Federal Court of Australia

Babscay Ptd Ltd v Pitcher Partners [2020] FCA 1610

ORDERS

THE COURT ORDERS THAT:

Approval of Discontinuance

1.    The discontinuance of this proceeding be approved pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) and r 26.12(4) of the Federal Court Rules 2011 (Cth).

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

Confidentiality

3.    Pursuant to ss 37AF and 37AG of the Act, until further order of the Court, in order to prevent prejudice to the proper administration of justice, the following parts of:

(a)    the affidavit of Lee Scott Taylor affirmed 14 September 2020:

(i)    Paragraphs 19 to 27 (including headings) and 29 to 33 (including headings); and

(ii)    Annexures LT-1, LT-10 and LT-11; and

(b)    the affidavit of Lee Scott Taylor affirmed 29 October 2020:

(i)    the final sentence of paragraph 19; and

(ii)    Annexure LT-20,

be treated as confidential, not be published or made available and not be disclosed to any person or entity except to the docket Judge, his or her personal staff, any officer of the Court authorised by the docket Judge, the Applicant, its legal representatives, Vannin Capital Operations Ltd and its legal representatives, and such permitted disclosures to be upon terms that none of those parties or persons disclose that material or any part thereof to any person or entity.

THE COURT DECLARES THAT:

4.    Orders 1 and 2 do not affect any rights of the Applicant 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

ANATASSIOU J:

1    By an interlocutory application dated 20 July 2020 (the Discontinuance Application), the Applicant (Babscay Pty Ltd) seeks the Court’s approval, pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) and r 26.12(4) of the Federal Court Rules 2011 (Cth), to discontinue this proceeding. In support of its application, Babscay relies on the confidential affidavit of Mr Lee Taylor Scott affirmed 14 September 2020, which relevantly annexes the Joint Confidential Opinion of Mr William A D Edwards and Mr Dion J Fahey also dated 14 September 2020. Babscay also relies on the affidavit of Mr Lee Taylor Scott affirmed 29 October 2020.

2    The interlocutory application was served on the Respondent and Cross-Respondents but none of those parties sought to be heard on the Discontinuance Application.

3    For the reasons that follow, I am satisfied that discontinuing this proceeding is not unfair, unreasonable or adverse to the interests of group members. Indeed, it is plain that the effect of discontinuance will be to return group members to the position they were in before the proceeding commenced. Accordingly, I grant the approval.

Background

4    This proceeding has a complex procedural history, insofar as there are a number of related proceedings and intersecting claims. I set out below only so much of the background as is required for the purposes of this application.

5    This proceeding (VID 1188 of 2017) was commenced by Babscay pursuant to Part IVA of the Act on its own behalf and on behalf of other persons (Group Members) who acquired an interest in ordinary shares in Slater & Gordon Limited between 24 August 2012 and 19 November 2015 (the Relevant Period) and suffered loss or damage by, or which resulted from, the pleaded conduct of the Respondent (Pitcher Partners), the auditor of Slater & Gordon. The proceeding is funded by Vannin Capital Operations Ltd. I refer to this proceeding as the Babscay Pitchers Proceeding.

6    On 26 February 2020, Maurice Blackburn replaced Johnson Winter & Slattery as the solicitors on the record for Babscay in the Babscay Pitchers Proceeding. Shortly thereafter, Mr William A D Edwards and Mr Dion J Fahey were briefed as counsel for Babscay. In July 2020, Maurice Blackburn notified Pitcher Partners and the other parties to the Babscay Pitchers Proceeding that it intended to discontinue the proceeding.

7    The Babscay Pitchers Proceeding has been jointly case managed with another representative proceeding (VID 918 of 2018) commenced on behalf of a substantially overlapping class of persons, namely those who acquired an interest in ordinary shares in Slater & Gordon between 30 March 2015 and 24 February 2016. I refer to the related proceeding as the Hall Pitchers Proceeding, in which Maurice Blackburn is also the solicitor on record, and Mr Edwards and Mr Fahey are briefed as counsel. It is anticipated that the Hall Pitchers Proceeding will proceed, notwithstanding the discontinuance of the Babscay Pitchers Proceeding.

