Federal Court of Australia

Watson v Maximus Holdings (NSW) Pty Ltd [2021] FCA 87

ORDERS

THE COURT ORDERS THAT:

1.    The discontinuance of this proceeding be approved 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).

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

3.    The Applicant pay the Respondent’s costs in relation to the proceeding, such costs to be paid on a lump sum basis, totalling $50,000.

THE COURT DECLARES THAT:

1.    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

WIGNEY J:

1    The applicant in this representative proceeding, Mr Adam Watson, sought the Court’s approval to discontinue the proceeding pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (FCA Act). On 23 November 2020, the Court approved the discontinuance of the proceeding and granted Mr Watson leave to discontinue the proceeding by filing a notice of discontinuance. A notice of discontinuance was subsequently filed on 22 January 2021. Mr Watson was also ordered to pay the respondent’s costs on a lump sum basis, with the quantum of the lump sum costs order to be determined on the papers. The Court has determined that the appropriate lump sum is $50,000.

2    Following are the Court’s reasons for approving the discontinuance of the proceeding and for making the lump sum costs order of $50,000.

BACKGROUND

3    Mr Watson’s application for approval to discontinue the proceeding was somewhat unusual. To understand why he wanted to discontinue the proceeding at such an early stage, and why it was appropriate to approve the discontinuance, it is necessary to provide some background and context.

4    The respondent to the proceeding, Maximus Holdings (NSW) Pty Ltd, is an incorporated legal practice variously trading as Schreuders, Schreuder Partners Compensation Lawyers, Schreuders Compensation Lawyers and Schreuder Partners Lawyers. Mr Watson had engaged Maximus to act on his behalf in relation to personal injury claims arising from motor vehicle accidents. Those claims were successfully resolved in April 2019. Mr Watson claims, however, that the fees and disbursements that he was charged by Maximus were not fair and reasonable and that, in charging him those fees and disbursements, Maximus contravened the Legal Profession Uniform Law (NSW) and the Australian Consumer Law (being Sch 2 to the Competition and Consumer Act 2010 (Cth)), failed to comply with the Motor Accidents Compensation Regulations 2015 (NSW) and engaged in conduct constituting breach of contract and breach of fiduciary duty.

5    On 21 August 2020, Mr Watson filed an originating application and statement of claim. Amended versions of both documents were filed on 7 September 2020. The relief sought and the claims made in the originating application and statement of claim respectively were not limited to Mr Watson’s claims. Rather, the proceeding purported to have been commenced as a representative proceeding pursuant to Pt IVA of the FCA Act. The group members were said to constitute all persons who, on or after 1 July 2015: had entered into a conditional costs agreement with Maximus to retain Maximus to recover damages for personal injury arising from a motor vehicle accident in New South Wales and Victoria; were not “commercial or government clients” within the meaning of s 170 of the Legal Profession Uniform Law in New South Wales and Victoria; and had been rendered one or more tax invoices by Maximus pursuant to the conditional costs agreement.

6    The statement of claim also identified “sub-group” members, being persons who, on or after certain specified dates: had entered into a conditional costs agreement with Maximus to retain Maximus to recover damages for personal injury arising from a motor vehicle accident in the Australian Capital Territory, Western Australia, South Australia, Queensland, Victoria and New South Wales pursuant to the various Acts in force in those States and that Territory (in the case of New South Wales and Victoria, the legislation that preceded the Legal Profession Uniform Law); were not “sophisticated client[s]” as defined in those Acts; and were rendered tax invoices by Maximus pursuant to the conditional costs agreement.

7    The essential premise of the representative aspect of the proceeding appeared to be that for many years, all of Maximus’ personal injury clients in all the States (bar Tasmania) and the Australian Capital Territory had been charged unfair and unreasonable fees and disbursements in circumstances that were contrary to the applicable legislation regulating the legal profession in each of the States and the Australian Capital Territory. More will be said later about the apparent basis or reasonableness of this premise and Mr Watson’s pleading generally. Before doing so, it is necessary to make two background observations.

8    First, Mr Watson is represented in this proceeding by Mr John O’Brien of O’Brien Lawyers. This is not the first time that Mr O’Brien has attempted to mount a representative proceeding alleging that solicitors have overcharged clients in personal injury matters and contravened provisions of the applicable legislation regulating the legal profession. It is also not the first time that Mr O’Brien has run into difficulties in attempting to mount or progress such proceedings.

9    In 2016, Mr O’Brien acted for a former client of a legal practice, Commins Hendriks Pty Limited. That client commenced representative proceedings making similar allegations to those made in this proceeding, both on his own behalf and on behalf of group members who were also former clients of the legal practice. Rares J made an order pursuant to s 33N of the FCA Act that the proceeding no longer continue as a representative proceeding under Pt IVA: see Carr v Commins Hendriks Pty Limited [2016] FCA 1282.

