Federal Court of Australia

Francis (Trustee) v Oculus Accounting Pty Ltd (No 2) [2021] FCA 1275

ORDERS

THE COURT ORDERS THAT:

1.    The applicants’ second amended interlocutory application filed 1 July 2021 be dismissed.

2.    The costs of the application be reserved.

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

REASONS FOR JUDGMENT

DERRINGTON J:

1    The present action was commenced by the applicants, Mr Garry Francis and Mrs Jodi Francis, as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Act) on their own behalf and on behalf of persons with similar claims against the respondent, Oculus Accounting Pty Ltd (Oculus). As a representative proceeding, it may not be discontinued without the approval of the Court first being obtained: s 33V. By an application filed on 1 July 2021, the applicants seek approval to discontinue the proceedings.

2    Although it seems appropriate that the proceedings somehow be ended, there are several issues with the present application which prevent an order to that effect being made at this time. Foremost, the applicants have failed to demonstrate that the proposed discontinuance is fair and reasonable and in the interests of group members as a whole. In addition, although discontinuance itself would not impede other group members from individually proceeding against Oculus, the terms on which the representative proceeding is proposed to be discontinued purport to restrain the applicants’ legal representatives from assisting or being involved in any such proceedings, whether actual or prospective. If enforceable, that restraint would have the practical effect of negating substantially all of the benefit of the conduct of the representative proceeding on behalf of the group and, for that reason, the discontinuance would be adverse to the interests of the other group members.

3    For those reasons, it was not demonstrated that the discontinuance of the representative proceeding ought to be approved. As is explained below, the applicants also failed to establish their entitlement to an order pursuant to s 33N. While this means that their application should be refused, it ought to be emphasised that the termination of the proceedings seems to be appropriate in the circumstances and that the issues identified below are not insurmountable. It will remain open to the applicants to address those issues and re-apply for similar relief.

background

4    The background to the proceedings need only be stated briefly.

5    The applicants were clients of Oculus which had previously provided them with accountancy and taxation advisory services in accordance with its day-to-day business activities.

6    In about February 2014, the applicants invested the sum of $100,000 subscribing for shares in Guvera Limited (Guvera), which carried on business as a provider of an internet music streaming service from 2007 until it was placed into external administration in May 2017.

7    The applicants claim that Oculus provided them with investment or financial advice in relation to their investment in Guvera shares. That is denied by Oculus, which says that any advice in relation to that investment was given by an unrelated third party.

8    The applicants commenced their action in January 2020, the essence of which was that:

(a)    in 2014, Oculus or its agents advised them in relation to subscribing for Guvera shares;

(b)    they ultimately invested the sum of $100,000 in Guvera shares;

(c)    an application to list Guvera on the Australian Securities Exchange was rejected in 2016 and the company was subsequently placed into external administration in May 2017;

(d)    the result was that their shares became worthless and unsaleable;

(e)    in the course of advising them in relation to their investment, Oculus breached various duties it owed to them, including a duty of care, a fiduciary duty, and obligations arising under Schedule 2 of the Competition and Consumer Act 2010 (Cth); and

(f)    as a consequence of the breach of those duties, they suffered loss and damage, in that their shares are now worthless and unsaleable, which is recoverable from Oculus.

9    Oculus denies much of the allegations underlying that claim.

10    The other group members are persons with similar claims. It is unclear how many investors fall within this category, but there may be as many as 107. The total amount which they invested in Guvera is also unknown, but for present purposes it may be assumed that they might collectively seek to recover a sum many times greater than $100,000 if the claims raised in the representative proceeding are established.

The conduct of the proceedings

11    Although the proceedings have been on foot since January 2020, the parties have been occupied with interlocutory issues which did little to advance the preparation of the matter for trial.

12    The applicants first attempted to identify and join Oculus’ professional indemnity insurers for the relevant period. Although two were joined in March 2020, the claims against them were later struck out by consent and the applicants were ordered to pay the insurers’ costs. It appears that their legal representatives ascertained there were poor prospects of recovering against those insurers consequent on there being doubt as to whether the policies’ cover extended to the provision of advice of the kind Oculus was alleged to have provided. There was also uncertainty as to whether the company had notified their insurers of potential claims in accordance with the terms of the policies.