The earlier proceedings

8    It is apt to note that each of the Babscay Pitchers Proceeding and Hall Pitchers Proceeding were commenced in the context of two related representative proceedings filed against Slater & Gordon.

9    The first related proceeding (VID 1213 of 2016) was commenced by Mr Hall on 12 October 2016 and also covered persons who acquired shares in Slater & Gordon in the period between 30 March 2015 and 24 February 2016 (Hall Slater & Gordon Proceeding). The Hall Slater & Gordon Proceeding was conditionally settled in mid-2017, and on 14 December 2017, pursuant to s 33V of the Act, the Court granted approval of a complex settlement, interconnected with a scheme of arrangement that was simultaneously approved under s 411 of the Corporations Act 2001 (Cth).

10    The second related proceeding (VID 659 of 2017) was commenced by Babscay on 20 June 2017 and also covered shareholders who had acquired shares in Slater & Gordon in the period between 24 August 2012 and 19 November 2015 (Babscay Slater & Gordon Proceeding). The Babscay Slater & Gordon Proceeding was, however, stayed immediately following filing in accordance with the settlement and scheme of arrangement in the Hall Slater & Gordon Proceeding, referred to immediately above.

The extent of overlap between the proceedings

11    As outlined above, the Babscay Pitchers Proceeding and Hall Pitchers Proceeding were filed after conditional settlement of the Hall Slater & Gordon Proceeding, which also had the practical effect of extinguishing the Babscay Slater & Gordon Proceeding. It is important to say something about the extent of overlap between the Babscay Pitchers Proceeding, to which this Discontinuance Application relates, and the Hall Pitchers Proceeding, which remains on foot.

12    The Babscay Pitchers Proceeding pleads claims concerning how Slater & Gordon accounted for Work in Progress in each of FY12, FY13, FY14 and FY15 (WIP Issues). This claim is maintained on behalf of persons who acquired shares between 24 August 2012 and 19 November 2015. The Babscay Pitchers Proceeding also pleads claims relating to acquisition accounting for assets Slater & Gordon acquired in FY15, which are themselves dependent on the WIP Issues (FY15 Acquisition Accounting Issues), and concerning impairment testing in FY15 in relation to Slater & Gordon’s acquisition of a UK business from Quindell plc (FY15 Goodwill Impairment Issues). These two claims are maintained only on behalf of persons who acquired shares after the FY15 accounts were published on 28 August 2015.

13    The three claims in the Babscay Pitchers Proceeding allege accounting errors in the application of the Australian Accounting Standards. It is said that these errors had the effect that Slater & Gordon’s financial reports did not provide a true and fair view of the financial position and performance of Slater & Gordon.

(a)    The first error, which relates to the WIP Issues, alleges that Slater & Gordon failed to recognise revenue in accordance with AASB 118 due to its approach of recognising work-in-progress fee revenue for conditional personal injury work and conditional project litigation work by applying a stage of completion (or percentage of completion) methodology to recognise the revenue, instead of only recognising the fee revenue upon the achievement of a successful outcome. This is alleged to have caused an overstatement of revenue, profit, earnings per share, and forecast revenue in the financial reports issued during FY12 to FY15.

(b)    The second error, which relates to the FY15 Acquisition Accounting Issues, pertains only to Slater & Gordon’s FY15 financial report. The alleged error is that Slater & Gordon failed to comply with AASB 3 due to its recognition of $58.9 million revenue from gains from its acquisition of ten legal practices throughout the financial year. The recognised gains were underpinned by Slater & Gordon adopting the same flawed approach to recognising work-in-progress fee revenue as above for the ten acquired legal practices. This is alleged to have caused an overstatement in profit in Slater & Gordon’s FY15 accounts.

