FEDERAL COURT OF AUSTRALIA

Clasul Pty Ltd v Commonwealth of Australia [2016] FCA 1119

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 33ZF of the Federal Court of Australia Act 1976 (Cth) (the Act), The Macquarie Stud, David Baxter and John Baxter be deemed to have effectively opted out of this proceeding notwithstanding that none of them provided an opt out notice to the Court by 9 August 2016 as required by the Orders of the Court made on 12 July 2016 although each of them did provide such a notice to the Court on 22 August 2016.

2.    Pursuant to s 33V and s 33ZF of the Act:

(a)    The settlement of the proceeding be approved upon the terms set out in the Deed of Settlement dated 29 June 2016 (Deed) which is Annexure AJW-2 to the affidavit of Andrew John Watson affirmed on 8 July 2016; and

(b)    The applicants be authorized nunc pro tunc to enter into and give effect to the Deed for and on behalf of Group Members (as defined in the Fifth Further Amended Statement of Claim filed on 16 March 2016 but not including those persons and entities specified in Order 1 above and those persons and entities who opted out of the proceeding by sending to the Court by 9 August 2016 an opt out notice which notices are contained in a folder of documents identified as “Opt Out Notices – Clasul Pty Ltd ACN 010 173 029 v Commonwealth of Australia NSD368/2013” marked as “Exhibit A” in this proceeding).

3.    Pursuant to s 33ZB and s 33ZF of the Act, the persons affected and bound by the orders in par 2 above are the applicants, the respondent and the Group Members other than those who have opted out of the proceeding (as to which see Exhibit A).

4.    All previous costs orders made in this proceeding be vacated.

5.    Order 9 made on 12 July 2016 be vacated.

6.    Pursuant to s 37AF(1)(b) of the Act, the evidence contained in the affidavit of Andrew John Watson affirmed on 23 August 2016 and filed herein (including Annexure AJW-3 thereto) not be published or disclosed without the prior leave of a Judge to any person or entity other than the applicants, the applicants’ lawyers, the Judge with the carriage of the matter from time to time and officers of the Court to whom it is necessary to disclose the evidence.

7.    The proceeding be dismissed:

(a)    With each party to bear his, her or its own costs (as the case may be); and

(b)    Without prejudice to the parties’ ability to relist the matter for the purpose of seeking orders consequential to the Deed or relating to the security lodged with the Court.

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

REASONS FOR JUDGMENT

FOSTER J

1    On 30 August 2016, I made orders approving and giving effect to a settlement of this proceeding. In addition, on the same day, pursuant to s 33ZB and s 33ZF of the Federal Court of Australia Act 1976 (Cth) (the Act), I made an order identifying with precision those group members who would be bound by the settlement and those group members who would not be bound by that settlement.

2    These are my reasons for making the orders which I made on 30 August 2016.

The Settlement

3    The settlement is embodied in a Deed of Settlement dated 29 June 2016 (Deed) between the named applicants, on the one hand, and Commonwealth of Australia (the Commonwealth), on the other hand.

4    A copy of the Deed was tendered in evidence before me at the first hearing in connection with the parties’ application for settlement approval orders held on 12 July 2016 and was also in evidence before me at the second hearing held on 30 August 2016.

5    The substance of the settlement is as follows:

(a)    The whole of this proceeding is to be dismissed.

(b)    Each party is to bear its, his or her own costs of the proceeding and of a related proceeding previously commenced by the first applicant in the Supreme Court of Queensland (Proceeding S8659 of 2009) (the Queensland proceeding).

(c)    The parties are to provide mutual releases and, in the case of the applicants, covenants not to sue the Commonwealth in connection with the subject matter of this proceeding.

6    Thus, under the settlement, the applicants and group members are to receive no compensation whatsoever and are required to bear their own costs of the proceeding and of the Queensland proceeding. The only benefit of substance achieved by the applicants in the settlement is the certainty that they have been relieved from the possibility of a very substantial adverse costs order being made against them. Given the complexity of the proceeding and the significant amounts already spent on costs by the time settlement was achieved, the Commonwealth’s preparedness not to seek costs against the applicants gave something of real value to the applicants at the time when settlement was agreed in principle in late May 2016.

