FEDERAL COURT OF AUSTRALIA

City of Swan v McGraw-Hill Financial Inc [2014] FCA 931

THE COURT ORDERS THAT:

1.    Leave be granted to join Baron-Hay Investments Pty Ltd (ACN 008 703 151) as an applicant in the proceedings.

2.    The applicants have leave to discontinue the proceedings against the second respondent forthwith by filing a notice of discontinuance.

3.    The applicants file forthwith today an amended originating application and amended statement of claim in the form of those annexed and marked “A” and “B” to the second further amended interlocutory application dated 14 July 2014 but excluding the claim against the second respondent.

4.    The applicants pay the respondents costs thrown away as a result of the amended pleadings.

5.    The respondents pay the costs of the second further amended interlocutory application insofar as they relate to the argument as to the amendment to the description of “group members”.

6.    The applicants provide particulars of the amended statement of claim in response to the request for particulars made by letter from Clifford Chance to Piper Alderman dated 9 July 2014 by 1 August 2014.

7.    The applicants provide copies of the documents referred to in the amended statement of claim in response to the request made by letters from Clifford Chance to Piper Alderman dated 10 July 2014 and 16 July 2014 by 1 August 2014.

8.    The respondents file and serve any interlocutory process for leave to proceed by way of cross-claim against Lehman Brothers Australia Ltd (in liquidation) together with any evidence they wish to rely on in support of that interlocutory process by 22 August 2014.

9.    The respondents file and serve their defence to the amended statement of claim by 22 August 2014.

10.    The matter be listed for directions on 26 August 2014.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1    Following delivery of my reasons for refusing to dismiss, or grant a stay of, these proceedings in City of Swan v McGraw-Hill Companies Inc [2014] FCA 442, Jacobson J refused leave to appeal from that decision: McGraw-Hill Financial Inc v City of Swan [2014] FCA 665. The applicants now seek to amend their originating application and statement of claim in two relevant respects, first, to add a third applicant, Baron-Hay Investments Pty Ltd, which is unconnected to the previous class actions that I described in my earlier reasons as the Wingecarribee proceedings and the Bathurst proceedings and, secondly, to change the description of the group members for the purposes of s 33C of the Federal Court of Australia Act 1976 (Cth).

2    The joinder of Baron-Hay is not opposed, but the amendment of par 9.3 of the originating application and a like amendment to the statement of claim is opposed. The proposed addition is a new par 9.3(b) in the following terms:

“    The Group Members to whom this proceeding relates are persons who:

…

9.3    have,

…

(b)    after the commencement of these proceedings but prior to the date of filing the Amended Statement of Claim, entered into a litigation funding agreement with IMF in respect of their purchase of SCDOs in the circumstances pleaded in paragraphs 9.1 and 9.2 above.”

The legislative scheme

3    A group member is defined in s 33A as meaning “a member of a group of persons on whose behalf a representative proceeding has been commenced”. Where seven or more persons have claims against the same person arising out of the same, similar or related circumstances, and the claims of all of those persons give rise to a substantial common issue of fact or law, s 33C(1) enables one or more of those persons to commence a proceeding “as representing some or all of them”. Relevantly, s 33H provides that an application commencing a representative action must describe, or otherwise identify, the group members to whom the proceeding relates, although it need not name, or specify the number of, the group members. The Court must fix a date before which a group member may opt out of a representative proceeding under s 33J. Importantly, s 33K provides:

“33K    Causes of action accruing after commencement of representative proceeding

(1)    The Court may at any stage of a representative proceeding, on application made by the representative party, give leave to amend the application commencing the representative proceeding so as to alter the description of the group.

(2)    The description of the group may be altered so as to include a person:

(a)    whose cause of action accrued after the commencement of the representative proceeding but before such date as the Court fixes when giving leave; and

(b)    who would have been included in the group, or, with the consent of the person would have been included in the group, if the cause of action had accrued before the commencement of the proceeding.

(3)    The date mentioned in paragraph (2)(a) may be the date on which leave is given or another date before or after that date.

