FEDERAL COURT OF AUSTRALIA

Simonetta v Spotless Group Holdings Limited [2017] FCA 1071

ORDERS

THE COURT ORDERS THAT:

1.    The discontinuance of this proceeding be approved pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (the Act).

2.    Leave be granted to the applicants to discontinue the proceeding by filing a notice of discontinuance.

3.    Pursuant to s 37AF(1) of the Act, and on the ground that it is necessary to prevent prejudice to the proper administration of justice, the documents exhibited to the affidavit of Bill Petrovski sworn 21 July 2017 and marked “BP-2” be kept confidential and not be disclosed to any person without the leave of the Court.

4.    There be no order as to the costs of the proceeding.

THE COURT DECLARES THAT:

5.    Orders 1 and 2 do not affect any rights of the applicants or any group member in the proceeding to pursue the claims that are the subject of this proceeding in another proceeding.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    The applicants seek the Court’s approval, pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (the Act), to discontinue this proceeding.

2    The proceeding is a representative proceeding commenced under Pt IVA of the Act in which orders for compensation have been sought against the respondent, Spotless Group Holdings Limited, in relation to alleged contraventions of its continuous disclosure obligations under s 674(2) of the Corporations Act 2001 (Cth) (the Corporations Act), and for misleading or deceptive conduct in contravention of s 1041H of the Corporations Act, s 12DA(1) of the Australian Securities and Investment Commission Act 2001 (Cth) and/or s 18(1) of the Australian Consumer Law (NSW) and the Australian Consumer Law (Vic). In essence, the applicants allege that, at a certain time, the respondent changed its accounting policy in a particular respect and failed to disclose that change to the detriment of the applicants and the group members.

3    The group members are persons who or which:

    obtained an interest in ordinary shares in the respondent in the period from 25 August 2015 to 9.30 am on 2 December 2015 (inclusive) by the purchase of those shares on the financial market operated by the Australian Securities Exchange Limited (the ASX);

    suffered loss or damage by reason of the contraventions alleged; and

    are not a “related party”, a “related body corporate”, an “associated entity” or an “officer” or a “close associate”, within the meaning of the Corporations Act.

4    The applicants and 21 group members have entered into funding agreements with IMF Bentham Limited (IMF) and retainer agreements with the applicants’ solicitors, William Roberts Lawyers.

5    The proceeding was commenced on 24 February 2017. The first case management hearing was listed on 10 April 2017. I was asked to vacate that hearing. A further case management hearing was listed on 8 May 2017. On that day, I made orders that the respondent provide certain documents to the applicants by 19 May 2017. At that case management hearing, the respondent made clear its view that the applicants’ claims were based on mistaken facts. The respondent said that there had been no change in its accounting policy, as alleged.

6    The documents produced by the respondent were given to IMF. On 20 June 2017, IMF made an announcement to the ASX in which it stated:

IMF announces that following consideration of information that became available after the proceedings commenced, it has decided that, subject to the court’s approval of the terms of the discontinuance of the proceedings, it will cease funding the claims against Spotless and will write off the investment to date. IMF anticipates that this will result in a loss on the investment not exceeding $510,000 and that any such loss would be recognised in FY17. IMF’s investment portfolio will be adjusted in the next quarterly update to reflect the withdrawal.

7    On 3 July 2017, the applicants filed the present interlocutory application seeking the Court’s approval to discontinue the proceeding. The application is supported by two affidavits made on 21 July 2017 by Mr Petrovski, the applicants’ solicitor. One of the affidavits has been filed as a confidential affidavit.

8    The respondent supports the application for approval.

9    Another representative proceeding against the respondent has been commenced in the Court: Alison Court v Spotless Group Holdings Limited VID561/2017. The claims in that proceeding do not explicitly overlap with those made in this proceeding. However, the other proceeding relates to substantially the same period and is based upon the same statutory provisions for relief. The definition of the group members is similar.

10    There is also evidence that a further class action against the respondent is in prospect or is, at least, in contemplation.

The present application

Principles

11    Section 33V of the Federal Court Act provides:

(1)    A representative proceeding may not be settled or discontinued without the approval of the Court.

(2)    If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.

