FEDERAL COURT OF AUSTRALIA

Capic v Ford Motor Company (No 2) [2016] FCA 1178

ORDERS

THE COURT ORDERS THAT:

1.    The respondent’s interlocutory application be dismissed with costs.

2.    The parties bring in orders in relation to the amendment issues within 7 days.

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

REASONS FOR JUDGMENT

PERRAM J:

1    There are two applications before the Court. The first is an application for security for costs by the respondent to the action, the Ford Motor Company of Australia Limited (‘Ford’). The second is an application by the lead applicant to remove certain persons from the class.

2    The background to the class action is set out in my previous judgment in Capic v Ford Motor Company of Australia Limited [2016] FCA 1020. These reasons assume a familiarity with those reasons. Briefly, the lead applicant, Ms Capic, sues Ford on her own behalf and on behalf of a class of persons who have purchased vehicles manufactured by Ford which are alleged to be suffering from a defective transmission.

1.    Security for costs

3    Ford seeks to have Ms Capic put up $365,000 by way of security to cover Ford’s costs to the close of the pleadings. Although Ms Capic is not impecunious, it was not suggested by either party that her assets would be sufficient to enable security to be provided by her alone. This is certainly true in relation to the first tranche of security sought by Ford for the period to the close of the pleadings. It is even more obviously true in relation to Ford’s future legal costs, which in a class action about the transmissions in mass-produced vehicles are likely to be significant.

4    It is therefore not in doubt that if security were to be ordered, Ms Capic would be unable to provide it. In ordinary litigation this might rather suggest that the effect of ordering security would be to stifle the action. This would be a significant matter, as I accept that the case presented by Ms Capic is a real one which warrants a hearing. The material before me on the present application suggests, if ultimately accepted, that the transmissions in question display a range of deviant behaviours unsatisfactory from a consumer’s point of view and perhaps suggestive of the existence of a problem. There are two sides to every case, and Ford has not yet been heard. Regardless, the case may not, however, be all plane sailing. Mr Scerri QC, who with Ms Anderson of counsel appeared for Ford, emphasised what he submitted were difficulties with the quantum aspects of the case. In particular, the amount of compensation being sought in the class action appeared to be the diminution in the value of the cars caused by having a defective transmission. In relation to older vehicles, ravaged by depreciation, any diminution in value caused by the transmissions was not likely to be very much. One third of not very much is not very much. Even with the newer vehicles, the quantum was probably not very large. This was said to be particularly relevant where Ford and its dealers remained willing to repair the vehicles under warranty and where, additionally, that warranty had been extended. When legal costs were taken out of any future judgment monies it was, so he submitted, far from obvious that the class members would be better off in the class action than they would be just taking the cars in question to a Ford dealer for repair.

5    I can certainly see some force in those observations. However, I do not feel that they allow me to conclude that Ms Capic’s case is unmeritorious, or that the difficulties identified ought to lead me to regard the case as being de minimis.

6    However, this case is not ordinary litigation. It is a class action, and there are very many Ford vehicle-owning group members who Ms Capic represents that stand behind her. These persons may benefit from Ms Capic’s proceeding. It is a well-established principle in relation to security for costs that security may be ordered against a party who brings an action where it appears that the party may not be able to meet an adverse costs order but where it also appears that the party is suing for the benefit of other persons. On its face, this appears to be just such a case.

7    Why should not the class members, if able to put up security, not be required to do so? If security is not put up and Ford succeeds in its defence, there is no doubt that it will be left out of pocket for its costs, without the possibility of recourse against anyone except Ms Capic (who cannot pay). There is thus a real risk of injustice which must be taken into account: Madgwick v Kelly (2013) 212 FCR 1 at 37 [144] per Jessup (‘…the injustice … is self-evident’). Mr White of counsel, for Ms Capic, endeavoured to persuade me that this injustice was not perhaps as severe as it first appeared. True it was that Ford might never recover its costs in the class action, but if instead of a class action it had been sued by a multitude of vehicle owners in separate and disparate proceedings, these claims would most likely have been in statutory tribunals in which costs could not be awarded. Indeed, as Mr White submitted, Ford might well be better off in the class action from a costs perspective than facing a sea of such claims in no-cost jurisdictions. Mr Scerri QC, for Ford, lacked Mr White’s enthusiasm for this procedure. Correctly, with respect, he submitted that there was an element of speculation in the argument. That element, to my mind, is derived from an unwarranted assumption that outside the class action individual vehicle owners would actually sue Ford.

