FEDERAL COURT OF AUSTRALIA

Impiombato v BHP Billiton Limited [2018] FCA 1272

ORDERS

THE COURT ORDERS THAT:

1.    Subject to further order, with reference to the Funding Terms (being Annexure A to these orders as may be further modified as the Court thinks fit) and pursuant to ss 23 and 33ZF of the Federal Court of Australia Act 1976 (Cth) and r 1.32 of the Federal Court Rules 2011 (Cth) and/or the implied power of the Court (or any of them), the Court directs that, upon Resolution:

(a)    all Resolution Sums are to be paid to, and received by, the Lawyers and paid immediately into a Trust Account kept for that purpose;

(b)    if, despite (a) above, the Applicant or any Group Member directly receive any amounts in respect of a Settlement or judgment of some or all of the Claims, he, she or it will cause the money, or an amount being the market value of the asset or benefit received, to be paid to the Lawyers to be dealt with as part of the Resolution Sum; and

the Lawyers pay from any Resolution Sum held in the Trust Account the amounts referred to in clause 4.1 of the Funding Terms in accordance with the Funding Terms, prior to any distribution to the Applicant and Group Members in accordance with any distribution scheme approved by the Court.

2.    Paragraph 1 of these orders is subject to the provision of an undertaking by each of G&E KTMC Funding LLC, the Applicant, and Phi Finney McDonald Pty Ltd to each other and to the Court in the terms set out in Annexure B to these orders (being that they will comply with their obligations under the Funding Terms (being those in Annexure A as may be further modified as the Court thinks fit) and the terms of paragraph 1), such undertakings to be given within seven days of the making of these orders.

3.    By 4.00 pm on 14 September 2018, the respondent file and serve evidence in support of the claims for relief made by it in the interlocutory application filed on 27 July 2018 (Stay Application).

4.    By 4.00 pm on 5 October 2018, the applicant file and serve any evidence in support of his arguments as to why the relief claimed by the respondent in the Stay Application should be refused.

5.    By 4.00 pm on 12 October 2018, the respondent file and serve any evidence in reply in respect of the Stay Application.

6.    By 4.00 pm on 19 October 2018, the respondent file and serve written submissions in support of the claims for relief made in the Stay Application.

7.    By 4.00 pm on 24 October 2018, the applicant file and serve written submissions setting out his arguments as to why the relief claimed by the respondent in the Stay Application should be refused.

8.    If Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) (Klemweb) commences a proceeding against the respondent, the documents in paragraphs 3 to 7 be served on Klemweb.

9.    The Stay Application, and any issue regarding the consolidation or selection of proceedings, be listed for hearing at 10.15 am on 29 October 2018, on an estimate of one day.

10.    Costs be reserved.

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

ANNEXURE A

BHP BILLITON LTD SHAREHOLDER CLASS ACTION

FUNDING TERMS

1.    Definitions and interpretation

1.1    The following definitions apply in these Funding Terms:

1.2    Unless the context otherwise requires, the following rules of interpretation apply to these Funding Terms:

1.2.1    a reference to any agreement or document is a reference to such agreement or document as validly amended, varied, restated, assigned or novated from time to time (in each case, other than in breach of the relevant agreement or the provisions of these Funding Terms, in which case it shall remain a reference to such agreement or document immediately prior to such amendment); and

1.2.2    a reference to any legislation or legislative provision includes any statutory modification, amendment or re-enactment of that legislation or legislative provision, and includes any subordinate legislation or regulations issued under that legislation or legislative provision.

2.    Funding Agreements and Retainer Agreements

2.1    For the duration of the Funding Period, these Funding Terms will prevail over:

2.1.1    any inconsistent provision in the Funding Agreements which, subject to these Funding Terms, shall continue in full force and effect; and

2.1.2    any inconsistent terms of the Retainer Agreements which, subject to these Funding Terms, shall continue in full force and effect.

3.    Obligations of the Funder

3.1    The Funder must pay the Outlay.

4.    Costs and Commission

4.1    Subject to further order, upon Resolution the Funder is entitled to be paid or to have distributed from any Resolution Sum, as consideration for the funding of the Proceedings, an amount less than 18% of the Gross Recovery.