10    In 2019, Mr O’Brien again acted for a former client of a legal practice who commenced a representative proceeding which made similar allegations to those made in this proceeding. The respondent to that proceeding filed a number of interlocutory applications which challenged the constitution of the proceeding as a representative proceeding and sought orders that the proceeding no longer continue as a representative proceeding, or that it be struck out or dismissed as an abuse of process. Ultimately, the applicant sought to discontinue the proceeding, a course that was approved by the Court: see Calinoiu v QLD Law Group – A New Direction Pty Ltd [2019] FCA 2194.

11    Second, the commencement of this proceeding was preceded by an unsuccessful application by Mr Watson, again represented by Mr O’Brien, for preliminary discovery: see Watson v Schreuder Partners Lawyers [2020] FCA 1044. The documents sought by way of preliminary discovery were the files of all former and current clients of Maximus retained on or after 24 April 2014 who had entered into conditional costs agreements with Maximus in relation to motor accident claims and had received tax invoices pursuant to those costs agreements: Watson v Schreuder at [1].

12    It is unnecessary to consider the Court’s reasons for refusing the preliminary discovery application. It is, however, relevant to note that Mr O’Brien submitted, on behalf of Mr Watson, that the purpose of seeking the documents was “in order to seek a financial contribution to the costs of the proposed class action, as well as any adverse costs orders and security for costs orders or, alternatively, considering some other form of financial contribution from them”: Watson v Schreuder at [9]. Mr O’Brien also apparently submitted that he considered that the Court should effectively assist him in seeking financial contributions because “it is appropriate for the Court to encourage ‘self-funded’ class actions”: Watson v Schreuder at [3].

13    As will be seen, Mr O’Brien’s efforts to use the Court’s processes to seek financial contributions from the purported or proposed group members and sub-group members continued in this proceeding. Perhaps more significantly, his apparent inability to obtain such financial contributions prior to him being required to deal with other issues that arose in the proceeding provided the impetus and main basis for his application for the Court’s approval of the discontinuance of the proceeding. In short, Mr Watson was unable to fund the representative proceeding and Mr O’Brien was unprepared and unwilling to continue to act or appear in the proceeding unless he secured financial contributions from the group and sub-group members.

THE ORIGINATING APPLICATION AND PLEADING

14    It is unnecessary, for the purposes of this application, to consider the content of the originating application and statement of claim in any great detail. It suffices to observe that, at least at first blush, there appear to be a number of issues or potential problems with both the application and statement of claim. So much so was conceded by Mr Watson, accepting that he needed to engage experienced counsel to amend both documents.

15    The following points in relation to the representative aspect of the proceeding may be noted.

16    First, there are potential issues concerning the specification or identification of the purported sub-group members. None of the sub-groups fall within the group member definition and Mr Watson is not alleged to be a member of any of the sub-groups.

17    Second, the statement of claim contains no allegations in respect of the claims of the sub-group members.

18    Third, there would appear to be issues in relation to at least some of the identified common questions. Even if there was a proper basis to infer that the costs agreements that Maximus sent to all its personal injury clients in each State (bar Tasmania) and the Australian Capital Territory were the same, many of the purported common questions would appear to require detailed consideration of the particular facts and circumstances of each group member and sub-group member. It suffices to give one example. It would appear to be fairly obvious that the question whether the costs charged to a particular client were proportional, fair or reasonable requires consideration of the particular facts and circumstances of that client’s case.

19    Fourth, the group member claims appear to be based on the premise that the “material facts and particulars” of the personal injury claims of each group member in the proceeding in which they were represented by Maximus were the same as Mr Watson’s personal injury claims. That premise would appear to be highly questionable and speculative. The basis for it is, at best, unclear.

20    Fifth, and relatedly, in light of the failure of the preliminary discovery application, it is, at best, unclear whether Mr O’Brien knows the identity of any group member or sub-group member, let alone the particular facts and circumstances of their cases: cf s 33C(1)(a) of the FCA Act.

21    Sixth, in light of the preceding points, it is at least questionable whether it would be appropriate for this matter to continue as a representative proceeding in any event. While each case must be considered on its own facts, it may be noted that similar issues led to the making of an order under s 33N of the FCA Act in Carr v Commins Hendriks. Similar reservations were expressed in Calinoiu at [6], citing Motlap v East Coast Lawyers Pty Ltd [2019] QSC 183.