13    The applicants and Oculus then undertook discovery during the second half of 2020. This was, in part, directed towards the issue of Oculus’ professional indemnity insurance and the identification of other insurers who might be liable. There was some indication that the applicants might join other insurers to the proceedings, but that did not occur and there is no suggestion it will if the relief sought by the present application is not granted.

14    In February 2021, orders were made for the applicants to serve “opt out notices” on known group members and to advertise the proceedings such that any unknown group members could opt out if so minded. These were later vacated and no similar orders have subsequently been made.

15    Oculus then sought to be granted a dispensation from the requirement in r 4.01(2) of the Federal Court Rules 2011 (Cth) (the Rules) so it could be represented by a director, Mr David de Closey. This application was opposed and was dismissed on 30 April 2021: Francis (Trustee) v Oculus Accounting Pty Ltd [2021] FCA 448. In the course of the hearing, Mr de Closey adduced evidence as to Oculus’s financial position in attempting to demonstrate that it had limited assets and ought not be required to engage further legal representation. In particular, he deposed to there being a “very real prospect” of the company being placed into liquidation if the proceedings continued, irrespective of the applicants obtaining any judgment against it. It became evident at this time that, no matter the merits of the claims, the prospects of recovering any judgment from Oculus were poor.

16    The solicitors presently acting for the applicants will not continue to do so on the basis that their fees will not be paid unless particular outcomes are reached. They have also indicated that both they and present Counsel “would [not] be prepared to continue acting on [the applicant’s] behalf, or on behalf of the other group members” on a similar basis “given the perceived lack of viability of the representative proceedings”.

17    The applicants have also had the benefit of an after the event insurance policy with respect to any adverse costs order. Given the evidence as to the prospects of enforcing any judgment against Oculus, it can be accepted that no insurer would be interested in providing similar cover to any group member who sought to be substituted as the representative party.

The present application

18    Having become satisfied of the poor prospects of recovering from Oculus, the applicants wish to rid themselves of the proceedings. The parties have entered into a deed of settlement (the Deed) dated 14 May 2021 which, in general terms, provides:

(a)    the Deed is between:

(i)    the applicants;

(ii)    Oculus;

(iii)    Oculus’ directors personally;

(iv)    Bounty Law, the applicants’ solicitors;

(v)    Mr Turnbull, the applicants’ present Counsel;

(vi)    Mr Coburn, the applicants’ previous Counsel;

(vii)    Coburn Corporate Investigations Pty Ltd, a company which undertook investigative work prior to the proceedings being commenced; and

(viii)    Wilson Haynes Solicitors, Oculus’ former solicitors whose then principal now acts for Oculus at a different firm;

(b)    without any admission of liability by Oculus or its directors, the company agrees to pay a settlement sum to the Bounty Law trust account, although the Deed does not itself specify the manner in which it is to be distributed;

(c)    in consideration for the payment of that sum, the applicants agree to complete certain steps, including discontinuing the proceedings, and each of Bounty Law, Mr Turnbull and Mr Coburn also accept certain restraints which, in essence, prevent them from acting in any future proceedings against Oculus and from assisting or being involved in any actual or prospective proceedings against Oculus in future; and

(d)    Oculus and its directors on the one hand, and the applicants on the other, each agree to release the other from any and all claims which they may have, including those raised by the applicants in these proceedings.

19    There was some indication that the manner in which the settlement sum is to be distributed is set out in a “schedule” and that no amount would be paid to the applicants. Relevantly, the applicants’ written submissions suggested that if the Court wished to be informed as to the “settlement and/or distribution of the settlement monies”, it could request the relevant documents. While this was apparently motivated by a desire to maintain confidentiality in that information, it was not the responsibility of the Court to inform the parties that the information in those documents was relevant. The Court received a copy of the Deed during the hearing, but the distribution schedule was not provided. Ultimately, there was no evidence as to the manner in which the settlement monies were proposed to be distributed.