(c)    The third error, which relates to the FY15 Goodwill Impairment Issues, also pertains only to Slater & Gordon’s FY15 financial report. The alleged error is that Slater & Gordon failed to comply with AASB 136 by not materially impairing the goodwill associated with its A$1.225 billion acquisition of the Professional Services Division of Quindell plc. It is alleged that the material impairment was required because Slater & Gordon’s projections of the Professional Services Division’s future income did not take into account the risk of regulatory reform, and were inflated by the adoption of aggressive and inappropriate practices in relation to the recognition of revenue.

14    Babscay alleges that Pitcher Partners had sufficient information available to it to ascertain the three accounting errors. The fact that Pitcher Partners did not do so forms the basis for Babscay’s allegation that Pitcher Partners did not exercise the necessary skill and expertise to an appropriate professional standard and/or exercised reasonable skill and care in undertaking its audit work in respect of the financial reports. Babscay alleges that had Pitcher Partners’ representations not been made, Slater & Gordon would have issued its financial reports and forecasts without error. Babscay relies upon the market-based theory of causation in relation to the connection between the accounting errors and losses suffered by group members.

15    The Hall Pitchers Proceeding solely pleads the FY15 Goodwill Impairment Issues, on behalf of those who acquired shares between 30 March 2015 and 24 February 2016 (a period which entirely encompasses the period for which the Babscay Pitchers Proceeding maintains similar claims). For persons who acquired shares between 28 August 2015 and 24 February 2016, this claim is maintained on an “acquired shares” theory of causation (namely, that those persons acquired shares at an inflated price by reason of the conduct of Pitcher Partners which resulted in the market trading on defective accounts of Slater & Gordon). For persons who acquired shares between 30 March 2015 and 27 August 2015, this claim is maintained on a “retained shares” theory of causation (namely, that those persons retained shares after 28 August 2015 in ignorance of the defective accounts, and thereby did not sell their shares before the market further deflated).

16    As alluded to above, Middleton J made orders on 12 October 2018 that the Babscay Pitchers Proceeding and Hall Pitchers Proceeding were to be case managed together, with discovery and evidence in one proceeding taken to be discovery and evidence in the other. As a result of this procedural mechanism, the FY15 Goodwill Impairment Issues have, for all practical purposes, been litigated as part of the Hall Pitchers Proceeding, with the WIP Issues and FY15 Acquisition Accounting Issues pursued under the aegis of the Babscay Pitchers Proceeding.

17    It follows that the question as to the fairness of the Babscay Pitchers Proceeding being discontinued is in substance only relevant to the WIP Issues and FY15 Acquisition Accounting Issues, given that the FY15 Goodwill Impairment Issue claims overlap entirely with, and will continue to be litigated in the Hall Pitchers Proceeding.

Consideration

18    The discontinuance of a representative proceeding requires the approval of this Court. In this respect, s 33V of the Act provides as follows:

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.

19    The Court’s task in considering whether to approve the discontinuance of a representative proceeding has a different emphasis compared with the approval of a settlement.  The different emphasis arises because the nature of the act requiring approval is quite different, with different legal consequences.  

20    The discontinuance of a proceeding in the strict sense is the unilateral act of the applicant.  Leaving to one side the cost consequences, the discontinuance of the proceeding puts the applicant in the same position as if the proceeding had not been commenced, save for the effluxion of time in relation to any limitation period within which an action must be brought.  

21    In relation to representative proceedings, the qualification just mentioned does not apply to group members. In such circumstances, time for the purposes of a limitation period is suspended upon the commencement of a representative proceeding and does not run again for a group member unless the group member opts out under s 33J or the proceeding is determined without finally disposing of the group member’s claim: s 33ZE(1) of the Act. I shall refer to the significance of this protection further below.  

22    The legal effect of a unilateral discontinuance compared with a settlement agreement may be readily summarised as follows.  In the case of a discontinuance, the applicant is free to commence a new proceeding against the same respondents if so advised.  As there is no agreement by which the proceeding is compromised, there can be no merger of the applicant’s rights in the proceeding.  Similarly, in the absence of any judicial determination, there can be no res judicata or issue estoppel: see, eg, Caason Investments Pty Ltd v Cao (No 3) [2020] FCA 91 at [132] (Murphy J); Thirteenth Corp Pty Ltd v State [2006] FCA 979; 232 ALR 491 at [33] (Jessup J); Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 450 NSWLR 543, 556-557 (Clarke JA).