22    In light of the fact that the discontinuance of this proceeding has been approved, it is neither necessary nor desirable to express any conclusion concerning the adequacy of the originating application and pleading, including the identification of the group members and the common questions or issues. Nor is it necessary to express a concluded view as to whether it would otherwise have been appropriate for the proceeding to continue as a representative proceeding. The point of raising these issues is to make it clear that the road ahead for Mr Watson, had he chosen to continue to pursue the proceeding, was potentially rocky and, more significantly given his reasons for wanting to discontinue the proceeding, potentially expensive in terms of legal fees and the potential exposure to adverse costs orders. The potential difficulties and complexities inherent in the proceeding are also relevant to consider in determining whether the discontinuance of the proceeding should be approved.

THE COURSE OF THE PROCEEDING

23    The proceeding is at a very early stage. Even so, the conduct of the proceeding has been far from regular.

24    As has already been noted, the proceeding was commenced by the filing of an originating application and statement of claim on 21 August 2020. Amended versions of those documents were filed on 7 September 2020. Leave to amend was not required because the pleadings had not closed.

25    Within days of the commencement of the proceeding, Mr Watson filed an interlocutory application which sought orders requiring Maximus to “deliver” to him not only his files in relation to his personal injury claims, but also “[a]ll conditional costs agreements, costs disclosures, contracting out documents and acknowledgment documents for the group members and sub-group members”. The affidavit filed in support of the interlocutory application was an affidavit sworn by Mr O’Brien. It annexed a number of affidavits that Mr O’Brien had sworn for the purposes of his preliminary discovery application.

26    It was and is somewhat curious and unusual that Mr Watson filed what was, in effect, a discovery application, which essentially mirrored his unsuccessful preliminary discovery application, so early in the proceeding. It may perhaps be inferred that, like the preliminary discovery application, the purpose of the discovery application was to ascertain the identity of the group members or sub-group members, so that Mr O’Brien could approach them to seek financial contributions from them for the purpose of the conduct of the proceeding. The availability of that inference was confirmed by the way the proceeding was subsequently pursued.

27    On 23 October 2020, Maximus filed an interlocutory application. The primary relief sought was an order that the proceeding be struck out as an abuse of process. Orders sought in the alternative included, inter alia, that: the proceeding be permanently stayed or summarily dismissed; Mr O’Brien be restrained from acting in the proceeding; or that the proceeding no longer continue as a representative proceeding. The primary basis for this application was the contention by Maximus that the proceeding had been commenced for the “predominant purpose of generating a financial benefit” for Mr O’Brien and that Mr O’Brien’s conduct of the proceeding was liable to bring the administration of justice into disrepute.

28    The proceeding was listed for a first case management hearing on 28 October 2020.

29    Shortly before the case management hearing, Mr O’Brien, on Mr Watson’s behalf, filed, without leave, an outline of submissions in relation to Mr Watson’s amended interlocutory application. The outline of submissions addressed, albeit fairly briefly, what was said to be the discovery application. Significantly, the submissions made it tolerably clear that the main purpose of the discovery application was so that Mr O’Brien could obtain the contact details of the group members and sub-group members so that he could send them a notice the predominant purpose of which appeared to be to invite them to “contribute financially to the class action” by transferring an amount to Mr O’Brien’s firm’s trust account.

30    It should be noted that the amended interlocutory application that had been filed by Mr O’Brien did not seek an order, under either s 33X(5) or s 33Y of the FCA Act, that the Court approve the content of any notice. The outline submissions filed by Mr O’Brien nevertheless annexed a draft notice to group and sub-group members and contained detailed submissions concerning the notice. Both the submissions and the notice made the following points.

31    First, that the applicant, Mr Watson, did not have sufficient funds to “continue the class action to pay O’Brien Lawyers’ costs and disbursements and any possible adverse costs orders”.

32    Second, that Mr Watson did not “have the funds to oppose any interlocutory applications” filed by Maximus.

33    Third, Mr O’Brien was “not acting on a ‘no win, no fee’ basis”.

34    Fourth, while the making of a financial contribution to fund the costs of the proceeding was said to be optional, the notice flagged that Mr O’Brien would be asking the Court “at an appropriate time” to “only allow contributing class members to participate in any distribution of the funds on the successful resolution of the class action (a class closure order) and any non-contributing class members to be excluded from the class action” (emphasis in original).

35    Fifth, Mr O’Brien’s “continued involvement in the class action may depend upon a sufficient number of class members financially contributing to their legal costs of the class action”.

36    Needless to say, the question whether the Court could or should approve the sending of such a notice to group members, particularly at such an early stage of the proceeding, was and is highly questionable and by no means straightforward: cf The Owners – Strata Plan No 87231 v 3A Composites GmbH (No 3) [2020] FCA 748. Mr O’Brien, however, appears to have proceeded on the basis that the Court would consider the approval of the notice at the first case management hearing, despite the fact that no application seeking the Court’s approval of the notice had been filed or served and the draft notice and outline of submissions were accepted for filing only two days before the case management hearing. So much so was evidenced by the fact that Mr O’Brien sent the Court draft orders, which included orders approving the notice, on the eve of the case management hearing. The draft orders provided to the Court by Maximus included orders for the filing and service of affidavits and submissions concerning both its interlocutory application and Mr Watson’s interlocutory application and the hearing of both applications on the same day.