8    So the potential injustice for Ford is real. Despite injustice of that kind, it was once thought that individual group members ought not generally be ordered to put up security. This view rested upon s 43(1A) of the Federal Court of Australia Act 1976 (Cth) (‘the FCA Act’), which provides that, subject to two presently irrelevant exceptions, a group member may not be ordered to pay costs. If a person may not be ordered to pay costs, so goes the reasoning, how can they be ordered to put up security for those costs? An example of this style of reasoning may be seen in Ryan v Great Lakes Council (1998) 155 ALR 447 at 455 per Lindgren J.

9    However, a different view has come to prevail. It rests in part on s 33ZG of the FCA Act which provides:

33ZG Saving of rights, powers etc.

Except as otherwise provided by this Part, nothing in this Part affects:

(a)     the commencement or continuance of any action of a representative character commenced otherwise than under this Part; or

(b)     the Court’s powers under provisions other than this Part, for example, its powers in relation to a proceeding in which no reasonable cause of action is disclosed or that is oppressive, vexatious, frivolous or an abuse of the process of the Court; or

(c)     the operation of any law relating to:

(i)     vexatious litigants (however described); or

(ii)     proceedings of a representative character; or

(iii)     joinder of parties; or

(iv)     consolidation of proceedings; or

(v)     security for costs.

10    The ‘Part’ referred to in the first line is Part IVA which is entitled ‘Representative Proceedings’, and which is the part of the FCA Act which contains most (but not all) of the rules regulating class actions. Section 33ZG appears to be saying that Part IVA has no impact on the law relating to security for costs. On its face, this may appear to be a good reason to think that security should still be available from class members despite s 43(1A). One difficulty with that view might be, however, that s 43(1A) is not contained in Part IVA at all, but instead in Part VI, which is entitled ‘General’ (a point made by Lindgren J in Ryan). Section 43 is in fact the general costs provision in the FCA Act. For myself, and uninstructed by more recent authority, I would have thought that s 33ZG does not, indeed cannot, say anything about s 43(1A) since it is not in Part IVA. They pass like ships in the night. And, if that be so, it would appear quite open to argue that if one cannot order costs against a group member, then one ought not to be able to make an order whose substantive effect is to require group members to put up security. A weaker version of the argument might be that it is at least a very significant discretionary consideration.

11    However, like the Mary Rose this ship has sailed. In Bray v F Hoffmann-La Roche Ltd (2003) 130 FCR 317, the Full Court was confronted with a class action concerned with alleged price fixing in the vitamins market. Some of the class members – like Ms Bray – were individuals, but many were large entities located at various points along the vitamin supply chain. Ms Bray was not able to put up security, although there was no suggestion that she had been put up as a ‘straw woman’. The critical feature in the case appears to be that the Full Court apprehended that there were large entities (i.e. retailers and so on) standing behind Ms Bray that could afford to put up security for costs. The Court was unanimous in that context in concluding that s 43(1A) did not have the effect of preventing security from being ordered. The principle was recently reaffirmed by the Full Court in Madgwick v Kelly (2013) 212 FCR 1 at [6]. It was nevertheless held in that case that it was still legitimate to take into account in assessing whether to order security the fact that costs could not, by dint of s 43(1A), be ordered against an individual class member (at [6]).

12    The outcome of these two decisions is that the fact that costs may not be awarded against class members is a relevant matter to be taken into account, but does not necessarily provide a basis for refusing an application for security for costs.

13    In principle, therefore, it is no objection to the making of a security order against Ms Capic that it may have the eventual practical effect of requiring the class members, or some of them, to put up security. In some cases it may be obvious that the class composition is such that if class members are given a choice between, on the one hand, putting up security for any costs the lead applicant is ordered to pay and, on the other hand, seeing the class action stayed, many may choose to provide the security.