20    The interlocutory application went through several iterations before it was heard. The first version was emailed to my Associate on 31 May 2021 and sought orders that the proceedings no longer continue as a representative proceeding pursuant to ss 33N and 33P. By an email of 1 June 2021, my Associate advised the parties of my concern that it was apparently contemplated that notice would not be given to the other group members and that relief pursuant to s 33W, which permits a representative party to settle their claim and withdraw with leave of the Court, might be more appropriate. This prompted an amendment to the application which sought, in the alternative, an order pursuant to s 33W. There was then a further amendment on 1 July 2021 which omitted the relief pursuant to s 33W and added, in the alternative, “an order for discontinuance of the representative proceedings under section 33V(1)”. This was ultimately the form of the application on which the applicants moved at the hearing.

21    In support of the application, the applicants relied upon affidavits of their solicitor, Mr Robert Anderson, dated 31 May 2021 and 30 June 2021 in which he deposed to the following:

(a)    Oculus has very limited resources with which to meet any judgment against it obtained by the applicants (referencing Mr de Closey’s evidence at an earlier hearing);

(b)    the applicants’ investigations had revealed that there was no professional indemnity insurance policy which would respond to their claims against Oculus;

(c)    if the applicants or a substituted representative party sought to recover any judgment from Oculus’ professional indemnity insurer, they would be exposed to a high probability of having to meet an adverse costs order;

(d)    he had advised the applicants that the pursuit of their claims by the representative proceeding is not “remotely viable” given the significant costs that would entail and the prospects of recovering any judgment from Oculus or its insurers;

(e)    the applicants have reached an agreement with Oculus to settle their claims only, which is conditional upon the representative proceeding being discontinued; and

(f)    that condition would be satisfied by “an order discontinuing the representative proceedings” (s 33V) or an order that the proceedings no longer continue under Pt IVA (s 33N), which would enable them to discontinue their individual proceeding.

22    In an affidavit of 30 June 2021, Oculus’ solicitor, Mr James Wilson, deposed to the respondent’s support for the making of orders discontinuing the representative proceedings in their entirety. He also deposed to sharing Mr Anderson’s opinion as to the high likelihood that the action would not result in any monetary benefit to the group members.

23    Although the applicants seemingly sought to have their application heard at the case management hearing on 2 July 2021, they accepted that it would be inappropriate to discontinue the representative proceeding without having given notice to the other group members whose interests might be affected. In the end, orders were made for the preparation of a draft notice which was to be settled by the Court and then distributed to known group members in advance of a hearing on 10 September 2021.

24    The initial draft notice was seriously inadequate and required substantial redrafting, with the result that the initial hearing date was vacated. Further issues with the second draft notice were able to be resolved promptly and orders were made for the settled notice to be distributed by 25 August 2021 in advance of the hearing on 27 September 2021. The applicants have adduced sufficient evidence establishing their compliance with those orders.

25    Any group member who wished to object was ordered to give notice and provide any material upon which they intended to rely by 17 September 2021. As no person has taken up that opportunity and no other person sought leave to appear at the hearing, the application can be regarded as being unopposed by the other group members.

RELEVANT principles

26    This is not an appropriate occasion on which to assay the principles concerning ss 33N and 33V in great detail. The applicants’ written submission conspicuously failed to assist the Court in articulating the relevant principles. Although Mr Turnbull for the applicants referred to the decisions in AUB19 v Commonwealth of Australia [2019] FCA 1722 (AUB19) and Tate v Westpac Banking Corporation (No 2) [2020] FCA 1374 (Tate) concerning the power to approve a discontinuance under s 33V, he was unable to assist the Court as to the manner in which those principles applied in the present case. This was unsatisfactory. It must be kept steadily in mind that even where the orders sought are not opposed, an applicant must still demonstrate their entitlement to the orders and, in doing that, correctly identify the principles governing whether the orders should be made. This is all the more important in the present context where the Court has a protective and supervisory role in relation to the interests of group members: Dyczynski v Gibson (2020) 280 FCR 583 (Dyczynski) at 678 [402].