37    At the case management hearing on 28 October 2020, Mr O’Brien, on behalf of Mr Watson, pressed the Court to make orders which included an order approving the draft notice. He submitted, in effect, that the orders approving the draft notice should be made prior to the consideration of the interlocutory application filed by Maximus because he needed to get funds in from the group members in order to oppose that interlocutory application. Counsel for Maximus opposed the making of an order approving the notice and pressed the Court to make its proposed timetabling orders for the hearing of both interlocutory applications on a date to be fixed. Counsel for Maximus submitted, among other things, that the two interlocutory applications were intertwined and that there were, in any event, real questions about whether the Court had the power to approve a notice in the form proposed by Mr O’Brien.

38    The Court indicated that it proposed to list the two interlocutory applications for hearing on the same day and to make timetabling orders along the lines of those proposed by Maximus. It was in that context that Mr O’Brien raised, for the first time, the prospect of the discontinuance of the proceeding. He said, in that context, that “if we cannot get those funds in, then we’ve got no choice but to ask for leave to file a notice of discontinuance” and that either he, or Mr Watson, did not have the “financial capacity to continue with [the] proceedings” and that he was not prepared to “continue the proceedings on a no-win/no-fee basis”. The Court indicated, in response, that there may be issues concerning the discontinuance of the proceeding given that it was a representative proceeding. Counsel for Maximus also indicated that he needed to get instructions in relation to the proposed discontinuance, including in relation to costs. The end result was that the matter was listed for a further case management hearing on 2 November 2020 for the purpose of considering whether the matter could or would be discontinued. It was made quite plain to Mr Watson that if the proceeding was not discontinued, the two interlocutory applications would be set down for hearing expeditiously and on the same day.

39    It is unnecessary to consider what occurred at the case management hearing on 2 November 2020. It suffices to say that there was no agreement between the parties as to what should occur. Counsel for Maximus proposed that the proceeding be “declassed” pursuant to s 33N of the FCA Act so as to avoid any potential prejudice to group members should the matter be discontinued. Any order pursuant to s 33N was “vigorously and strongly opposed” by Mr O’Brien on behalf of Mr Watson. Mr O’Brien appeared to press for the discontinuance of the proceeding, though he acknowledged that the Court would have to approve the discontinuance pursuant to s 33V of the FCA Act. Mr O’Brien also opposed the making of any costs order against Mr Watson should the discontinuance of the proceeding be approved. Counsel for Maximus submitted that costs should follow the event.

40    In the end, the Court directed the parties to file brief written submissions in relation to the proposal by Maximus that an order be made under s 33N of the FCA Act, whether the Court should approve the discontinuance of the proceeding and, if so, whether a costs order should be made. While the Court proposed that the issues be determined on the basis of the written submissions, Mr O’Brien requested an oral hearing. The matter was accordingly set down for hearing on 23 November 2020.

RELEVANT PRINCIPLES

41    Pursuant to s 33V of the FCA Act, reproduced below, discontinuance of a representative proceeding requires the approval of the Court:

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.

42    This requirement is also reflected in r 26.12 of the Federal Court Rules 2011 (Cth); in particular, subr 4:

26.12 Discontinuance

(1)    A party claiming relief may discontinue a proceeding in whole or in part by filing a notice of discontinuance, in accordance with Form 48.

(2)     The party may file the notice of discontinuance:

  (a)    without the leave of the Court or the other party’s consent:

(i)    at any time before the return date fixed in the originating application; or

(ii)     if the proceeding is continuing on pleadings—at any time before the pleadings have closed; or

(b)     with the opposing party’s consent—before judgment has been entered in the proceeding; or

  (c)     with the leave of the Court—at any time.

  Note 1:    For when pleadings close, see rule 16.12.

Note 2:    The Court may give leave subject to conditions including costs—see rule 1.33.

 (3)     The notice of discontinuance must:

  (a)     state the extent of the discontinuance; and

(b)     if the discontinuance is by consent—be signed by each consenting party.

(4)     However, a litigation representative or a representative party must not discontinue a party’s claim without first obtaining the leave of the Court.

(5)     An application for a winding up order under section 459P or 461(1)(a) of the Corporations Act 2001 may be discontinued only with the leave of the Court.

(6)     A notice of discontinuance filed by one party does not affect any other party to the proceeding.

(7)     Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.