4.2    The amount referred to in clause 4.1 above will not become due or owing by the Applicant and Group Members unless and until a Resolution occurs.

5.    Relationship Between the Applicant, Lawyers and Funder

5.1    The Lawyers’ professional duties are owed to the Applicant and not to the Funder.

5.2    The Funder will give day-to-day instructions to the Lawyers on all matters concerning the Claims and the Proceedings, subject to clause 5.3 and clause 7.

5.3    The Applicant may override any instruction given by the Funder, subject to clause 7 below. The Applicant may give binding instructions to the Lawyers and make binding decisions on behalf of the Group Members in relation to the Proceedings up to the time of any court approval of settlement of the Claims or the delivery of judgment in respect of the common issues in the Proceedings (including, but not limited to, instructions and decisions in relation to Settlement), save where, in the reasonable professional opinion of the Lawyers, separate instructions are required from the Group Members.

5.4    The Lawyers will:

5.4.1    keep the Funder fully informed of all matters concerning the Claims and the Proceedings, including any mediation and settlement discussions; and

5.4.2    ensure that the Funder is given all necessary information and advice in order for the Funder to provide informed instructions.

6.    Confidentiality

6.l    The Funder shall strictly maintain the confidentiality of any information provided to the Funder by the Applicant or the Lawyers for a purpose connected to the Proceedings and shall adopt proper and effective procedures for maintaining the confidentiality and safe custody of the information.

7.    Settlement

7.1    If there is a disagreement between the Funder and the Applicant as to whether to settle the Proceedings, or as to the appropriate terms for the settlement of the Proceedings:

7.1.1    the Lawyers will brief the most Senior Counsel of those retained by the Lawyers to advise as to whether, in Senior Counsel’s opinion, settlement of the Proceedings on the terms is fair and reasonable in all of the circumstances;

7.1.2    representatives of the Funder may attend any conference with Senior Counsel at which the issue is to be discussed;

7.1.3    the legal costs of obtaining counsel’s advice shall be met by the Funder as part of the Expenses; and

7.1.4    the advice of Senior Counsel will be final and binding on both the Applicant and the Funder.

7.2    Without limiting clause 7.1 above, in determining whether a proposed settlement is reasonable having regard to all the circumstances, Senior Counsel may proceed as he or she sees fit to inform himself or herself before forming and delivering his or her advice, but any such determination shall include the following considerations:

7.2.1    the strengths and weaknesses of the claims of all Group Members;

7.2.2    the quantum of the claims of all Group Members and any difficulties which might exist in proving that quantum;

7.2.3    the recoverability of a judgment sum from the Respondent;

7.2.4    the extent to which further legal costs incurred in the Proceedings are likely to be recoverable from the Respondent;

7.2.5    the risk of the Funder being ordered to pay adverse costs and the quantum of such costs. Counsel will have regard to this factor as though all Group Members carried such risk rather than the Funder;

7.2.6    the requirements of the Federal Court of Australia’s Practice Note GPN-CA;

7.2.7    the matters set out at paragraph [248.95] of the Australian Securities and Investments Commission’s Regulatory Guide 248: Litigation schemes and proof of debt schemes: Managing conflicts of interest (April 2013); and

7.2.8    any other matters Senior Counsel considers relevant

8.    Termination

8.1    The Funder’s obligations under these Funding Terms may only be terminated by order of the Court, granted on application made by the Applicant or the Funder, and upon notice given to the Applicant, the Funder and such other persons as ordered by the Court.

8.2    If an application to terminate these Funding Terms is made by the Funder or the Applicant, and the Court grants that application, then all obligations of the Applicant, Group Members, the Funder and the Lawyers under these Funding Terms will cease on the Termination Date, save that the Funder must pay:

8.2.1    any outstanding costs pursuant to clause 3.1 above incurred up to the Termination Date; and

8.2.2    to the extent such amounts are not captured by clause 8.2.1 above, any adverse Costs Order against the Applicant (whether made before or after the Termination Date) to the extent that it relates to costs which have arisen in, or are attributed to, the period ending on the Termination Date.