12    In Mercedes Holdings Pty Limited v Waters (No 1) [2010] FCA 124 (Mercedes Holdings) at [10] and [24], Perram J said that the question arising on an application for discontinuance is whether the proposed discontinuance would be fair and reasonable not only in the interests of the immediate parties but of the group members as a whole. In Laine v Thiess Pty Ltd; Beetson v SunWater Limited [2016] VSC 689 (Laine), Dixon J analysed the matter somewhat differently by considering whether the discontinuance would be unfair or unreasonable or adverse to the interests of group members: see at [34]. The applicants suggested that the approach in Laine might be more apt where, as here, the practical effect of the discontinuance, if approved, will be to do no more than return group members to the position they were in before the commencement of the proceeding. I think there is some merit in that submission but, as the question was not addressed in any detail, and as my consideration of the present application does not turn on any difference between the approach in Mercedes Holdings and the approach in Laine, I will refrain from expressing any concluded view on it.

13     It is certainly not doubted that the interests of group members must be taken into account. In Wotton v State of Queensland [2009] FCA 758 (Wotton) Rares J at [40] said:

40    The Court has an important responsibility of safeguarding the interest of group members as a whole under s 33V(1). There is a danger that when a settlement is reached or a discontinuance is agreed, the interests of the actual parties to the proceedings may receive their paramount consideration while the impact on group members may not be fully or properly addressed. That is why in exercising the power under s 33V(1) to approve a settlement or discontinuance the Court must scrutinise with great care the way in which any order is formulated. In the decided cases the Courts have approached settlements with a keen eye to ensuring that the interests of group members are vouched safe: see eg Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258B-C per Branson J; McMullin v ICI Australia Operations Pty Ltd (1998) 84 FCR 1 at 3C-E per Wilcox J; Courtney 122 FCR at 181 [45] per Sackville J and Vernon v Village Life Ltd [2009] FCA 516 at [64]-[68] per Jacobson J.

Conclusion and reasons

14    I am persuaded that approval to discontinue should be given in the present case. I accept that it is impracticable for the applicants to continue to prosecute the proceeding in the absence of funding and in the face of what seems to be, on Mr Petrovski’s evidence, the unlikelihood of alternative funding being obtained.

15    The respondent says that IMF’s withdrawal of funding stands as recognition that the applicants’ case is based on a fundamental factual error concerning the alleged change to the respondent’s accounting policy. The sequence of events in relation to the provision of the respondent’s documents to IMF, and the timing of IMF’s decision to withdraw funding, would support that conclusion. Indeed, IMF’s announcement to the ASX (quoted at [6] above) draws a direct connection between the receipt of this information and its decision to cease funding the action. Be that as it may, the immediate fact is that the applicants are now without future funding and there does not seem to be any realistic prospect of alternative funding being obtained, even if the applicants were minded to seek such funding (which, on the evidence, they are not).

16    I am satisfied that, by giving the approval that is sought, the interests of group members will not be adversely, materially affected. The applicants have entered into a confidential agreement with the respondent that does not purport to release any claims that group members might have against the respondent. The funded group members will not be liable to pay any of the costs of the proceeding. IMF has also waived its right to seek recoupment for costs from funds which the funded group members might recover against the respondent in other proceedings.

17    William Roberts Lawyers and IMF have corresponded, separately, with funded group members, informing them of the application for approval to discontinue. Previously, IMF had also issued the ASX release to which I have referred. No funded group member has indicated an interest to be heard on the application or has indicated an interest to replace the applicants as representative parties.

18    There is no looming limitation problem should any group member wish to privately pursue the respondent on the claims pleaded in the statement of claim, although the viability of those claims is clearly in doubt given the circumstances in which the present application comes to be made.

19    Section 33X(4) of the Act requires that, unless the Court is satisfied that it is just to do so, an application for approval of a settlement under s 33V must not be determined unless notice has been given to group members. The absence of reference to notice being required in relation to an application under s 33V(1) to discontinue a proceeding is conspicuous. In this connection, s 33X(4) of the Act stands in contrast to the corresponding provision (s 33X(4)) of the Supreme Court Act 1986 (Vic), which requires notice to be given in relation to both approvals of settlements and approvals to discontinue, subject to the Supreme Court’s discretion to dispense with such notice: see, in that connection, Laine at [36]-[41]. I am satisfied that s 33X(4) of the Act does not require notice of the present application to be given to group members.

20     I note, however, that s 33X(5) of the Act provides that the Court may, at any stage, order that notice of any matter be given to a group member or group members. The parties have not suggested that, here, notice of the application for approval to discontinue should be given under s 33X(5). Indeed, on the assumption that, contrary to their own submission, s 33X(4) requires notice to be given, the applicants in fact argue that any such requirement should be dispensed with in the particular circumstances of this case.