43    The majority of the decided cases on s 33V(1) have been concerned with settlements, rather than discontinuances: see Wotton v State of Queensland [2009] FCA 758; 109 ALD 534 at [37]. Importantly, however, the considerations relevant to the former are not always identical to the latter. As Anastassiou J has recently observed, 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”: Babscay Pty Ltd v Pitcher Partners [2020] FCA 1610 at [19]. Three differences are relevant in this context.

44    First, the nature of the act requiring approval by the Court is “quite different”: see Babscay [19]. Discontinuance of a proceeding “in the strict sense is the unilateral act of the applicant”, whereas settlement of a proceeding is a multilateral act agreed to by all parties: see Babscay at [19]-[20].

45    Second, the two approval decisions produce vastly different legal consequences. These differences were helpfully summarised by Anastassiou J as follows (Babscay at [20]-[24]):

… 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.

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.

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).

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.

… 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.

46    Third, the tests to be applied, and considerations to be taken into account, are also not uniform: Tate v Westpac Banking Corporation (No 2) [2020] FCA 1374 at [31]. It is well accepted that the test for deciding whether to approve a 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 Pty Ltd [1999] FCA 104; ATPR 41-678 at [15]. This is, however, plainly not apt to describe the test to be applied by the Court in a case of discontinuance: Babscay at [24].

47    The difficulty, in this regard, is that competing approaches have emerged for deciding whether to approve a discontinuance. One approach is to consider whether the proposed discontinuance would be fair and reasonable not only in the interests of the immediate parties but of all group members, as per Perram J in Mercedes Holdings Pty Limited v Waters (No 1) [2010] FCA 124; 77 ACSR 265 at [10], [24]. The other approach is, conversely, to consider whether the proposed discontinuance would be unfair or unreasonable or adverse to the interests of group members, as per Dixon J in Laine v Theiss Pty Ltd; Beetson v SunWater Limited [2016] VSC 689 at [34]. These differing approaches were briefly considered by Yates J in Simonetta v Spotless Group Holdings Limited [2017] FCA 1071, although his Honour did not express a concluded view as to which was the preferable approach (at [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.

(Emphasis in original.)

48    In Babscay, however, Anastassiou J did express a concluded view, his Honour preferring the approach of Dixon J in Laine (at [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.

49    As was the case in Simonetta, it is unnecessary for the purposes of this application to decide whether the principle or test as expressed in Laine is preferable to the principle or test as expressed in Mercedes Holdings. For the reasons given later, the discontinuance of the proceeding was appropriate on either test. That is likely to be the position in many, if not most, cases such as this, where the discontinuance occurs at an early stage and in circumstances where the effect of the discontinuance is to return the group members to the position they were in before the commencement of the proceeding. Nevertheless, and to avoid any continuing uncertainty in relation to the matter, it should be noted that the approach taken by Anastassiou J in Babscay, endorsing the articulation of the principle in Laine, should be endorsed as the preferable approach in such cases. It is also particularly appropriate in a case such as this where it would appear (as was conceded by Mr O’Brien) that the group members were entirely unaware of the proceeding and there was no information as to how many group members there were, who they were or what their circumstances were, or would be, if the proceeding was discontinued. It is difficult to see how, in such a case, a positive view could be formed about whether the discontinuance would be unfair, unreasonable or adverse to the group members.

SHOULD THE DISCONTINUANCE BE APPROVED?

50    The discontinuance of the proceeding should be approved by the Court. The discontinuance of the proceeding would not be unfair, unreasonable or adverse to the interests of the group members and sub-group members as defined in the existing pleading. Indeed, in all the circumstances, discontinuance would be in the best interests of the group and sub-group members. The following considerations support these conclusions.

51    First, as in Babscay, the effect of the discontinuance is that the group members and sub-group members would be returned to the position they were in before the commencement of the proceeding. If any group member or sub-group member decided to commence proceedings against Maximus after the discontinuance, they would be free to do so. The proceeding is at a very early stage and there has been no hearing or judicial determination in relation to the merits of the action. There is, therefore, no question of res judicata or issue estoppel: Babscay at [22] and the cases cited therein.

52    Second, there is nothing to suggest that any group and sub-group members have or would suffer any prejudice or disadvantage by reason of the effluxion of time since the proceeding was commenced. That is so even though the limitation period for any action by any group or sub-group member was suspended while the proceeding was on foot by reason of s 33ZE of the FCA Act. The likelihood is that no group member, other than Mr Watson, was or is aware that the proceeding had been commenced. As has already been noted, the proceeding has only been on foot for a relatively short period of time. There is no evidence that there is any group member who deferred commencing proceedings against Maximus because of the existence of the proceeding and whose potential action against Maximus may become time-barred as a result of the effluxion of time between the commencement of the proceeding and discontinuance. The possibility of any group member being disadvantaged in that way is, at best, theoretical.