23    In contrast, where a settlement agreement has been reached it will be binding upon all group members who have not opted out of the representative proceeding pursuant to s 33J of the Act. Subject to Court approval under s 33V of the Act, the rights of the group members merge in the settlement agreement, or in the case of an accord executory, merge upon performance of the terms of the agreement.  The legal consequences for group members of a settlement agreement are therefore more significant, as the agreement will operate to extinguish their rights in the proceeding and bar them from bringing later proceedings in relation to the same causes of action.  

24    The task of the Court when considering whether to give approval to the settlement is to determine whether the settlement represents “a fair and reasonable compromise of the claims made on behalf of the Group Members”: Lopez v Star World Enterprises [1999] FCA 104 at [15] (Finkelstein J). Plainly, that is not apt to describe the function of the Court in the case of a unilateral discontinuance of a representative proceeding.  It is important not to conflate a settlement agreement, which, by its terms, mandates the discontinuance of the representative proceeding, with a unilateral discontinuance with which this application is concerned.  A settlement agreement which requires performance on the part of the applicant by discontinuing the proceeding is no different in principle to an agreement which requires the applicant consent to orders dismissing the proceeding. 

25    Most recently, Moshinky J summarised the relevant principles for evaluating the fairness and reasonableness of a discontinuance application in Davaria Pty Limited v 7-Eleven Stores Pty Ltd [2020] FCA 1234 at [45]-[46]:

45. The principles applicable to a discontinuance, as distinct from a settlement, of a representative proceeding were discussed Rares J in Wotton v State of Queensland (2009) 109 ALD 534 at [37]-[40]:

[37] Under s 33V(1), a representative proceeding cannot be settled or discontinued without the approval of the court. The decided cases on s 33V(1) all appear to have been concerned with settlements, rather than discontinuances. 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: …

46. In Mercedes Holdings Pty Ltd v Waters (No 1) (2010) 77 ACSR 265 (Mercedes Holdings), Perram J stated at [9]-[10]:

[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. …

26    The matter was approached in a slightly different way by Dixon J in Laine v Thiess Pty Ltd; Beetson v SunWater Limited [2016] VSC 689 at [34], in which his Honour focused on whether the discontinuance would be unfair or unreasonable or adverse to the interests of group members. In this way, Dixon J implicitly endorsed the approach in Pendrigh v Ex ADA Ltd [2015] VSC 719 at [15], [17], in which Derham AsJ focused on whether discontinuance of the entire proceeding was fair and reasonable and whether it would be in the interests of group members.

27    The competing approaches were briefly canvassed by Yates J in Simonetta v Spotless Group Holdings Ltd [2017] FCA 1071 at [12]. However, his Honour did not express a concluded view about whether the approach in Mercedes Holdings Pty Limited v Waters (No 1) [2010] FCA 124; 77 ACSR 265 or Laine was to be preferred:

[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.

28    I respectfully agree with the articulation of the principle by Dixon J in Laine.  In my view, his Honour’s statement of the principle to be applied in the case of a unilateral discontinuance, which does no more than return group members to the position they were in before the commencement of the proceeding, aptly describes the focus of the Court’s consideration in the present context.  

29    I am satisfied that the discontinuance is not unfair, unreasonable or adverse to the interests of group members.  I have reached this conclusion largely as a matter of analysis of the legal effect of the discontinuance discussed above.  Indeed, it seems to me that in cases of unilateral discontinuance such as this, generally it should not be necessary for the applicant to be put to the trouble and expense of preparing detailed material, including obtaining a fully reasoned opinion from counsel addressing the prospects of success of the proceeding, or more aptly, the lack thereof, in support of the application for approval of the discontinuance.  

30    If I am wrong in that view, I would nevertheless approve the discontinuance on the basis that it is in the best interests of group members to do so. I have the benefit of detailed affidavit material and a very thorough and cogent opinion of counsel concerning the merits of the proceeding.  The opinion persuasively supports the discontinuance of the proceeding.