(4)    Where the Court gives leave under subsection (1), it may also make any other orders it thinks just, including an order relating to the giving of notice to persons who, as a result of the amendment, will be included in the group and the date before which such persons may opt out of the proceeding.” (emphasis added)

4     The Court has a discretion, either on application by the respondent or of its own motion, to order that a proceeding no longer continue under Pt IVA of the Act, if it is satisfied that it is in the interests of justice to do so on a number of bases that are set out in s 33N(1), none of which are presently relevant.

S & P’s submissions

5    The respondents (S & P) argued that the proposed amendment of the description of the group members to include those in the proposed par 9.3(b) of the originating application is impermissible, relying on the decision of Foster J in Watson v AWB Limited [2009] FCA 215 at [21]-[24]. S & P also called in aid a number of statements made in other authorities, but accepted that none bore directly on the point at issue in these proceedings. That point concerns the power of the Court to grant leave for the applicants to make an amendment to the description of the group under s 33K so as to include persons who were not included in the definition of a group member at the time that the proceedings were commenced last year.

6    In Watson [2009] FCA 215 at [21]-[24], Foster J considered an amendment to the statement of claim in those proceedings that sought to add, to the description of a group member, persons who had entered into a litigation funding agreement with a named litigation funder in relation to those proceedings on or before 30 October 2008. That was the day before the amended statement of claim, changing the description of the group, was filed. His Honour said that such a description would have permitted group members to “opt in” to the proceedings at any time between the date that they had been commenced in October 2007 and the date of the filing of the amended statement of claim on 31 October 2008, simply by entering into a funding agreement with the funder. He said ([2009] FCA 215 at [23]-[24]):

“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).

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

Consideration

7    As is apparent, Foster J did not have his attention directed to, and did not analyse, the terms of s 33K. In Multiplex 164 FCR at 294 [138], Jacobson J said that whether or not the definition of the group was inconsistent with the requirements of Pt IVA cannot be determined by resort to broad arguments about the aims or policy of the legislation. He said that the question was whether the definition there was inconsistent with ss 33C, 33E or 33J. His Honour was not dealing with a question of amendment under s 33K. He held that the group definition in those proceedings was not inconsistent with any of ss 33C, 33E or 33J and went on to say (164 FCR at 295 [142]-[144]):

“Part IVA does not use the expression ‘opt in’. But a group definition that allowed a person to take a positive step of ‘opting in’ after the commencement of the proceeding would be inconsistent with one or more of ss 33C, 33H, 33J and 33K. Senior Counsel for Dawson accepted that a post-commencement right to opt in was not permissible. However, no such question arises in the present case because the third element of the definition restricts the class to persons who have entered into the funding agreement at the commencement of the proceeding.

Dorajay 147 FCR 394 is distinguishable because group membership could change after the commencement of the proceedings. Stone J found that the provision for group members to opt into the proceeding was contrary to the terms and policy of Pt IVA: see Dorajay 147 FCR 394 at [125]. However, the opting in that was allowed in that case extended to include persons who retained MBC after the date of commencement of the proceeding.

It seems to me that her Honour's reasons in Dorajay 147 FCR 394 at [125] are explicable in that way.”

8    Jacobson J’s reasoning, to the extent that it referred to s 33K, was obiter dicta and his Honour noted that no such question arose in those proceedings. He referred to a concession by counsel that post-commencement rights to opt in were not permissible. Earlier, Stone J had held that it was not permissible to define the group members as persons who had at any particular time given instructions to a firm of solicitors who acted on behalf of the applicants: Dorajay Pty Ltd v Aristocrat Leisure Ltd (2005) 147 FCR 394: see the definition of the group membership in those proceedings at 396-397 [3] and her Honour’s discussion of the legislative materials and principles at 425-431 [106]-[125]. Similarly, in Larsson v WealthSure Pty Limited [2013] FCA 926 at [32]-[33], Buchanan J said that a person who was identified as a group member by the amended statement of claim, but who had not appointed the relevant solicitors to act until after the proceedings commenced, had the ability to join the group by appointing those solicitors after the proceedings had commenced. His Honour held that this was not permitted by Pt IVA.