8.3    Termination of these Funding Terms shall not affect the rights or obligations of any Group Members who have executed a Funding Agreement (including the Applicant), the Funder and/or the Lawyers under the Funding Agreements or the Retainer Agreements (as is relevant), which shall remain in full force and effect in accordance with their respective terms.

ANNEXURE B – FORM OF UNDERTAKING

No. VID 649 of 2018

Federal Court of Australia

District Registry: Victoria

Division: General

VINCE IMPIOMBATO

Applicant

BHP BILLITON LIMITED (ACN 004 028 077)

Respondent

UNDERTAKING

[G&E KTMC Funding LLC OR Mr Vince Impiombato OR Phi Finney McDonald Pty Ltd] undertakes to [the other two of G&E KTMC Funding LLC OR Mr Vince Impiombato OR Phi Finney McDonald Pty Ltd] and to the Court to comply with its obligations under the Funding Terms (being Annexure A to the orders dated ___ August 2018) and the terms of Order l of those Orders.

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The issue to be considered in these reasons is whether a common fund order, as described by the Full Court of this Court in Money Max Int Pty Ltd v QBE Insurance Group Ltd (2016) 245 FCR 191 (Money Max), should be made. The applicant, Mr Impiombato, applied for the making of such an order by interlocutory application dated 13 July 2018. The respondent, BHP Billiton Limited, did not oppose the making of such an order. At the conclusion of the hearing of the application on 3 August 2018, I made orders substantially in the terms sought by the applicant and indicated that I would publish my reasons at a later date. These are my reasons for making the orders.

The proceeding

2    The proceeding was commenced on 31 May 2018, with the filing of an originating application and statement of claim. The proceeding is a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The applicant brings the proceeding on his own behalf and on behalf of an open class of persons (group members) who, among other things:

(a)    during the period from 21 October 2013 until the close of trade on 9 November 2015 inclusive, acquired an interest in:

(i)    fully paid ordinary shares in the respondent (BHP Billiton Limited) on the Australian Securities Exchange (ASX); and/or

(ii)    fully paid ordinary shares in BHP Billiton Plc on the London Stock Exchange (LSE); and/or

(iii)    fully paid ordinary shares in BHP Billiton Plc on the Johannesburg Stock Exchange (JSE); and

(b)    are alleged to have suffered loss and damage by reason of the contravening conduct as set out in the statement of claim.

3    The circumstances giving rise to the proceeding are described in an affidavit of Timothy Finney, a principal of Phi Finney McDonald, the applicant’s solicitors, dated 13 July 2018, at [12]-[20], which I accept for present purposes, and which form the basis of the following paragraphs.

4    On 5 November 2015, the Fundão tailings dam at the Germano mine in Minas Gerais, Brazil, collapsed. Nineteen people were killed in the downstream town of Bento Rodrigues and the disaster rendered approximately 700 people homeless. The collapse, which resulted in the release of approximately 60 million cubic metres of waste water, resulted in extensive damage to the natural environment, communities and associated infrastructure along the Rio Doce.

5    The Germano mine is operated by Samarco Mineração SA (Samarco), a joint venture of BHP Billiton and Vale SA. Samarco’s mining operations have been shut down and have not reopened since the disaster.

6    BHP Billiton has a dual-listed company structure, with two parent companies (BHP Billiton Limited and BHP Billiton Plc) operating as a single economic entity with a unified board and management team. BHP Billiton Limited is registered in Australia and listed on the ASX. BHP Billiton Plc is registered in the United Kingdom and listed on the LSE, with a secondary listing on the JSE. In the period following the dam collapse, BHP Billiton’s stock price fell substantially across all markets.

7    On or about 8 November 2017, Phi Finney McDonald commenced an investigation into a shareholder class action against the respondent.