31    There is always the need for circumspection when giving reasons for approving a settlement because of the necessity to preserve confidentiality, especially in relation to privileged material. In the present context, I must be especially vigilant in that regard, in case any group member should hereafter choose to bring a like claim. Self-evidently, it would be potentially prejudicial to such claim were aspects of the confidential and privileged material to be disclosed.  There are also related claims in the Hall Pitchers Proceeding, which I have outlined above, that I must be cautious not to prejudice. As I have said, this is always a sensitive issue in the context of approval applications, but it is all the more so in the context of a unilateral discontinuance which does not bar further potential claims.  

32    Whether the approach in Laine, or the approach in the body of authorities in relation to approval of settlements outlined above is adopted, it is fundamental that the applicant address in the material put to the court any incidental consequences of discontinuance for group members that may foreseeably arise.  In this instance, Babscay has identified only one such consequence, namely that upon discontinuance time will start running again for the purposes of the relevant statutory limitation periods.  

33    In the Joint Confidential Opinion, counsel refer to the effect of discontinuance upon the suspension of limitation periods pursuant to s 33ZE(2) of the Act.  As the below passage concerns legal argument only and was repeated in substance in submissions made to me, it is permissible to quote the relevant passage of the Opinion:

…Section 33ZE(2) does not in fact expressly specify that the running of time resumes upon discontinuance of a representative proceeding. The subsection specifies that time which is suspended does not begin to run again “unless either the member opts out of the proceeding under section 33J or the proceeding, and any appeals arising from the proceeding, are determined without finally disposing of the group member’s claim”. As Lee J pointed out in Gill v Ethicon Sarl (No 4) [2019] FCA 1814, there is little law as to what constitutes a ‘determination’ of proceedings for the purpose of s 33ZE(2). His Honour there expressed the view that s 33ZE(2) was directed to there having been “some judicial resolution of the claim of the group member”. Although this view would result in time remaining suspended under s 33ZE(2) notwithstanding discontinuance, we are of the opinion that if that outcome follows his Honour’s remarks, those remarks are incorrect and ought not be followed. This is because we read the word “determined” in s 33ZE(2) as including one of its verbal senses (“to come to an end”) , and thus being relevantly synonymous with “terminated”, on which basis a discontinuance does involve a determination (or termination) of the proceeding without disposing of the group member’s claim. Taking this view, we consider that time will start running against group members in respect of the WIP Issue and Acquisition Accounting issue claims, upon the notice of discontinuance being filed. Because some of the group members had their claims arise on 24 August 2012, some 10 months prior to the expiry of their six-year limitation period, those group members have the shortest period of time from the date of discontinuance to commence their own proceeding if they so wished, but many Group Members in fact have much longer than that. We consider, however, that even a 10 month period of time is more than sufficient for those group members to obtain appropriate advice and commence proceedings if they so choose [redacted]...

34    It is unnecessary for me to decide whether counsel’s opinion as to the effect of discontinuance is correct as it is sufficient for present purposes to find there is a material risk that the suspension of the limitation periods will cease upon discontinuance.  If it were necessary to determine this question, I would agree with the view expressed by counsel and respectfully disagree with Lee J, adding the same caveat as counsel, namely assuming that is what his Honour intended. 

35    Save for the resumption of the limitation periods, no other collateral effect of discontinuance on group members was identified.  In my view, the resumption of limitation periods upon discontinuance is not a factor in the circumstances of this application that should stand in the way of approval.

36    Counsel for the applicant helpfully provided me with an aide memoire concerning the reckoning of time left to run in respect of relevant limitation periods. That analysis reveals that having regard to the Relevant Period in this proceeding, at a minimum a sub-set of group members will have at least 295 days (approximately 10 months) from discontinuance to commence any of the discontinued claims should they wish to do so. For other group members, there may be several years left to run under the limitation period.  

