Federal Court of Australia

Tate v Westpac Banking Corporation (No 2) [2020] FCA 1374

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.    Subject to order 1, by consent between the applicants and respondent, the proceeding be discontinued.

3.    Pursuant to ss 37AF and 37AG(1)(a) of the Act, in order to prevent prejudice to the proper administration of justice, the contents of:

a.    the annexure marked “Confidential Annexure BJS-1” to the affidavit of Ben Slade filed on 31 August 2020; and

b.    the confidential affidavit of Ben Slade affirmed on 21 September 2020 and the annexures marked “Confidential Annexure BJS-5” and “Confidential Annexure BJS-6”,

be kept confidential and not be disclosed to any person without leave of the Court.

4.    If orders 1 and 2 above are made, by consent:

a.    leave be given for the respondent to discontinue the cross claim filed by the respondent on 27 March 2020 (cross claim) with no order as to costs;

b.    pursuant to Rule 1.31 and 1.34 of the Federal Court Rules 2011 (Cth), the requirement under Rule 26.12(1) be dispensed with in respect of the Notice of Discontinuance for the cross claim;

c.    the balance of the amount held by the Court as security for costs of the proceedings paid by Harbour Fund IV, L.P on 5 December 2019, be released to the applicants;

d.    all costs orders previously made in the proceeding be vacated, except for order 2 of the orders made by Justice Perram on 24 August 2020, that the applicants pay the respondent's costs of the proceeding, fixed in the amount of $250,000;

e.    the Court notes that payment of $250,000 to the respondent pursuant to order 2 of the orders made by Justice Perram on 24 August 2020 has been satisfied by the applicant; and

f.    subject to order 2 of the orders made by Justice Perram on 24 August 2020, each party pay his, her or its own costs of the proceeding.

5.    No order as to costs of this application.

6.    Order 8 of the orders made by Justice Middleton on 28 August 2020 be vacated.

THE COURT DECLARES THAT:

7.    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

MIDDLETON J:

INTRODUCTION

1    On 22 September 2020, I made a number of orders on the application of the applicants in this proceeding. These are the reasons for those orders.

2    The present proceeding is a class action brought by the applicants, Ian and Michelle Tate, against the respondent, Westpac Banking Corporation (‘Westpac’). It has been partially funded by Harbour Fund IV, L.P. (the ‘Funder’) since commencement.

3    By interlocutory application filed on 24 August 2020, the applicants seek orders approving the discontinuance of the claims against Westpac pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the ‘FCA Act’). Westpac consents to such orders.

4    The applicants rely upon the written evidence of Ben Slade, a principal of Maurice Blackburn, in his capacity as solicitor for the applicants, being:

(1)    an affidavit affirmed 31 August 2020;

(2)    a supplementary affidavit affirmed 21 September 2020; and

(3)    a confidential affidavit affirmed 21 September 2020.

5    I accept Mr Slade’s evidence and note that Westpac does not challenge it.

6    The applicants claimed that Westpac contravened a number of its responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth) (the ‘NCCPA’).

7    For these reasons that follow, I consider it appropriate to approve the discontinuance in respect of the claims made against Westpac, and to make ancillary orders in connection with that discontinuance.

BACKGROUND

8    The applicants filed their statement of claim in this proceeding on 21 May 2019.

9    Between 6 and 14 May 2019, Perram J heard the trial in Australian Securities and Investments Commission v Westpac Banking Corporation NSD 293 of 2017 (the ‘ASIC Proceeding’). The ASIC Proceeding and the current proceeding make claims against Westpac that share some commonality because the Australian Securities and Investment Commission (‘ASIC’) also alleged that Westpac breached its responsible lending obligations under the NCCPA in a number of ways.

10    On 13 August 2019, Perram J published his decision in the ASIC Proceeding (see Australian Securities and Investments Commission v Westpac Banking Corporation (Liability Trial) [2019] FCA 1244 (the ‘ASIC Proceeding judgment’)). His Honour found that ASIC had failed to make out its claims against Westpac.

11    On 10 September 2019, ASIC filed an appeal against the ASIC Proceeding judgment.

12    On 18 October 2019, and in light of the ASIC Proceeding judgment, the applicants filed an amended statement of claim (the ‘ASOC’) in the current proceeding. The ASOC included a number of further allegations against Westpac.