9    I am of opinion that the legislative purpose identified by those authorities is that, at the time proceedings under Pt IVA are commenced, the group must be identified in accordance with s 33C as, in effect, a closed class from whose membership individuals can opt out but to which none can be added: i.e. none can opt in. The group membership can be quite extensive and imprecise because of the broad nature of the description of the group that s 33H permits. However, although the legislative intent is that individuals may opt out of the group after representative proceedings begin, no person who falls outside the pleaded description of group member can “opt in” or self-identify in a way that would enable that person to join the group when he, she or it had not otherwise been described as being a member of it. In other words, the Parliament intended that representative proceedings under Pt IVA be commenced on behalf of a defined group of persons whose membership was certain, even though it was not necessary that every member be able to be named, so long as the pleading contained a precise description in compliance with ss 33C and 33H, that enabled each such member of the group to be identified as having or meeting those characteristics at the date of the commencement of the proceedings.

10    Hence, S & P argued, the proposed amendment to add persons who had a litigation funding agreement with IMF in respect of their purchase of the SCDOs the subject of the proceedings, after the commencement of the proceedings, but before the making of the amendment, was offensive to the policy of the legislation.

11    That argument must be rejected, because the express terms of s 33K deny its efficacy. First, the Court is given a broad discretion in s 33K(1) to grant leave to amend the originating application, at any stage of a representative proceeding, “so as to alter the description of the group”. Secondly, s 33K(4) recognises that, when that is done, the new description can expand the membership of the group for the section says, in terms, that “persons who, as a result of the amendment, will be included in the group”, can be the subject of orders relating to their being given notice of their right to opt out of the group. That could only occur because s 33K permitted the additional persons to whom such a notice could be given to have been included in the group, not originally, but only as a consequence of the amendment.

12    Although the heading of s 33K is now treated as part of the Act under s 13(2)(d) of the Acts Interpretation Act 1901 (Cth), that heading, in my opinion, does not require the power conferred under s 33K(1) and (4) to be read down. It is clear that s 33K(2) is specifically directed to the very subject matter of the heading but s 33K(1) is a more general provision. The heading cannot have been intended to make s 33K(1) do nothing more than s 33K(2) expressly provided could be done. In Wong v Silkfield Pty Limited (1999) 199 CLR 255 at 260-261 [11], Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ said:

“Part IVA provides its own more detailed regime. Like other provisions conferring jurisdiction upon or granting powers to a court, Pt IVA is not to be read by making implications or imposing limitations not found in the words used; this is so even if the evident purpose of the statute is to displace generally understood procedures (See PMT Partners Pty Ltd (In liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 313, 316; Andjelic v Marsland (1996) 186 CLR 20 at 39).” (emphasis added)

13    In my opinion, the only sensible operation that can be given to s 33K(1) and (4) is that those provisions permit an amendment such as that sought here to be made, provided that the amendment operates forthwith and, by doing so, closes the newly described class or identifies an already closed class in the same way as occurs when proceedings under Pt IVA initially are commenced.

14    For these reasons, the applicants should have leave to amend the description of the group. S & P also sought, and the applicants accept, that I should make an order that any additional or new group member who is included in the description of the group by reason of the amendment today not be able to have the benefit of having their rights relate back to the date of the original filing of the proceedings. Such an order is appropriate and I will make it.

When should the amendment take effect?

15    The applicants also asked that I permit them to have until 23 July 2014 to file their amended originating application in order that they may put in place arrangements with persons they contemplate are yet to, but will, enter into litigation funding agreements with IMF of the kind comprehended in the amended description of the group.

16    I am of opinion that to allow that delay would be the very kind of action described in the authorities as permitting people to opt in. Those persons would know that the Court had ordered that the description of the group members may be changed on a future date and would thus be given the option of deciding whether or not they now wish to join. Such a delay in the operation of the amendment under s 33K would be contrary to the policy identified in Multiplex 164 FCR 275 and the other authorities to which I have referred.

17    An applicant who seeks to amend the description of the group must so describe the new group that will exist in such a way that, at the time at which the amendment application is made, the class will be closed there and then, if and when the amendment is granted. The right to seek the amendment is akin to the right to commence the proceedings so that, at the time that the proceedings are brought or the amendment is granted, it must be possible then and there to ascertain the members by a pleaded description, within the meaning of s 33H, of a closed class, on whose behalf the representative proceedings have been brought and no others.

18    In the exercise of my discretion, I refuse to grant any such extension of time to file the amended pleadings as sought.

Associate:

Dated:    27 August 2014