53    It should perhaps be noted in this context that, to the extent that there is any issue about whether discontinuance of the proceeding would end the s 33ZE suspension of the running of limitation periods, the better view would appear to be that discontinuation would end the suspension: cf Babscay at [32]-[34]. It is, however, unnecessary to decide that question finally. It should also be noted that no party suggested that there was any need for the discontinuation of the proceeding to be advertised or that any other step should be taken to notify group members of either this application or the discontinuance, or possible discontinuance, of this proceeding. Such a course was and is unnecessary for the reasons given in Babscay at [40]-[41].

54    Third, the reality is that Mr Watson and his solicitor, Mr O’Brien, are in no position to pursue this representative proceeding. Mr Watson does not have the capacity to fund the proceeding, in terms of paying legal fees, and Mr O’Brien has made it clear that he is not prepared to act for Mr Watson on a “no win, no fee” basis. Mr O’Brien appears to have proceeded on the basis that he would be able to secure funding for the action from group members and sub-group members and that he would be permitted to use the Court’s processes to solicit such funding. His efforts thus far, however, have been ill-conceived and have largely failed. His application for preliminary discovery, on behalf of Mr Watson, was dismissed with costs. The notice that he has drafted for the Court’s approval is highly contentious and questionable and the Court’s approval of it is opposed by Maximus.

55    The Court has determined that the question whether the notice can, and should, be approved must be determined at the same time as the interlocutory application that has been filed by Maximus which seeks an order that the proceeding be struck out, or alternatively permanently stayed or summarily dismissed. Mr O’Brien has made it clear that he, and through him Mr Watson, are unwilling to defend or oppose the interlocutory application filed by Maximus if that interlocutory application is to be determined at the same time as his application for approval of the notice. There is no basis for Mr O’Brien’s contention that the Court should consider approving his draft notice before considering and determining the merits of the interlocutory application filed by Maximus, particularly given that the issues raised by the competing applications appear to intertwine to a considerable extent. Even in the relatively unlikely event that the Court were to approve the notice drafted by Mr O’Brien, that would not necessarily result in Mr O’Brien being put in funds sufficient to ensure his ongoing involvement in the matter, let alone being put in funds within a reasonable period of time. There is also no basis to hold up the progress of the matter while Mr O’Brien obtains the funding which he apparently considers necessary to secure his ongoing involvement.

56    It is not in the best interests of group and sub-group members for the proceeding to continue given Mr Watson’s and Mr O’Brien’s unwillingness to proceed with the matter beyond this point unless they are able to utilise the Court’s processes to secure funding from group and sub-group members: cf Tate at [40(5)]. As has already been noted, Mr O’Brien’s efforts to secure funding via the Court’s processes thus far have been, at best, highly questionable. It is uncertain that Mr O’Brien will be able to secure funding in the near future. Despite the fact that it was Mr O’Brien, through Mr Watson, who moved the Court to approve the discontinuance of the proceeding, he advanced a number of submissions that, if accepted, would have driven the Court to refuse to approve the discontinuance. In particular, he submitted that, while it was in Mr Watson’s best interests for the proceeding to be discontinued, it was not in the best interests of the group members. There was and is, however, no merit whatsoever in that submission.

57    The premise behind Mr O’Brien’s submission concerning the best interests of the group members was that if the proceeding was not discontinued, he would be able to raise funds from the group and sub-group members, oppose the interlocutory application filed by Maximus and retain senior counsel to amend the originating application and pleading. The fallacy or falsity of that premise has already been exposed. Upon analysis, most of the submissions advanced by Mr O’Brien concerning the interests of the group members were little more than a thinly-veiled attempt to persuade the Court to assist him in securing funding from the group members so he could continue to act in the proceeding and be paid for doing so.

58    It should perhaps be added that, given his conduct of the proceeding thus far, it is at best questionable whether Mr O’Brien’s continued involvement in the proceeding would be in the best interests of the group members in any event. It is also somewhat difficult to avoid the conclusion that Mr O’Brien’s conduct of the matter, on behalf of Mr Watson, including the submissions he advanced in relation to the discontinuance, has been driven more by his own entrepreneurial interests rather than the best interests of the group members. It is, however, unnecessary to go that far for the purposes of resolving the question whether the discontinuance should be approved.

59    For all the foregoing reasons, the discontinuance of the proceeding would not be unfair, unreasonable or adverse to the interests of group and sub-group members and should be approved.

60    The final point to note in relation to discontinuance is that it is appropriate that there be a declaration to the effect that the approval of the discontinuance does not affect any rights of Mr Watson or any group members to pursue the claims in this proceeding in another proceeding. The utility in making such an order is to ensure that group and sub-group members are not left in any doubt that any rights they might have against Maximus are not foreclosed or affected by the approval of the discontinuance: see Babscay at [43]; Simonetta at [29]; Wotton at [36]; Tate at [40(6)].