Section 33V

27    The principal relief sought by the applicants at the hearing was an order pursuant to s 33V approving the discontinuance of the representative proceeding. That section provides:

33V    Settlement and discontinuance—representative proceeding

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

    …

See also r 26.12(4) of the Rules.

28    In Wotton v Queensland (2009) 109 ALD 534, Rares J made the following observations in relation to the approval of a discontinuance under that section (at 544 – 545 [37] – [42]):

What, if any orders, should be made on a discontinuance or dismissal?

…

[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.

…

[39]     No group member would suffer any prejudice that has been identified if leave to discontinue these proceedings were granted to Mr and Mrs Wotton on the basis that the discontinuance were treated as affecting only those two applicants’ rights and interests.

[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 for example Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258B–C; 142 ALR 177 at 184–5; 22 ACSR 539 at 546–7 per Branson J; McMullin v ICI Australia Operations Pty Ltd (1998) 84 FCR 1 at 3C–E; 156 ALR 257 at 259 (McMullin) per Wilcox J; Courtney at [45] per Sackville J and Vernon v Village Life Ltd [2009] FCA 516 at [64]–[68] per Jacobson J.

[41]     And, the power in s 33ZF(1) enables the court to make any order that it thinks appropriate or necessary to ensure that justice is done in a proceeding under Pt IVA. Wilcox J described the extent of the power in s 33ZF(1) as being “the widest possible” in McMullin at FCR 4C–D; ALR 260. In Courtney at [47]–[54] especially at [52] Sackville J examined the scope of the power, and cautioned that s 33ZF(1) should not become a vehicle for rewriting the rest of Pt IVA. This provision, like all provisions conferring jurisdiction or granting powers to a court, should not be construed narrowly by making implications or imposing limitations which are not found in its express words: Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 at 421; 125 ALR 1 at 10; [1994] HCA 54 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.

[42]     The parties agreed that any order permitting discontinuance or dismissing the proceedings should be framed so as not to affect the rights of other group members than Mr and Mrs Wotton. I am satisfied that this is a correct approach. In my opinion I should make a declaration reflecting my findings on the nature of these proceedings and the fact that their outcome affects only Mr and Mrs Wotton’s rights under s 46PO(2).

29    In Mercedes Holdings Pty Limited v Waters (No 1) (2010) 77 ACSR 265, Perram J described the test to be applied as follows (at 268 [10]):

[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.

30    Although that tends to be the preferred approach: see e.g. AUB19 [17]; Tate [34] – [35]; a divergent approach has emerged which involves the application of a slightly less strict test. This emphasises a consideration of whether group members would be disadvantaged by the giving of approval to applicants to discontinue the proceedings, as opposed to whether the discontinuance would be positively in their interests. Yates J articulated the competing views in Simonetta v Spotless Group Holdings Limited [2017] FCA 1071 as follows (at [12]):

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.

31    In Babscay Pty Ltd v Pitcher Partners (2020) 148 ACSR 551 (Babscay) at 555 – 557 [20] – [28], Anastassiou J considered the competing views and expressed a preference for considering whether a proposed discontinuance would be unfair, unreasonable, or adverse to the interests of other group members. He observed that the effect on the claims of other group members of discontinuing a representative proceeding is plainly different to the effect of a court approved settlement. It followed that the Court’s task in considering whether to approve a discontinuance has a different emphasis compared with the approval of a settlement: at 555 [19].

32    This divergent line of authorities appears to have its origin in the decision of John Dixon J in Laine v Thiess Pty Ltd [2016] VSC 689 [34]. In the more recent decision in Turner v Bayer Australia Ltd [2021] VSC 241, his Honour referred to the differing approaches and adopted his reasoning from the earlier case. However, as he acknowledged, any difference between the tests will be illusory in most circumstances: at [47].

33    In this case, where there have been no useful submissions in relation to the issue and it is inappropriate to approve the discontinuance no matter which test is applied, there is no need to reach a conclusion as to which of the diverging tests is more appropriate. That said, there is much force in the view which prefers the less stringent test. The benign effect of discontinuing a representative proceeding on group members’ rights may make it difficult to conclude that a proposed discontinuance is “in the interests of all class members” even where it is plainly appropriate. By contrast, if there is sufficient evidence of the circumstances, it will normally be possible to reach a conclusion as to whether the discontinuance would be unfair, unreasonable, or adverse to the interests of group members.