13    At the time of filing the ASOC, Westpac’s treatment of consumers’ living expenses in its assessment of home loan applications was a key issue in both the ASIC Proceeding and the current proceeding. However, there was a number of substantive and procedural distinctions between the two proceedings, including that:

(1)    the ASIC Proceeding was commenced by ASIC in its regulatory capacity, while the applicants commenced the current proceeding under Pt IVA of the FCA Act on behalf of themselves and group members;

(2)    the allegations in each proceeding were unique. In particular, the ASOC in the current proceeding contained allegations that Westpac contravened its obligations under sections:

(a)    130(1) of the NCCPA to make reasonable inquiries about the consumer’s requirements, objectives and financial situation, and to take reasonable steps to verify the consumer’s financial situation. The ASIC Proceeding contained no such allegations; and

(b)    131(4) and 133(4) of the NCCPA to assess the suitability of the credit contracts only on information comprising the consumer’s financial situation, requirements or objectives that it knew, or reasonably believed, to be true. The ASIC Proceeding contained no such allegations;

(3)    the ASIC Proceeding and the current proceeding claimed different types of relief.

14    On 11 February 2020, the applicants filed a further ASOC (the ‘FASOC’) in the current proceeding. The FASOC contained a number of further amendments, including the deletion of allegations that Westpac breached its statutory duty pursuant to s 47 of the NCCPA and the claim for exemplary damages.

15    On 25 February 2020, the Full Court of the Federal Court heard the appeal in the ASIC Proceeding (the ‘ASIC Proceeding Appeal’).

16    Between 27 March 2020 and 19 June 2020 in the current proceeding, Westpac filed a defence to the FASOC (the ‘Defence’) and a Notice of Cross-Claim against the applicants (the ‘Cross-Claim’), the applicants filed a reply to the Defence and a defence to the Cross-Claim, and Westpac then filed a reply to the applicants’ defence to the Cross-Claim.

17    On 26 June 2020, the Full Court published its decision in the ASIC Proceeding Appeal (see Australian Securities and Investments Commission v Westpac Banking Corporation [2020] FCAFC 111) (the ‘ASIC Appeal judgment’). By a 2:1 majority, the Full Court rejected the appeal.

18    On 13 July 2020, Westpac sent the applicants a Notice of Offer to Compromise (the ‘Offer to Compromise’). The Offer to Compromise contained the following terms:

(1)    the applicants seek approval from the Court to discontinue the proceeding, including all claims of group members under s 33V of the FCA Act; and

(2)    the applicants pay Westpac’s costs of the proceeding, fixed in the amount of $250,000.

19    On 22 July 2020, ASIC published a media release stating that it would not seek special leave to appeal to the High Court of Australia against the ASIC Appeal judgment.

20    On 27 July 2020, the applicants accepted the Offer to Compromise.

ASIC Appeal judgment and ASIC’s decision not to appeal

21    After the Full Court handed down the ASIC Appeal judgment, Mr Slade’s evidence is that he formed the view that:

(1)    the reasons of the majority in the Full Court (Gleeson and Lee JJ) significantly reduced the applicants’ and group members’ prospects of success in the current proceeding;

(2)    the reasons of the minority (Middleton J) in the Full Court were consistent with the applicants’ case in the current proceeding; and

(3)    if ASIC was to successfully seek special leave to appeal to the High Court and the High Court adopted     an approach consistent with that of the minority, this would improve the applicants’ and group members’ prospects of success in the current proceeding.

22    Following ASIC’s decision not to appeal, Mr Slade says he came to the view that the applicants’ and group members’ prospects of success in the current proceeding was adversely impacted by the ASIC Appeal judgment.

Discontinuance and funding position

23    The ASIC Proceeding judgment and the ASIC Appeal judgment have reduced the applicants’ prospects in the current proceedings.

24    Following the ASIC Appeal judgment and in light of ASIC’s decision not to appeal, the Funder notified the applicants of its intention to cease funding the current proceeding.

25    In these circumstances, Mr Slade says he considered whether another third party litigation funder could fund the proceeding, or alternatively whether Maurice Blackburn could continue to prosecute the proceeding without funding from a third party litigation funder.

26    Mr Slade’s evidence is that he reached the view that another third party litigation funder would not agree to fund the current proceeding (in the event that the applicants did not accept the Offer to Compromise). If Maurice Blackburn were to continue to pursue the current proceeding on behalf of the applicants and other group members without third party funding, Mr Slade says the applicants would be exposed to the risk of adverse costs orders which would be significant and disproportionate to the applicants’ potential interests in the proceeding.

27    Mr Slade also considered whether or not Maurice Blackburn should fund the current proceedings, including whether to offer an indemnity to the applicants against adverse costs. In order to pursue either or both of the options raised in the preceding paragraphs where there is no funding from a third party, Mr Slade says he would be required to make a submission to Maurice Blackburn’s Investment Committee, recommending that Maurice Blackburn enter into a conditional fee arrangement with the applicants or that Maurice Blackburn offer to indemnify the applicants against adverse costs. Mr Slade formed the view that the ASIC Appeal judgment so negatively impacts the applicants’ prospects of success in the current proceeding that he would not make either of these recommendations to the Investment Committee.