SHOULD THE PROCEEDING HAVE BEEN “DECLASSED”?

61    At the outset, the primary submission advanced by Maximus was that an order should be made under s 33N of the FCA Act that the proceeding no longer proceed as a representative proceeding. Not surprisingly, however, Maximus did not oppose the discontinuance of the proceeding, subject to an order for costs being made in its favour, and accepted that discontinuance was a reasonable and available means by which to resolve the present impasse. As has already been noted, Mr Watson opposed the making of an order under s 33N of the FCA Act and pressed the Court to approve the discontinuance instead.

62    In light of the findings that have been made concerning discontinuance, and the Court’s approval of that course, it is neither necessary nor desirable to address the submissions made by Maximus in support of the making of an order under s 33N of the FCA Act. Nor is it necessary to decide that issue. As adverted to earlier, however, had the proceeding not been discontinued, serious issues were likely to arise as to whether it was appropriate for the matter to continue as a representative proceeding, at least as presently pleaded and particularised. Equally, it is likely that serious questions would also have arisen about many of the identified common questions or issues.

COSTS

63    The general effect of r 26.12(7) of the Rules, reproduced earlier in these reasons, is that a party who files a notice of discontinuance is liable to pay the costs of each other party to the proceeding in relation to the claim that is discontinued unless the Court otherwise orders or the terms of the consent of the other party or parties provide otherwise. Accordingly, the default or general position is that the discontinuing party must pay the costs of each other party to the proceeding. It therefore essentially falls to Mr Watson to demonstrate why the Court should order otherwise, given that Maximus sought a costs order in its favour.

64    Maximus submitted that costs should follow the event as prescribed by r 26.12(7), and that Mr Watson had not identified any legitimate or viable basis for being excused from the operation of that rule.

65    Mr Watson submitted that each party should pay their own costs. He contended, in support of that submission, that he only received two files from Maximus shortly before the first case management hearing. Those files indicated that the application and pleading would need to be amended. No other reason for departing from the default or general rule in r 26.12(7) of the Rules was identified.

66    It was and is appropriate, in all the circumstances, for Mr Watson, as the discontinuing party, to pay Maximus’ costs. As already adverted to, the submission advanced by Mr Watson to the contrary was and is unmeritorious. Mr Watson commended this proceeding. He subsequently sought the Court’s approval to discontinue it not because of the files produced shortly before the first case management hearing, but because he did not have adequate funds to progress with the proceeding. That is a matter he plainly should have considered and addressed prior to the commencement of the proceeding. He advanced no other reason for why Maximus was not entitled to its costs of the discontinued proceeding.

67    At the hearing on 23 November 2020, Maximus submitted that this would be an appropriate case for a lump sum costs order, which would avoid the potentially time consuming and expensive process of taxation. Mr Watson supported that proposal. The Court accordingly ordered the parties to file written submissions in relation to a lump sum costs order. It was also agreed that the quantum of the costs order would be determined on the papers.

68    It is unnecessary to detail in full the submissions and evidence filed by Maximus as to a lump sum costs order. Following is a brief summary.

69    Maximus considered it necessary to engage senior and junior counsel; their rates were, respectively, $8,200 (plus GST) per day and $820 (plus GST) per hour, and $3,500 (plus GST) per day and $350 (plus GST) per hour. Maximus agreed, however, to reduce senior counsel’s hourly rate to $740 (excluding GST) per hour, in accordance with the Federal Court’s National Guide to Counsel Fees (2013): see Costs Practice Note (2016). Maximus’ instructing solicitors and counsel engaged in various tasks including, inter alia, reviewing Mr Watson’s amended court documents, reviewing the relevant legal costs legislation and regulations, briefing and conferring with counsel, preparing its interlocutory application filed 23 October 2020 and attending court on three occasions. Maximus’ instructing solicitors incurred costs of $38,330.00 and disbursements totalling $1,857.75; Maximus’ junior counsel issued invoices totalling $13,445.84; and Maximus’ senior counsel issued an invoice totalling $19,610.00. These costs and disbursements totalled $73,243.59.

70    Maximus’ instructing solicitor submitted that, in his experience, parties usually recover on taxation or assessment 65-85% of their actual costs on the ordinary basis. Maximus submitted, taking into account all of the above, that an appropriate amount for the lump sum costs order is $55,000, approximately 75% of the total costs and disbursements.