37    If the limitation period for any group members, or a sub group of them, were to expire imminently; that is to say, within a period that would make it impractical for a group member to bring a fresh proceeding, that circumstance could warrant refusing the application, or be a basis to qualify the approval on terms that would allow time for the group members to consider their position in relation to the bringing of further claims. Indeed, in such circumstances, it may be appropriate to stay the operation of the approval to allow for that to occur.   However, in the present case I am satisfied that, even taking the shortest period of approximately 10 months, there is sufficient time to allow for consideration of any future claim group members may wish to make.  

Notification to group members

38    In the course of discussion with counsel for Babscay, I raised the question of whether group members should be informed, in substance, that discontinuance would bring to an end the suspension of time running in relation to relevant limitation periods.  After taking instructions, counsel indicated that Babscay does not oppose giving notice to the above effect in relation to group members who have entered into funding agreements and thereby identified themselves.  However, this course was resisted on a number of bases in respect of unregistered group members, some of whom cannot be easily identified.  

39    Counsel submitted that there were significant practical difficulties with notifying unidentified group members directly and in relation to giving such notice by way of advertisement. I gave the applicant leave to put on evidence about those matters.  The applicant provided an affidavit of Mr Lee Scott Taylor affirmed 29 October 2020. In summary Mr Taylor deposed that:

(a)    there is a level of public awareness about the matters alleged in the Babscay Pitchers Proceeding, due to media coverage of the related proceedings and the various ASX announcements made by Slater & Gordon in relation to such proceedings in November and December 2017;

(b)    that the direct and indirect costs of publishing a notice of the discontinuance in a newspaper, and responding to enquiries from potential group members in relation to a notice, are difficult to estimate with precision but could exceed $50,000; and

(c)    that the direct and indirect costs of disseminating a notice by reference to data on a company’s share register would likely be even more expensive. Further, and in any event, this method may not be effective because many investors, particularly institutional investors, do not appear on a company’s share register because they make use of a nominee (which acts as the registered but non-beneficial owner of the company’s shares).

40    I am satisfied, taking into account the above matters and weighing those matters against the shortest limitation period of approximately 10 months, that direct notification, or advertising directed to unidentified group members, is not required.  However, in relation to group members who have demonstrated an interest in the proceeding by entering into funding agreements, and who may therefore be readily contacted without undue cost, Babscay has indicated that it will inform those group members of the discontinuance and that as a consequence there is a material risk that the suspension of the limitation period will come to an end.

41    While discussing the subject of notification to group members and for the sake of completeness, I note that the putative trial judge Middleton J, accepted, with respect correctly, that it was not necessary for group members to be given notice of the present application.  His Honour was informed by Babscay at a case management hearing on 24 July 2020 that it did not propose to give notice to the group members of the present application.  Babscay referred his Honour to s 33X(4) of the Act, which requires that notice be given of an application under s 33V, but only in relation to settlements.  Babscay submitted to Middleton J that the reason for the notice requirement in relation to a settlement was because group members’ claims would merge in the settlement if approved by reason of ss 33V and 33ZB, whereas that is not so of discontinuance.

Confidentiality

42    Pursuant to ss 37AF and 37AG of the Act, until further order of the Court, and in order to prevent prejudice to the proper administration of justice, I make confidentiality orders in respect of the affidavit of Mr Lee Scott Taylor affirmed 14 September 2020. Those orders are appropriate in the circumstances, particularly in the context of a unilateral discontinuance where the rights of group members are not merged in a settlement or otherwise extinguished. I also make similar orders in respect of the affidavit of Mr Lee Scott Taylor affirmed 29 October 2020.

Declaration

43    I consider that it is appropriate, for the avoidance of doubt, that there be a declaration to the effect that the approval of the discontinuance does not affect any rights of the applicant or any group members to pursue the claims in this proceeding in another proceeding. While Babscay did not expressly seek such relief, I consider that there is utility in making such an order, so that group members are not left in any doubt that any rights they might have against Pitcher Partners are not foreclosed or affected by the approval of the Discontinuance Application: see analogous approach taken in Simonetta at [29].

disposition

44    Accordingly, I grant approval of the discontinuance and make orders to give effect to my reasons.

Associate:

Dated:    5 November2020

SCHEDULE OF PARTIES