The Applicants’ Claims

7    As at the date of settlement, the then current iteration of the applicants’ pleaded case is contained in their Fifth Further Amended Statement of Claim (ASC).

8    In the proceeding, the applicants alleged that the Commonwealth was guilty of negligence in causing or being responsible for the alleged escape of equine influenza virus (EIV) from the Eastern Creek Quarantine Station (ECQS) during August 2007.

9    The Commonwealth was the lessee and controller of the ECQS. It used those premises for quarantine measures in relation to horses and other animals.

10    Before August 2007, no horse in the general Australian horse population had ever been infected with EIV. In other words, it was a “naive” population.

11    The ECQS was operated by a division of the Commonwealth Department of Agriculture, Fisheries and Forestry (now the Department of Agriculture) called the Australian Quarantine and Inspection Service.

12    The outbreak of EIV in August 2007 quickly spread throughout New South Wales, Queensland and the Australian Capital Territory. In response to that outbreak, the Government imposed restrictions on the movement of horses. These restrictions remained in place in parts of New South Wales and Queensland until 30 June 2008 and in the Australian Capital Territory until 1 July 2008.

13    The Commonwealth used the ECQS for (amongst other things) post-entry animal quarantine for imported horses.

14    Unlike Australia, a number of other countries from which horses were exported to Australia had had experience of EIV prior to August 2007.

15    Accordingly, despite the fact that pre-export quarantine was carried out in those countries before exporting the relevant horses to Australia, there was a risk that horses coming into the ECQS for post-entry animal quarantine could be infected with EIV and that the virus could escape from the ECQS into the naive Australian horse population.

16    During August 2007, six consignments of horses were due to arrive in Australia and were required to undergo post-entry animal quarantine at the ECQS.

17    Between about 17 July 2007 and 6 August 2007, four horses underwent pre-export quarantine on the Japanese island of Hokkaido, prior to being flown to Australia.

18    On about 8 August 2007, those four horses were flown from Japan to Australia and transported to the ECQS.

19    For the purposes of the proceeding, it was agreed amongst the parties that one or more of those four horses was either infected with EIV or was carrying the virus on its body. Further, it was also agreed that EIV was introduced into the ECQS by one or more of those four horses.

20    In the proceeding, the applicants alleged that EIV escaped from the ECQS and into the general Australian horse population by no later than 18 August 2007 by the clothing, body or equipment of a person, or other object carried by a person, who had had contact with EIV within the “equine enclosure” at the ECQS and who had not complied with specified biosecurity procedures.

21    The Commonwealth disputed that fundamental allegation and claimed that EIV had escaped from the ECQS via airborne spread into the general Australian horse population. If that contention were established at trial, the Commonwealth would not have been held liable in the proceeding.

22    The presence of EIV outside the ECQS was first detected on 24 August 2007.

23    As stipulated in the Commonwealth’s pre-2007 policies for handling outbreaks of EIV, stringent movement controls on horses and horse products (quarantine and movement controls and international import suspensions) were immediately put in place. Despite these actions, the EIV quickly spread as described at [12] above.

24    Of the many horses outside the ECQS which contracted EIV, a number died. In addition, there were wide ranging and serious economic consequences for many persons and entities engaged in the horse breeding and racing industries, including the cancellation of racing events and serious disruption to the 2007 breeding season which was due to commence on 1 September 2007.