34    It also ought to be acknowledged that the terms on which the applicants propose to discontinue the present proceedings are, in a key respect, akin to a settlement in that they apparently provide for the payment of the professional fees and outlays of the applicants’ legal representatives. Accordingly, notwithstanding the foregoing, it may be appropriate in such a case to consider whether the proposed discontinuance, in the circumstances, is fair and reasonable and in the interests of group members as a whole: see Babscay at 555 [24].

Section 33N

35    As it is concluded below that the proposed discontinuance should not be approved, it is necessary to consider whether an order instead ought to be made pursuant to s 33N that the proceedings not continue as a representative proceeding. That section provides as follows:

33N    Order that proceeding not continue as representative proceeding where costs excessive etc.

(1)     The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because:

(a)    the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or

(b)    all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or

(c)    the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or

(d)    it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.

…

36    In the application of that section, it is necessary to consider whether one of conditions in paragraphs (a) to (d) is satisfied and, if so, whether it is in the interests of justice that the power be exercised because of the satisfaction of that condition: P Dawson Nominees Pty Ltd v Multiplex Limited (2007) 242 ALR 111 at 116 – 117 [21]; Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275 at 299 [185].

37    Although the applicants’ written submissions relied upon s 33N(1)(d) as the basis for the orders which they sought, they failed to identify in writing or orally any specific reason as to why it was inappropriate for the claims to be pursued by means of a representative proceeding. They merely submitted that it was in the interests of justice that the Court make the order on the basis that they should not be required to continue to prosecute their claims in the representative proceeding, having regard to the likely costs and the likelihood of recovering any judgment or costs order. In effect, they were submitting that the lack of viability of the representative proceeding made it in the interests of justice to make the order.

38    In the absence of any identified reason satisfying s 33N(1)(d), the issue as to the interests of justice does not arise and the power in s 33N is not enlivened. If it were thought that the perceived lack of viability of the representative proceeding was sufficient to satisfy that paragraph, then the applicants have misapprehended the circumstances which do so. Although broad, that paragraph is explicitly directed to whether it is inappropriate that the claims be pursued “by means of” a representative proceeding or, in other words, whether a representative proceeding is an appropriate mechanism or vehicle for pursuing the aggregated claims, as compared to a hypothetical non-representative proceeding: Multiplex Funds Management Limited v P Dawson Nominees Pty Limited at 293 [128]. It is not satisfied where the applicant merely concludes that the proceedings are unviable or otherwise comes to the realisation that they are not worth pursuing, a circumstance which would generally also exist if individual actions were to be brought by all group members.

39    It is also relevant that s 33W permits a representative party, with leave of the Court, to settle their claim. In the event leave is also sought to withdraw as the representative party, another group member may be substituted: s 33W(3). The difficulty for the applicants, which is consequent upon the terms on which they agreed to settle their claim, is that their withdrawal would not satisfy the condition that they discontinue the whole representative proceeding and, instead, the proceedings would be left on foot with no party prepared to assume the role of representative party. Mr Turnbull suggested at an earlier case management hearing that an order could be made pursuant to s 33W conditional upon no party seeking to be substituted. It was not clear whether it was intended that this would lead to the proceedings being discontinued or, instead, being dismissed. In any case, that was not taken further than a suggestion. In the course of the interlocutory hearing on 27 September 2021, he sought to make an instant application for an order under s 33W. However, as such an application had not been notified to group members, it could not be entertained: s 33X(1)(c).

consideration

40    Given the foregoing, it is necessary to determine the application on the basis of the power in s 33V and the relevant principles to which reference has been made. As was foreshadowed, the applicants have failed to demonstrate on either test that it is appropriate to make an order pursuant to that section approving the discontinuance of the proceedings. It is therefore unnecessary to reach a conclusion as to whether it is sufficient to show that such approval would not be unfair, unreasonable, or adverse to the interests of other group members, or whether it is instead necessary to demonstrate that discontinuance is fair and reasonable and in the interests of the members of the representative proceeding as a whole.