8    Mr Finney states, and I accept, that considerable time, care and resources have been invested in the investigation and subsequent preparation of this proceeding. Work performed to date has included: review and analysis of public statements, market releases and analyst commentary spanning in excess of five years; review of multiple ongoing proceedings commenced in Brazil and the United States; review of technical literature and reports concerning the collapse of the Fundão Dam; and the investigation of claims of holders of BHP Billiton securities spanning across three separate stock exchanges. As at 15 June 2018, approximately 1,580 professional fee hours have been accumulated.

9    On 16 May 2018, it was reported in the media that Phi Finney McDonald was preparing a shareholder class action against the respondent on behalf of BHP Billiton security holders for, among other things, misleading or deceptive conduct by the respondent and/or alleged breaches of its continuous disclosure obligations arising from the respondent’s failure to inform the market of the material risk that the Fundão dam would collapse.

10    On or around 22 May 2018, G&E KTMC Funding LLC (the Funder) commenced to offer a litigation funding agreement (Funding Agreement) to potential group members (a copy of which is annexed to Mr Finney’s affidavit).

11    On 24 May 2018, the applicant entered into a Funding Agreement (a copy of which is annexed to Mr Finney’s affidavit).

12    On 31 May 2018, the proceeding was commenced.

The application for a common fund order

13    By interlocutory application dated 13 July 2018, the applicant applied for a common fund order. In broad terms, the effect of a common fund order is to require every group member to pay a pro rata share of the legal costs and litigation funding charges from any settlement or judgment sum, regardless of whether they have entered into a funding agreement with the funder (see the description of a common fund order in Money Max at [3]).

14    The orders sought by the applicant incorporated certain “funding terms”, which were annexed to the proposed orders and which set out the respective rights and obligations of the Funder and group members under the proposed common fund. Common fund orders in this form have been made in a number of proceedings in this Court.

15    The proposed funding terms provided at [4.1] that the Funder would be entitled to a commission of “an amount less than 18% of the Gross Recovery” in consideration for funding the proceeding. The commission is inclusive of expenses paid by the Funder in the course of funding the litigation, including legal costs, disbursement and any premium paid in relation to the provision of security for costs.

Background facts

16    At [21]-[32] of his affidavit, Mr Finney sets out certain matters that are relevant to the common fund application. I accept these paragraphs for present purposes. They form the basis of the following paragraphs of these reasons.

17    The Funder is a global litigation funder based in the United States. The Funder is backed by Grant & Eisenhofer P.A. and Kessler Topaz Meltzer & Check LLP, two of the largest plaintiff law firms conducting securities class actions in the world; they have considerable experience in assessing class action risk.

18    Mr Finney expresses the belief that the commission structure proposed in the present proceeding compares very favourably to percentage rates confirmed in other securities class actions. Based on his experience, Mr Finney expresses the view that the common fund order sought by the applicant would be in the interests of group members that have entered into a Funding Agreement.

19    Further, Mr Finney states that, based on his experience, in his opinion, it is in the interests of unfunded group members that a common fund order be made as soon as possible to allow the Court to consider, amend and formalise the terms of funding and then seek undertakings from the Funder, the applicant and the lawyers to abide by those terms.

20    As at the date of Mr Finney’s affidavit, Phi Finney McDonald had received in excess of 3,500 enquiries from investors, including institutional investors, in relation to the class action.

21    Of those enquiries, 2,777 retail investors and 161 institutional investors have entered into the Funding Agreement (funded group members) and are on notice as to the terms of the common fund order sought by the applicant. Collectively between them the funded group members purchased at least 464,023,520 shares during the relevant period as defined in the statement of claim.

22    Phi Finney McDonald has been retained to represent institutional investors located in 22 different countries. The combined support and preference of this considerable number of institutional investors to voluntarily execute the Funding Agreement has been made notwithstanding the statements in the Funding Agreement and accompanying FAQ making clear that the proceeding would likely be the subject of a common fund order that would apply to funded group members and unfunded group members alike.