25    In the ASC, the group members were described as follows:

(a)    Persons who suffered property damage in their capacity as owners (or lessees) of horses which suffered from EIV after the outbreak and who suffered ancillary loss in that capacity;

(b)    Persons who suffered pure economic loss as a result of the movement controls that were implemented to control the outbreak of EIV. This group included the following categories of persons:

(i)    Owners of Australian horses;

(ii)    Owners of imported horses;

(iii)    Agistment businesses;

(iv)    Businesses using Australian horses;

(v)    Businesses using foreign horses;

(vi)    Horse racing clubs;

(vii)    Equestrian clubs;

(viii)    Equestrian centres (ie riding centres);

(ix)    Australian horse transporters;

(x)    International horse transporters;

(xi)    Jockeys;

(xii)    Farriers;

(xiii)    Trainers;

(xiv)    Horse breakers;

(xv)    Bookmakers;

(xvi)    Horse auctioneers;

(xvii)    Bloodstock agents; and

(xviii)    Racing photographers.

26    The class is a closed class, it being a pre-condition to membership of the class that group members must have entered into a litigation funding agreement with the relevant litigation funder, Argentum Centaur El Funding Private Limited (Argentum).

27    In the proceeding, the applicants alleged that the Commonwealth owed a direct duty of care to the applicants and group members to take reasonable care to prevent the escape of EIV from the ECQS as a consequence of the Commonwealth’s capacity as lessee and occupier of the ECQS to control the premises constructed thereon and as a consequence of its capacity to impose such conditions as it thought fit on the entry of others onto those premises.

28    In the alternative, the applicants also alleged that the Commonwealth was vicariously liable for the negligence of a number of its officers and employees.

29    At par 32 of his affidavit affirmed on 23 August 2016 which was read in support of the settlement approval orders claimed by the parties, Mr Julian Schimmel, who was the lawyer at Maurice Blackburn Pty Ltd (Maurice Blackburn) charged with the carriage of the proceeding in the interests of the applicants, said:

The central issues arising in the proceeding are as follows:

(a)    Whether the Commonwealth owed a duty of care to the Applicants and Group Members to take reasonable care to prevent the escape of EIV from ECQS?

(b)    If so, did the Commonwealth breach that duty?

(c)    If so, did that breach cause the harm suffered by the Applicants and the Group Members?

(d)    If so, how is that harm to be quantified by way of damages?

(e)    Can the Commonwealth avoid liability because the officers for whose breach(es) the Commonwealth is said to be vicariously liable are immune by virtue of section 82 of the Quarantine Act 1908 (Cth) (Quarantine Act) from any liability for such damages?

(f)    Can the Commonwealth avoid liability because of the principles in sections 43, 43A and/or 44 of the Civil Liability Act 2002 (NSW) concerning the liability of public authorities?

(g)    Does the principle in Little v The Commonwealth (1947) 75 CLR 94 at 114 prevent the Commonwealth from having any vicarious liability for breach(es) by its officers?

(h)    Do the principles of proportionate liability set out in the Civil Liability Act 2002 (NSW) apply to limit the quantum of any liability the Commonwealth would otherwise have?

(Emphasis in original)

30    At pars 45–62 of his affidavit, Mr Schimmel discussed in more detail the issues which he had identified at par 32.

31    In the course of that brief discussion, Mr Schimmel identified a number of serious difficulties or obstacles standing in the way of the applicants. I need mention only three: The first concerns the question of whether either of the alleged duties of care was owed to the group members in the circumstances of the present case. The second concerns the factual question of precisely how the EIV escaped from the ECQS. The third concerns the question of causation.

32    It is sufficient for present purposes for me to simply note that the applicants’ case was beset by a number of serious obstacles and that success would ultimately depend upon the applicants’ being able to overcome all (not just some) of those obstacles.

Procedural History of the Proceeding

33    On 11 August 2009, the first applicant commenced the Queensland proceeding. In that proceeding, the first applicant made very similar allegations to those which were ultimately made in the present proceeding.