14    However, once it is accepted that it is permissible to contemplate that the class as a whole might have to put its hand in its pocket, the question then arises whether requiring it to do so in a particular class action might have the effect of stifling the case. An assessment of that issue arises against a backdrop in which traditionally it has been held that it is the party against whom security is sought who bears the onus of proving that a security order will stifle the litigation. This takes on a more complex hue in a class action because it will not necessarily be easy for such a party to prove what might happen if security is ordered. In many cases there may be difficulties in ascertaining the asset position of class members and their willingness to contribute security if asked. In the Madgwick litigation this eventually led to notices being sent to class members informing them of the security order, asking them to contribute and indicating what might happen if they did not: see Kelly v Willmott Forests Ltd (in liq) (No 2) [2013] FCA 732 and Kelly v Willmott Forests Ltd (in liq) (No 3) [2014] FCA 78. As events transpired, some did contribute and some did not. The primary judge ultimately removed from the class those who had not contributed, and permitted the security which had been pledged by the remaining class members to be put up. A similar course is observable in the judgment of Beech-Jones J in De Jong v Carnival PLC [2016] NSWSC 347. There notices were sent out to gauge the class members’ willingness to pay.

15    Obviously enough this is a cumbersome and expensive process. It also gives rise to complex issues about what to do if some class members provide security and some do not. One solution, ultimately deployed in Madgwick, is to remove the free-riders from the class. That sounds fair on its face, but it may be seen to have the somewhat undesirable consequence of removing from the class not only those free-riders who are able but unwilling to pay, but also those who are unable to do so. It is not self-evident that Part IVA of the FCA Act was intended to operate to permit the well-resourced to pursue their claims whilst debarring those of lesser means. Indeed, the Attorney-General’s remarks on the introduction of the bill introducing Part IVA rather suggest to the contrary:

Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person’s loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action.

16    On the other hand, if the step of ‘de-classing’ a free-rider cannot permissibly be taken (or if permissible, is not in fact taken), one is left with the difficulty of an unequal bearing of the burden between different classes of group member. How that is to be reflected when it comes to distributing any compensation eventually won is a question of some subtlety.

17    Superimposed on top of that problem in relation to those members who are removed from the class (assuming that can be done) is the procedural wrinkle that such a removal can create no issue estoppel or res judicata in favour of the respondent. In this case, for example, if 20,000 vehicle owners failed to put up security and were excluded from the class, this would open the possibility for Ford to be sued again in a second class action by those excluded members.

18    Be this as it may, in cases where it is plain that substantial class members are standing behind a lead applicant, this may provide a sufficient reason to run these various gauntlets. But I do not think in this case that I should proceed on the basis that there are such well-resourced class members standing behind Ms Capic. It is, of course, quite possible that there are car fleet owners using the vehicles in question and they may well ultimately benefit from the litigation. But I see no signs that they are opportunistically sheltering behind Ms Capic’s limited means. Indeed, the fact that the class action is presently unfunded and that Ms Capic’s lawyers are working on a no-win no-fee basis suggests little enthusiasm on the part of any such entity (assuming any exist). An additional reason for discounting their role is the one I have already adverted to, which is the difficulty I see for the litigation if some only of the class puts up security.

19    For those reasons, in this case I do not propose to order security. The individual claims in this case are not worth a great deal. A new Ford Fiesta costs around $20,000. I do not think it likely that the claims per vehicle are worth more than $10,000 at the very outside. I refuse to speculate about what the financial position of the owners of the Ford Fiesta, Focus or EcoSport might be. I take little comfort from the evidence led on Ms Capic’s behalf that by reference to the postcodes of the owners who have contacted her solicitors, it would appear that those owners live in suburbs with a slightly higher than average annual income. Instead, it seems safer to proceed on the basis that the class of owners has amongst their number persons from most socio-economic groups, with the largest group being middle class people of roughly average wealth.

20    It is possible that if this group were circularised and asked to pledge money in order to keep the class action alive, some of its members might do so. However, I think it unlikely that consumers in any reasonable number would do that or that, in total, whatever modest sum was raised would justify the administrative complexity in obtaining it or managing the complex intra-class relations to which it would inevitably give rise.