23    As at the time of affirming his affidavit, Mr Finney was not aware of any group member who had objected to or otherwise questioned the seeking of a common fund order in the context of the proceeding, or the terms of the common fund order proposed to be sought as set out in the Information Pack provided to interested group members.

Applicable principles

24    It is established that the Court has the power, pursuant to s 33ZF(1) of the Federal Court of Australia Act, to make a common fund order: Money Max at [159]-[175]. In determining whether to make such an order, the relevant question is whether the order is appropriate or necessary to ensure that justice is done in the proceeding. This necessarily involves a consideration of the interests of group members: Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 (Earglow) at [145].

25    There may be advantages in making a common fund order at an early stage in the proceeding: Perera v GetSwift Ltd (2018) 127 ACSR 1 at [244]-[246]; see also Money Max at [174]. In some cases, there may be a multiplicity of proceedings, requiring this issue to be resolved prior to the making of a common fund order: see McKay Super Solutions Pty Ltd (Trustee) v Bellamy’s Australia Ltd [2017] FCA 947 at [22].

Consideration

26    For the following reasons, I consider a common fund order as sought by the applicant to be appropriate and in the interests of justice.

27    First, in general terms, the interests of justice in representative proceedings favour the burden of costs incurred for the benefit of all group members being shared equally among them: see Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527 (Caason) at [161].

28    Secondly, the funding terms provide for a funding commission of “an amount less than 18% of the Gross Recovery”. Under the proposed terms, the actual funding amount will be set by the Court at a later stage in the proceeding, when it will have the advantage of more complete information about the quantum or likely quantum of any settlement or judgment, most likely at the point of settlement approval or the distribution of damages: see Money Max at [79]. This gives group members certainty about the maximum total costs of participating in the action, so that they can make an informed decision before opting out, while also providing for continued judicial oversight of those costs so that the Court may prevent ‘windfalls’ or a disproportionate return to the funder: see Money Max at [85]-[89]. While the cap is expressed as a percentage of the Gross Recovery, it may be that the actual funding amount will be calculated in some other way, provided that it is less than the dollar amount that equals 18% of the Gross Recovery.

29    As noted above, the respondent did not oppose the application. The respondent helpfully provided written submissions to assist the Court, outlining various relevant matters. One of the observations contained in the respondent’s written submissions was that the 18% maximum commission proposed by the applicant “will, once embodied in an order, become the inevitable reference point for the selection of the final funding rate”. The applicant, in his reply submissions, rejected this observation and stated that it failed to acknowledge the advantage to group members of providing certainty about the maximum costs of the proceeding prior to opt out. I accept the applicant’s submission that the 18% figure is a maximum and should not be seen as the inevitable reference point for the selection of the actual funding amount.

30    Thirdly, apart from the costs and commission terms, the funding terms proposed by the applicant are unexceptional and are substantively the same as those previously approved by Beach J in McKay Super Solutions Pty Ltd v Bellamy’s Australia Ltd (VID163/2017), by order dated 3 April 2018.

31    Fourthly, the proposed funding terms have been agreed to by a funder with extensive international experience in conducting securities class actions and assessing class action risk. The application follows a lengthy and thorough investigation of group members’ claims by lawyers with extensive experience in conducting representative proceedings and in negotiating funding terms in the interests of group members.

32    Fifthly, a commission rate of less than 18% of gross recoveries compares favourably with funding commissions approved by the Court in other Pt IVA proceedings, in particular as it is inclusive of reimbursement for expenses paid by the funder. In Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs and mgrs apptd) (in liq) (No 3) (2017) 343 ALR 476, Beach J noted (at [125]) that a commission rate of 30% of net recoveries (equal to 22.1% of gross recoveries) compared favourably with the usual range of commission rates in Australian funded proceedings: see also Earglow at [166]-[177] (Murphy J). More recently, Murphy J in Kuterba v Sirtex Medical Ltd (VID1375/2017) approved a funding commission rate of “no more than 28%” of net recoveries, and Lee J in Webb v GetSwift Limited (NSD580/2018) approved a percentage-based commission of 20% of net recoveries (in the alternative to a commission based on a multiple of expenses). In Kuterba and Webb, the commission rate was separate from and in addition to reimbursement for expenses.