34    On 2 April 2012, the first applicant procured a transfer of the Queensland proceeding to this Court.

35    The present proceeding was commenced on 15 May 2013.

36    In the period from May 2013 to March 2016, the proceeding was readied for hearing.

37    The final hearing was due to commence on 6 June 2016 with an estimated duration of three months.

38    On 14 March 2016, the Docket Judge ordered the parties to mediate the dispute. Mediation was then undertaken under the supervision and control of one of the Court’s senior Registrars. Although the mediation was not initially successful, ultimately, at the end of May 2016, the parties reached an in principle settlement of the entire dispute (including the Queensland proceeding).

The Relevant Principles

39    Justice Moshinsky in Camilleri v Trust Company (Nominees) Ltd [2015] FCA 1468 at [5], summarised the principles developed by the Court when considering whether or not to approve a class action settlement pursuant to s 33V of the Act in the following terms:

The following principles can be distilled from the case law and applicable practice notes regarding applications brought under s 33V of the Act, or cognate provisions in other jurisdictions:

(a)    the central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258; Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 (Williams) at [19]; Wheelahan v City of Casey [2011] VSC 215 (Wheelahan) at [57]-[59]; and Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 (Matthews) at [34];

(b)    there will rarely be one single or obvious way in which a settlement should be framed, either between the claimants and the defendants (inter partes aspects) or in relation to sharing the compensation among claimants (the inter se aspects) – reasonableness is a range, and the question is whether the proposed settlement falls within that range: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 (Darwalla) at [50];

(c)    it is not the task of the Court to ‘second-guess’ or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of decisions, having regard to: the circumstances which are ‘knowable’ to the plaintiffs and their representatives; and a reasonable assessment of risks, based on those circumstances: Darwalla at [50]; Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 6) [2011] FCA 277 at [22]; Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 (Modtech) at [12];

(d)    the list of factors typically relevant to an assessment of the reasonableness of a proposed settlement, set out in Williams at [19], is a useful guide but is neither mandatory nor necessarily exhaustive – it is just a guide (see Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897 at [19]-[20]; Taylor v Telstra Corporation Ltd [2007] FCA 2008 at [65]; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350 at [47]; Mercieca v SPI Electricity Pty Ltd [2012] VSC 204 (Mercieca) at [32]), and additional consideration needs to be given to factors relevant to the fairness of the settlement inter se;

(e)    in relation to the inter se fairness, a particular concern of the Court is to confirm that the interests of the lead plaintiff, or signed-up clients of a given firm of solicitors, are not being preferred over the interests of other group members: see, eg, Rod Investments (Vic) Pty Ltd v Abeyratne [2010] VSC 457 (Abeyratne) at [19]. The arrangement should be framed to achieve a broadly fair division of the proceeds, treating like group members alike, as cost-effectively as possible: see, eg, Mercieca at [37]-[39];

(f)    an important consideration will be whether group members were given timely notice of the critical elements, so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a highly relevant consideration in support of a settlement, and all its elements: see, eg, Abeyratne at [22]; and Mercieca at [38];

(g)    where a group member does object to the settlement, an important further question is whether the objector is prepared to assume the role − and risks – of being lead plaintiff: cf Wong v Silkfield Pty Ltd [2000] FCA 1421 at [24]-[30];

(h)    in relation to provisions for costs-sharing among the successful group members, again an important consideration is where the group members were alerted at an early stage to the potential costs-sharing consequences of subsequent participation in the action: cf Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [46]. It is not, thereafter, the role of the Court to go behind the costs agreements (see Wheelahan at [103]), but rather to satisfy itself that the agreements have been applied reasonably according to their terms;

(i)    further, the level of detail which the Court will require in order to be satisfied that costs have been calculated in accordance with the applicable agreements will vary, depending on factors such as whether the group members are all clients, or include non-client claimants, and the proportion of the settlement funds to be applied to costs.

40    I have found his Honour’s distillation of the relevant principles to be most helpful and I propose to apply those principles in the present case to the extent that they are relevant and of assistance. Obviously, the extent to which any one or more particular factors will be taken into account will always depend upon the circumstances of each individual case.