71    Mr Watson submitted in reply that Maximus was only entitled to its costs of the application for discontinuance, not the costs of the proceeding as a whole. He contended that “[n]o costs whatsoever” should be allowed with respect to Maximus’ interlocutory application, and that if Maximus’ intention was to seek “at large to include the costs” of the entire matter, it should have made that application to the Court on 23 November 2020. He also submitted that this position was supported by order 3 of the orders dated 23 November 2020 made at the hearing.

72    The submission that Maximus was only entitled to the costs of the application for approval of the discontinuance has no merit and is rejected for at least three reasons. First, Maximus was not specifically required to make an application to recover its costs of the entire proceeding, though that was, in any event, the obvious purport of its application. Second and relatedly, order 3 of the orders made on 23 November 2020 states that “[t]he Applicant pay the Respondent’s costs in relation to the proceeding, such costs to be determined on a lump sum basis, …” (emphasis added). There is no indication that such costs were to be limited to the discontinuance application. Third, and most importantly, order 3 simply reflects r 26.12(7) of the Rules, which provides that the party who files a notice of discontinuance is liable to pay the costs of each other party in relation to the claim, or part of the claim, that is discontinued. In this instance, the entire claim has been discontinued by Mr Watson.

73    It follows that Maximus is entitled to its costs of the proceeding up to the point of discontinuance and that the quantum of the lump sum costs order should be determined on that basis.

74    Mr O’Brien, on behalf of Watson, submitted that the some of the costs and disbursements claimed by Maximus, or at least the quantum of those costs and disbursements, were “excessive” and “not relevant”. It is necessary to consider briefly those arguments.

75    First, Mr O’Brien contended that the $38,330.00 costs (plus certain disbursements) incurred by Maximus’ solicitors equated to approximately 70 hours of work by the principal solicitor in this matter. That, in his submission, was “grossly excessive”.

76    There is no proper or sound basis for the contention that the work engaged in by Maximus’ solicitor was excessive, let alone grossly excessive. There is nothing to suggest that 70 hours of work over the three months during which the proceeding was on foot was an inappropriate amount of time spent on this matter. The pleading filed by Mr Watson was very lengthy and complex and raised a number of significant factual and legal issues, not only in respect of Mr Watson’s claim, but also the representative nature of the proceeding. It was undoubtedly necessary for Maximus’ solicitors to closely read and analyse the pleading and take instructions from Maximus in relation to it, including in relation to the appropriate response. It would appear that the solicitors drafted and sent Mr O’Brien a detailed request for further and better particulars of the claim. That letter also raised a number of issues about the pleading. The solicitors were also no doubt required to spend time briefing and liaising with counsel, including in relation to the interlocutory application filed by Maximus and the interlocutory application filed by Mr Watson.

77    Second, Mr O’Brien submitted that briefing senior counsel was “not warranted”. He contended, in particular, that the issues in this matter were “within the competence” of junior counsel and that senior counsel was not briefed in Watson v Schreuder. Mr O’Brien also stated that he “has difficulty” with Maximus’ instructing solicitor effectively “contracting out” the work “he is required to carry out to” senior and junior counsel and consequently “double/triple dipping” the legal fees incurred. That, he said, was “not within the spirit” of s 37M of the FCA Act.

78    The submission that briefing senior counsel was unwarranted in this matter is rejected. It is immaterial that only junior counsel was briefed in Watson v Schreuder, which was only a claim for preliminary discovery. As has already been noted, the originating application and statement of claim raised potentially complex matters and alleged serious allegations against Maximus which, if substantiated, would undoubtedly have significant and severe consequences for Maximus if proven to be true. The issues raised by the representative nature of the proceeding were also complex and warranted the retainer of senior counsel. There is also no substance or merit in the contention that Maximus’ solicitors effectively contracted out its work to senior or junior counsel. The itemised bill provided referred to work typically undertaken by counsel, including considering the brief, preparing draft submissions and attending court hearings.

79    In all the circumstances, the amounts invoiced by both Maximus’ instructing solicitors and its counsel are reasonable and proportionate to the work undertaken in this matter. The costs and disbursements outlined in Maximus’ submissions and evidence were properly and reasonably incurred.

DISPOSITION AND CONCLUSION

80    The Court made an order approving the discontinuance on 23 November 2020 on the basis that discontinuance was not unfair, unreasonable or adverse to the interests of group members. The basis of that finding is explained in these reasons. A notice of discontinuance was filed on 22 January 2021.

81    In relation to costs, the Court has determined that in all the circumstances it is appropriate that Mr Watson pay Maximus’s costs in relation to the proceeding and that a lump sum costs order should be made. The appropriate amount of the lump sum costs order is $50,000, which is approximately 70% of the total costs and disbursements. Orders to that effect will be made.

82    It is noted, for completeness, that there is no suggestion that, and no basis upon which, group members could be liable for any costs of the proceeding: see Tate at [40(2)].

Associate:

Dated:    12 February 2021