33    Sixthly, the information pack provided to prospective group members included the proposal to seek a common fund order on the same terms as are now sought by the applicant in the proceeding. Notwithstanding this, funded group members entered into the Funding Agreement, and in doing so, indicated their agreement to the proposed funding terms. A substantial number of group members (2,938) have entered into Funding Agreements, including 161 institutional investors. This implies widespread approval of the proposed funding terms, including by astute and experienced institutional investors: see Money Max at [80](a). Further, no group member has approached the lawyers to express any dissatisfaction with the funding terms.

34    Seventhly, assessed objectively, the proposed funding terms are in the interests of funded group members. Under the Funding Agreement, the Funder is entitled to be reimbursed for its expenses of funding the litigation from funded group members’ recoveries, in addition to the commission. Under the proposed funding terms, however, the funding commission is in consideration for funding the litigation and is inclusive of reimbursement for expenses.

35    Eighthly, under the common fund order, unfunded group members will be required to pay a commission to the funder from any recoveries in circumstances where they have not expressly agreed to do so and would have otherwise received a ‘free ride’ at the expense of funded group members (subject to the making of a funding equalisation order: see Caason at [161]). This may be seen to be against the interests of unfunded group members. However, in circumstances where litigation funding charges have become a standard cost in class actions, where unfunded group members are exposed to no adverse costs risk, and where the interests of justice dictate that group members should share the costs of litigation from which they all benefit, I do not consider it appropriate to refuse to make the order sought on this basis: see Pearson v State of Queensland [2017] FCA 1096 (Pearson) at [25]. To the extent that unfunded group members may wish to bring separate proceedings against the respondent, or not bring proceedings against the respondent at all, their right to do so is protected by the opportunity to opt out of the proceeding. If a common fund order is to be made, it is in the interests of unfunded group members that the order be made at an early stage and prior to the time for opting out.

36    Further, in my view, the order sought by the applicant is in accordance with the broad policy aims of Pt IVA discussed by the Full Court in Money Max at [176]-[205].

37    I note that group members have not been notified of the present application prior to it being heard. However, I do not consider this to be necessary in the circumstances of this case: see Pearson at [34]-[47]; Webb v GetSwift Limited (No 3) [2018] FCA 1133 at [7]-[9].

38    I note that on 27 July 2018, the respondent filed an interlocutory application seeking a stay of the proceeding on the basis of pending criminal proceedings in Brazil. That application has not yet been heard. I do not consider the stay application to provide a reason to defer making a common fund order. The stay application will be determined on the merits of that application. Whether or not a common fund order has been made will not affect the disposition of the stay application.

39    It appears likely that another shareholder class action relating to the same subject matter will be commenced. At the hearing of the application, leave to appear was sought on behalf of Klemweb Nominees Pty Ltd as trustee for the Klemweb Superannuation Fund (Klemweb). I gave Klemweb leave to appear. Klemweb relied on an affidavit of Brooke Dellavedova, a principal of the firm of solicitors, Maurice Blackburn Pty Ltd (Maurice Blackburn), dated 2 August 2018. This indicated that, for the past several months, Maurice Blackburn has been instructed by shareholders of BHP Billiton Limited to conduct an investigation into a proposed action. At the time of the hearing of the application, no proceeding had been commenced. However, it appeared likely that such a proceeding would be commenced within four weeks of the hearing of the application. If such a proceeding is commenced, it will be necessary to deal with issues associated with there being a multiplicity of proceedings. However, it was not suggested that the making of a common fund order as sought by the applicant would limit the ability of the Court to deal with such issues. If appropriate, the interlocutory order for a common fund in this proceeding can be varied or vacated. Accordingly, I do not consider the prospect of Klemweb commencing a proceeding to provide a reason to defer making a common fund order.

Conclusion

40    For these reasons, I made a common fund order as sought by the applicant. I also made certain timetabling orders as discussed during the course of the hearing on 3 August 2018.

Associate:

Dated:    23 August 2018