Consideration

41    The orders which I made on 30 August 2016 were supported by Mr Schimmel’s affidavit and also by a confidential affidavit affirmed by Andrew John Watson on 23 August 2016. One of the orders which I made on 30 August 2016 was to suppress the contents of Mr Watson’s affidavit. Of necessity, the existence of that order constrains the contents of these Reasons for Judgment. However, there are some matters to which I take the view I am permitted to refer and I shall now do so.

Mr Watson’s Evidence

42    Mr Watson is a Principal of Maurice Blackburn. He is a senior legal practitioner with vast experience in conducting class actions on behalf of plaintiffs.

43    In his affidavit, Mr Watson informed the Court of the course of the settlement negotiations which took place between the parties in May and June 2016. I am satisfied that Maurice Blackburn conducted those negotiations in the interests of the applicants and group members as a whole as rigorously and forcefully as the circumstances of the litigation then permitted. By May 2016, those circumstances included the obvious fact that the case was a difficult one for the applicants and the additional difficulty that Argentum had ceased funding the proceeding, leaving Maurice Blackburn out-of-pocket to the tune of many millions of dollars.

44    In relation to the applicants’ prospects of success, Mr Watson recorded in his affidavit the substance of oral advice given in early 2016 by Counsel briefed to appear in the matter. The substance of that advice was subsequently reduced to writing in a detailed and thorough Confidential Opinion tendered before me at the hearing which took place on 30 August 2016. Mr Watson also placed before the Court his own independent assessment of the applicants’ prospects of success.

45    At pars 42–49 of his Confidential Affidavit, Mr Watson explained his reasons and the rationale for the proposed settlement in some detail. In particular, he took into account the following matters:

(a)    The assessment of the applicants’ prospects of success given to him by Counsel earlier in 2016;

(b)    His own assessment of the applicants’ prospects of success;

(c)    The likelihood that the Commonwealth would appeal any adverse decision;

(d)    The fact that Maurice Blackburn had not been paid all of the fees and disbursements rendered to Argentum with the consequence that a very substantial sum was then due to Maurice Blackburn;

(e)    The likelihood that the quantum of the amount ultimately recovered, even if the applicants were largely successful, would not be sufficient to justify the further expenditure of significant funds on legal fees and disbursements for the trial; and

(f)    The prospect that the applicants may suffer an adverse costs order for many millions of dollars in the event that the Commonwealth was successful in defeating the applicants’ claims.

Mr Schimmel’s Evidence

46    In his affidavit, Mr Schimmel proved compliance with the settlement notice and opt out orders which I had made on 12 July 2016.

47    In particular, at pars 92–101, Mr Schimmel provided detailed evidence of such compliance and of group members’ responses to the notice. At those paragraphs, he said:

SECTION C – COMPLIANCE WITH THE SETTLEMENT NOTICE ORDERS

92.    In order to comply with the Settlement Notice Orders, I caused the following steps to be taken by employees of Maurice Blackburn who I supervise and, through my discussion with those employees and my review of the firm’s files and records, I satisfied myself that these steps were in fact taken.

93.    First, in accordance with order 2 of the Settlement Notice Orders, on 15 July 2016 the Notice was sent to the 587 Group Members by post and/or email:

(a)    557 Notices were sent by email only;

(b)    of the 557 Notices that were sent by email, we received 65 delivery failure notifications, so these Notices were re-sent by post;

(c)    29 Notices were sent by post only;

(d)    one additional Notice was sent both by post and by email.

94.    Secondly, between 1 August 2016 and 5 August 2016, Maurice Blackburn received Opt Out Notices from five Group Members who were seeking to opt out of the proceeding. In accordance with order 7 of the Settlement Notice Orders, I caused these Opt Out Notices to be sent to the NSW District Registry of the Court on 8 August 2016.

95.    I also gave instructions to Naomi Hatcher, Trainee Lawyer employed in Maurice Blackburn’s Brisbane office, to contact the NSW District Registry in order to inspect the Court file to ascertain the number of Group Members who filed Opt Out Notices. As at the date of affirming this affidavit, a total of 43 Opt Out Notices have been lodged by Group Members (including the five Opt Out Notices received by Maurice Blackburn as described above).