21    It seems to me to follow that if I were to order security to be provided in this case it would for all intents and purposes stifle the action. Even if some part of the case spluttered on after such a body blow so that it could not be said that the case was wholly stultified, this would not change my mind. In this area I am not per se required to order security if the applicant fails to prove stultification: Madgwick v Kelly (2013) 212 FCR 1 at [81]. It is true, I accept, that the lawyers for Ms Capic are acting on a no-win no-fee basis at this point, and that the costs recoverable by them if the class action succeeds may well exceed the fees which might be payable by Ford under an adverse costs order. To that extent, it is possible that some of the damages awarded may ultimately find their way into the lawyers’ hands. However, I do not think for the purposes of the issue of stultification that attorneys in that position are to be seen as standing behind the action. A similar conclusion was reached in Madgwick and in Bray.

22    As I have already mentioned, it is also not irrelevant that no litigation funder has yet come forward to fund the case. Attempts have been made by Ms Capic’s lawyers to obtain funding, but thus far these have not been successful. One application for funding remains on foot, but is not expected to be resolved in the near future. For myself, the issue of litigation funding appears to be a neutral consideration in the current context.

23    In those circumstances, I do not propose to order security for costs. Ford’s application will be dismissed with costs.

2.    Removing Class Members

24    The lead applicant, Ms Capic, applies for leave to amend her statement of claim by varying the definition of the class in a way which would reduce its size.

25    As presently drafted, the statement of claim identifies the class members as persons who acquired a Ford ‘Affected Vehicle’ between January 2011 and 11 May 2016. ‘Affected Vehicle’ is defined in the pleading as Ford motor vehicles fitted with a ‘PowerShift’ transmission identified in a table. Ford has filed a defence to those allegations, which distinguishes Ford vehicles which were fitted with a dry clutch PowerShift transmission from those fitted with a wet clutch PowerShift transmission. The difference is that petrol powered vehicles are fitted with a dry clutch transmission, whereas diesel vehicles are fitted with the wet clutch transmission.

26    Ford denies in the case of its diesel vehicles the existence of the difficulties alleged by Ms Capic. Her solicitors now say that they defined the class to include diesel vehicles only as a result of an error. They had in fact intended only to make the claim in relation to the dry clutch vehicles. They accept that Ford’s denial is correct in the case of the diesel vehicles.

27    One has the situation therefore that the class currently includes the owners of diesel vehicles. Amendments now proposed by Ms Capic would have the effect of amending the class definition so as to remove the owners of the diesel vehicles. The Court has power to grant leave to amend the description of the group: s 33K. Although the text of s 33K seems more particularly directed at the situation where additional group members are added, the text is wide enough to embrace reducing the size of a class as well.

28    In many cases, difficult issues could arise about the power to reduce the size of a class. The Court would need to be satisfied, generally, that the interests of those group members who were to be removed had been adequately addressed.

29    In this case, this would require me to form a view about the worth of the claims of diesel vehicle owners. The agreement between Ford and Ms Capic’s lawyers that there was no such case would appear to weigh heavily in favour of the view that such claims have no value. However, during the hearing this issue was complicated when it appeared that six diesel vehicle owners had signed up for the class action through the class action website. This constituted some material, at least, suggesting that there were diesel vehicle owners who think there is a problem with the transmission. This contrasts with the position of Ford and Ms Capic’s lawyers that there is no such problem.

30    After the conclusion of argument, two further affidavits were filed on Ms Capic’s behalf. These revealed that the solicitors had made contact with the six individuals involved. In the case of five of them, they did in fact own petrol vehicles. In the case of one, a vehicle was owned which was not within the class definition at all.

31    In those circumstances, I am satisfied that it is appropriate to grant leave to amend in the manner sought. There were other amendment issues which the parties were seeking to progress between them. At this stage, I will simply direct the parties to bring in a minute of appropriate orders giving effect to these reasons and any other matters they might also have agreed.

Associate:

Dated:    30 September 2016