46    In granting approval to the payment of $175,563.44 in respect of “Administration Costs” on 4 April 2012, it has been considered of importance to set forth the manner in which the settlement monies have been expended and how much remains for distribution.

47    The Federal Court Rules 2011 provide for the inspection of documents that have been filed in a proceeding: r 2.32(1) and (2). Those provisions separately address the right of inspection conferred upon a party to a proceeding and a “person who is not a party”. The present rule had its counterpart in O 46 r 6 of the now-repealed Federal Court Rules. These provisions serve an important role in ensuring particular documents are available for public inspection: cf. Fraser-Kirk v David Jones Limited [2010] FCA 1060 at [35].

48    Notwithstanding the degree of access to documents filed in the Registry of this Court, it is nevertheless considered to be important to set forth the manner in which settlement monies have been paid and distributed in a proceeding commenced under Part IVA in a single judgment. Group Members are hopefully thereby given a transparent account of how the settlement monies have been spent and distributed.

49    Given the number of occasions this proceeding has come before the Court and the degree of detailed information and explanation which has been expected of the Administrator, it is appropriate to express appreciation to the Administrator, Counsel and those instructing for the assistance they have long provided over the course of steering this case from its inception to settlement and to the final distribution of monies.

50    Orders were made on 4 April 2012. There is no task remaining for the Court to perform. No further order need now be made.

Associate:

Dated:    13 April 2012