28    Further, in consideration of the relevant legal principles in relation to discontinuing proceedings under the FCA Act (which I outline below), including that the discontinuance will not prejudice the applicants’ and group members’ rights against Westpac, Mr Slade’s view is that accepting the Offer to Compromise was fair and reasonable having regard to the interests of the applicants and group members.

RELEVANT LEGAL PRINCIPLES

29    Section 33V of the FCA Act provides:

33V    Settlement and discontinuance—representative proceeding

(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.

30    The majority of decided cases dealing with s 33V concern settlement approvals (as opposed to discontinuance approvals) and the relevant principles applicable to settlement approvals under s 33V are well established: see Sister Marie Brigid Arthur (Litigation Representative) v Northern Territory of Australia (No 2) [2020] FCA 215 (‘Sister Marie’) at [69] (per Murphy J); Hodges v Waters (No 4) [2014] FCA 472 (‘Hodges’) at [14]-[16] (per Gleeson J). In summary, before a court can approve a proposed settlement, it must be satisfied that it is fair and reasonable, having regard to the interests of the class members as a whole.

31    The relevant considerations dealing with an application for discontinuance of a representative proceeding under Pt IVA of the FCA Act may, depending upon the circumstances, be different to those which apply to an application for settlement approval, but the underlying principles are the same: Sister Marie at [70] (per Murphy J); see also Wotton v State of Queensland [2009] FCA 758 (‘Wotton’) at [37] (per Rares J).

32    In Davaria Pty Ltd v 7-Eleven Stores Pty Ltd [2020] FCA 1234 (‘Davaria’), Moshinsky J at [45] observed that the statement of Rares J in Wotton (where leave to discontinue an entire proceeding was sought) is instructive as to the principles applicable to a discontinuance, as distinct from a settlement, of a representative proceeding. Justice Rares said in Wotton:

37    … The considerations affecting a settlement are not always the same as a discontinuance. It is important that any order that is made has regard to the interests not only of the present parties but of group members who may be affected by the terms of any grant of leave to discontinue.

38    … it is important to ensure that any order by which these proceedings are brought to an end (by discontinuance or dismissal) not have a substantive impact on group members or affect their rights. The court must be careful to guard against any injustice that could be done to persons who are not represented in these proceedings and whose rights may be adversely affected by their outcome. This responsibility is reflected in the scheme of Pt IVA itself, especially in ss 33V(1) and 33ZF(1).

…

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.

33    The observations of Rares J are sound. As Bongiorno J said in Tasfast Air Freight Pty Ltd v Mobil Oil Australia Ltd [2002] VSC 457 at [4] (cited with approval by Gleeson J in Hodges at [16]) “[t]he principles upon which s 33V is based might be said to be those of the protective jurisdiction of the Court, not unlike the principles which lead the Court to require compromises on behalf of infants or persons under a disability to be approved.”.

34    More recently, in Mercedes Holdings Pty Limited v Waters (No 1) [2010] FCA 124 (‘Mercedes’), Perram J stated:

[9]    … Ordinarily, the question of leave arises in the context of determining whether leave should be granted to settle rather than discontinue a proceeding. Usually settlement of class actions will extinguish forever one set of rights in the class — put simply, their choses in action — and replace them with another, namely, rights under the proposed settlement arrangement. This is, of course, a significant step to take. The parties before the court are the representative parties and their advisors. Human experience teaches that those individuals — leaving aside issues such as minority and capacity — can be expected to reach views on any proposed settlement which the court need not second guess. However, as has often enough been pointed out, the opt-out nature of class actions in this court gives rise to the possibility not only of class members who are disengaged from the litigation but perhaps ignorant of it altogether. More importantly, since the representative parties and their lawyers are at the coalface of the suit where time, stress and money are being consumed in the furnace of litigation, it is natural that their inclination towards settlement may be affected by a just appreciation of their own positions. Those positions, and the allied interests accompanying them, may not wholly coincide with those of the members of the class. It is to superintend that inherent tension that s 33V erects a requirement for court approval of settlements and discontinuances.

[10]    The course of authority confirms that the task of the approving court is to assess whether the compromise or discontinuance “is a fair and reasonable” one (Lopez v Star World Enterprises Pty Ltd (1999) ATPR 41-678 at 42,670; [1999] FCA 104 per Finkelstein J) which requires one to be satisfied that the settlement or discontinuance “has been undertaken in the interests of the group members as a whole, and not just in the interests of the applicant and the respondent”: Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258; 142 ALR 177 at 184–5; 22 ACSR 539 at 546–7 per Branson J. Consequently, common sense suggests, and authority confirms, that the applicant for leave bears the onus of showing that the settlement or discontinuance is in the interests of all class members. …

35    Justice Perram’s formulation of the test to be applied under s 33V has been followed by other judges of this Court in decisions concerning discontinuance applications, and is consistent with the jurisprudence: see Davaria at [46] (Moshinsky J); AUB19 v Commonwealth of Australia [2019] FCA 1722 (‘AUB19’) at [17] (Mortimer J); Adams v Navra Group Pty Ltd [2019] FCA 1157 at [19] (per Murphy J); Sister Marie at [70] (Murphy J).