SECTION D – RESPONSE OF GROUP MEMBERS TO THE SETTLEMENT

96.     Order 4 of the Settlement Notice Orders provides that if any Group Member wishes to oppose the Proposed Settlement, they may provide to Maurice Blackburn a written notice outlining the reasons why they oppose the settlement.

97.    As at the date of affirming this affidavit, Maurice Blackburn has not received any written notices of objection from Group Members.

98.    I am informed by Ms Hatcher that since sending the Notice to Group Members on 15 July 2016, Maurice Blackburn has received a total of 64 inquiries by telephone, email or post from Group Members in relation to the Proposed Settlement.

99.    Subject to supervision by Ms Oliver and me, these inquiries have been primarily handled by Ms Hatcher, Geramie Bruno (Paralegal employed by Maurice Blackburn) and Jordan Mathas-Carleton (Paralegal employed by Maurice Blackburn). Where the inquiries were complex, they were escalated to Ms Oliver. Where necessary, I provided instructions to Ms Oliver, Ms Hatcher and the paralegal team as to how to respond to specific inquiries by Group Members.

100.    For the purpose of this affidavit, the information in relation to Group Members’ responses to the settlement has been provided to me by Ms Oliver, Ms Hatcher, Mr Bruno and Mr Mathas-Carleton.

101.    Of the 64 enquiries received by Maurice Blackburn, the main themes raised by Group Members were:

(a)    the nature of the opt out process and next steps;

(b)    the reasons for the settlement; and

(c)    whether there were any cost consequences in opting out or remaining in the class action.

48    On 30 August 2016, I placed all of the Opt Out Notices received by the Court and also those Opt Out Notices which had been forwarded to the Court by Maurice Blackburn into a folder and marked that folder, its index and its contents as Exhibit A. That folder contains Opt Out Notices for 44 persons and entities. Forty-three of those persons opted out on or before the due date (9 August 2016) and one opted out after the due date (on 22 August 2016) but provided a satisfactory reason for doing so out of time. In respect of that person (David Baxter), I made a specific order permitting him to opt out (as to which, see Order 1 made on 30 August 2016).

49    More recently, on 2 September 2016, a further Opt Out Notice was received by the Court from Harry Fowler. Mr Fowler did not provide any reason as to why his Opt Out Notice was forwarded to the Court so long after the due date. I am not prepared to allow Mr Fowler to opt out in those circumstances. His Opt Out Notice will be placed into the folder forming part of Exhibit A and will be marked as “MFI-1”.

Decision

50    I have carefully considered Mr Watson’s assessment of the applicants’ prospects of success. I have also carefully considered the opinion of Counsel directed to that matter expressed both orally and in writing. I have also weighed in the balance the twin circumstances that the applicants are currently unfunded and that Maurice Blackburn is apparently owed many millions of dollars in unpaid legal fees and disbursements.

51    The case is somewhat unusual in that neither the applicants nor any of the group members are to receive any compensation as part of the settlement. Nor is Maurice Blackburn to be paid any sum on account of fees and disbursements rendered to Argentum. Nor is Argentum to be paid anything at all. These essential features of the settlement were disclosed with clarity in the Notice of Settlement and Opt Out Notice which I ordered to be published and circulated as part of the orders made on 12 July 2016. I am satisfied that the essence of the settlement was notified to most (if not all) of the group members. Many enquiries were received from group members and quite a number have opted out.

52    Finally, I wish to record that no group member attended at Court either on 12 July 2016 or on 30 August 2016 in order to oppose the making of the settlement approval orders.

53    In the end, it seemed to me that the applicants had very little choice but to accept the only offer that the Commonwealth was prepared to make.

54    For all of the above reasons, I made the requested settlement approval orders and other orders on 30 August 2016 in respect of which these Reasons are now published.

Associate:

Dated:    13 September 2016