21    Before dealing with those arguments, I note that s 33Y(5) of the Act provides that the Court may not order that notice be given personally to each group member unless it is satisfied that it is reasonably practicable, and not unduly expensive, to do so. Certainly in the case of opt out notices, it is the practice of the Court that, where group members are, or are likely to be, identifiable from a respondent’s shareholder records, the parties should, subject to any clear statutory or legal obligations requiring otherwise, cooperate with a view to using those records as the basis for a direct mail or email distribution of such notices: GPN-CA, 11.3.

22    Here, the evidence suggests that the identity of the group members, other than the funded group members, is not known. Given the particular circumstances of the present application, I am not inclined to put the parties to further expense in seeking to ascertain the identity and addresses of all possible group members for the purposes of giving notice of the present application. Thus, if notice were to be given, I would not be persuaded that personal notice to each group member is practicable or can be given without undue expense. It would only be practicable for notice to be given by public means, such as those noted in s 33Y(4) of the Act, namely by press advertisement, or radio or television broadcast.

23    Returning to the applicants’ arguments for dispensation of any requirement to give notice, the applicants point, firstly, to the lack of response from the funded group members who were given notice of the applicants’ intention to discontinue the proceeding. The applicants argue that the lack of response from these group members is indicative of a likely lack of response from other group member should separate notice of the present application be given.

24    Secondly, in respect of unfunded group members who are unaware of the present proceeding, the applicants argue that such a notice is likely to be confusing. I doubt that that would be so. It is more likely that such group members would be oblivious to the kind of public notice that would be given in the present case, thus bringing into question, at the outset, the utility of such a notice.

25    Thirdly, in respect of unfunded group members who might be aware of the present proceeding, the applicants argue that it is likely that such group members will, in due course, receive opt out notices from the other proceeding in the Court to which I have referred and, if confused about the status of the present proceeding, contact the solicitors for the applicants in the other proceeding for clarification.

26    I do not consider that argument to be at all persuasive. First, I cannot speculate about what may happen in the other proceeding or about what notices may or may not be given, or when they might be given, in that context. Secondly, although the definition of group members in each proceeding is similar it is not the same. Thirdly, if notice were required to be given in relation to the present application, or if I came to the view that notice should be given in any event, I do not think that the obligation to do so would be satisfactorily discharged by the incidental means suggested by the applicants.

27    I have come to the view that there is little utility in giving notice of the present application to group members. As I have stated, from the point of view of expense and convenience it would only be practicable to give such a notice by public means. The only persons likely to have an interest in such a notice would be unfunded group members who not only have knowledge of the proceeding but an active interest in it. I have no way of knowing how large (or small) that group might be or, indeed, if there are any such persons. However, I can confidently predict that members of this cohort, if any, are unlikely to voice any real or substantive objection to approval being given, having regard to the fact that:

    funding has been withdrawn and alternative funding is unlikely to be obtained, seen in the context of the overall likely cost of the litigation;

    the only effect of the discontinuance will be to return group members to the position they were in before the proceeding commenced;

    such persons are likely to conclude, reasonably, that IMF’s funding was withdrawn because of a reappraisal of the viability of the proceeding in light of new information coming to hand after the proceeding had been commenced.

28    I think it is also reasonable to assume that, if there are any such persons, they will take steps to inform themselves of the status of the proceeding, including by communicating with the applicants’ solicitors. I infer from Mr Petrovski’s evidence that the only persons who have thus far expressed real interest in the proceeding are the funded group members.

29    The applicants also seek a declaration that the approval of the discontinuance does not affect any rights of the applicants or any group member to pursue the claims in this proceeding in another proceeding. In Wotton, Rares J granted a similar kind of declaration in the unusual circumstances of the case before him. Although the circumstances are quite different here, I nevertheless think there is utility in making such an order. I accept that it is desirable that group members are not left in any doubt that any rights they might have against the respondent are left intact and are not affected by the discontinuance that is approved.

30    There remains a question as to the confidentiality of Mr Petrovski’s second affidavit. The applicants seek an order that the entirety of the affidavit and its exhibits be kept confidential. In my view, the order that is sought is far too broad, particularly as a number of matters disclosed in the text of the affidavit have been repeated in the applicants’ written submissions that were deployed in open court to support the application. The applicants’ oral submissions also canvassed, in open court, a number of matters claimed to be confidential. Nevertheless, I am satisfied that it would be appropriate to make a confidentiality order in respect of the documents that are exhibited to the affidavit as “BP 2”. I note that the documents in this exhibit comprise arguably privileged material and also a copy of a confidential deed entered into between the applicants and the respondent. The respondent supports the maintenance of confidentiality in respect of that document.

Disposition

31    Orders substantially as sought, save as to the question of confidentiality, will be made.

Associate:

Dated:    8 September 2017