36    In their written submissions, the applicants drew the Court’s attention to what appears to be a divergence of opinion as to the relevant principles, citing the observations of Yates J in Simonetta v Spotless Group Holdings Limited [2017] FCA 1071 (‘Simonetta’):

[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 (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.

37    In my view, the different formulations of Perram J in Mercedes and Dixon J in Laine of the test to be applied under s 33V for discontinuance approvals would not give rise to a different result in the present case.

38    However, the preferred approach in this Court has been that of Perram J, which I consider is sound in principle having regard to the principles upon which s 33V is based.

CONSIDERATION

39    Taking account of the matters set out in the applicants’ submissions, and the matters set out in Mr Slade’s evidence, I am satisfied that the proposed discontinuance is fair and reasonable having regard to the interests of all class members.

40    I note the following matters upon which I have based my decision:

(1)    The discontinuance sought does not contemplate the release or extinguishment of any of the rights of group members. On the contrary, all such rights are preserved.

(2)    There is no suggestion that, and no basis upon which, group members could be liable for any costs of the proceedings. In substance, upon the discontinuance of the proceedings group members will be in the same position they were in before 21 February 2019, when these proceedings commenced.

(3)    The applicants are not aware of any looming limitation problem should any group member wish to privately pursue the respondent on the claims pleaded. Rather, by reason of s 33ZE(1) of the FCA Act group members have had the benefit of a suspension of any relevant limitation periods since the commencement of these proceedings.

(4)    That suspension would come to an end upon an order approving the discontinuance of these proceedings by reason of s 33ZE(2) of the FCA Act. However, by reason of s 33ZE, whatever time for commencing proceedings was available to a group member as at 21 February 2019 will be the time available to that group member from the date of discontinuance. On one view this has given group members wishing to commence their own proceedings an “extended” limitations period of some 18 months. On any view, the group member has been restored to the position he or she was in immediately prior to 21 February 2019.

(5)    It would be contrary to the interests of group members to require the applicants to persist with the litigation when they have lost their funding, since that could give rise to the proceedings being continued in a less than optimum way, which could result in a resolution of common issues in a manner that is binding upon, but not favourable to, group members.

(6)    The respondent has consented to a proposed declaration to the effect that the discontinuance of the proceedings does 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. A declaration to such effect has been made in other applications for discontinuance: Simonetta at [29] (Yates J); Wotton at [36] and [39] (Rares J); AUB19 at [25] (Mortimer J). As noted in Simonetta, such a declaration has utility in 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”: at [29] (Yates J).

41    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 Slade’s evidence, the unlikelihood of alternative funding being obtained. Although the current proceeding has been on foot since 2019, the parties have not substantively advanced beyond the close of pleadings. Taking account of the issues at stake, were the proceeding to continue there can be little doubt (particular in light of the ASIC Appeal judgment and ASIC’s decision not to appeal) that they would be complex, hard fought, and consequently expensive.

42    In this context, the applicants cannot reasonably be required to continue the proceedings without funding (including funding to cover any adverse costs orders against them), where having such was the basis upon which they commenced the case.

43    Lastly, I do not consider that the applicants should be required to give notice of this application to the group members as a whole. I accept the applicants’ submissions that s 33X(4) of the FCA Act only requires notice be given to group members of an application for approval of a settlement, and no requirement otherwise that notice be given of an application for approval of a discontinuance (Simonetta at [19]). Moreover, given the size of the class, such notice would be impractical and difficult and, even if ultimately possible, highly expensive, particularly given the loss of funding.

44    The applicants have given notice of this application in writing:

(1)    to the 374 persons who have registered their interest in this class action with Maurice Blackburn;

(2)    to the 175 persons who have contacted Maurice Blackburn but not registered; and

(3)    to consumer groups, namely, CHOICE, the Financial Rights Legal Centre; the Consumer Action Law Centre, and Financial Counselling Australia, who together provide services to thousands of consumers each year.

45    Notice of the application has also been given to representatives of the Australian Financial Complaints Authority who had previously corresponded with Maurice Blackburn regarding the class action. Maurice Blackburn has also published information concerning the proposed discontinuance on its website.

46    No person appeared at the hearing to oppose the approval of the discontinuance or the ancillary orders.

Associate:     

Dated:    25 September 2020