41    An initial issue is that the Court is left in great doubt as to whether the lead applicants, Mr and Mrs Francis, will receive any money from the settlement of their individual claim against Oculus. In particular, there is no apparent term or mechanism in the Deed governing the distribution of the settlement sum. In the ordinary course, a settlement deed which provided for the payment of a settlement sum to a plaintiff’s solicitors would be construed such that the plaintiff is beneficially entitled to the entirety of that sum. Although that is apparently not the intention of the parties, the applicants failed to adduce evidence establishing the true position. Their written outline referred to a “schedule of the proposed distribution of settlement monies”, but this was not put into evidence. It ought to be stressed, again, that it was not the responsibility of the Court to request such a document from the applicants. In any event, it was also not established that there was any legal basis for the applicants being bound to distribute the settlement sum in accordance with that schedule. It was, after all, only a proposed distribution.

42    The notice to group members did include the following statement, under the heading, “The consequences for Mr and Mrs Francis of obtaining the court orders and completing their proposed conditional settlement with Oculus are as follows”:

7.    Mr and Mrs Francis have advised in writing to their solicitor Mr Robert Anderson that they will forgo receiving any personal financial benefit out of the proposed conditional settlement.

The notice then continued:

8.     Filing fees and other outlays incurred to date in respect of conducting the representative proceedings will be reimbursed to the solicitor Mr Anderson.

9.     The large insurance premium paid to the “after the event” insurer (“ATE”), to provide an indemnity for Mr and Mrs Francis against any personal exposure they may have for an order to pay the respondent’s legal costs (an adverse costs order) in the representative proceedings, will be reimbursed.

10.    The two barristers and the solicitor who have conducted the representative proceedings up to date on instructions from Mr and Mrs Francis will be each paid a nominal sum in part recompense for their services.

11.    A person who has conducted extensive inquires and investigations into the various claims against Oculus as a preliminary to the commencement of the proceedings will be paid a nominal sum in part recompense for his services.

43    Those statements were also not the subject of any evidence, nor was it demonstrated that any such statements of intention would be binding upon the applicants as against their legal representatives. Mr and Mrs Francis would be prima facie entitled to the entirety of the settlement sum paid pursuant to the Deed and there was no evidence which displaced that entitlement. It is also difficult to see how their legal representatives could, consistent with their fiduciary duty to the applicants, fail to advise them of their entitlements in this respect once the settlement sum is paid. The applicants might be liable to pay their representatives for professional fees and outlays up to the entirety of that sum following the achievement of a “successful” result in the litigation, but this too was not demonstrated. The same is true of any liability they would have to the provider of the premium for the after the event insurance cover.

44    It would be unfair and unreasonable to permit a representative party to use the discontinuance of a representative proceeding for their own benefit in negotiating a settlement of their individual claim, no matter the prospects of recovering of any judgment on behalf of group members from the respondent. It ought to be noted that there is no evidence to suggest that is what has occurred. However, the onus lies with the applicants to demonstrate that the discontinuance is fair and reasonable. They have failed to do so in circumstances where they may receive money in connection with the discontinuance and it has not been shown that their receipt of any such amounts is fair and reasonable. This issue alone supports the conclusion that it would not be appropriate to approve the proposed discontinuance and the other circumstances of the case do not displace that conclusion. As the applicants are likely to bring a further application under s 33V, it is appropriate to identify and consider certain other issues concerning their proposed discontinuance.

45    In connection with the previous issue, it is relevant to observe that it is not a complete answer that the applicants will receive or retain no part of the settlement sum. The proposed discontinuance must be shown to be fair and reasonable in the circumstances, which include any amounts being paid in connection with the discontinuance to the applicants or otherwise. It is part of the Court’s supervisory function to ensure that the applicants’ legal representatives do not themselves unfairly or unreasonably benefit from the proposed discontinuance. Again, it is not suggested that there is evidence that they will. Rather, there is no evidence upon which the Court could conclude that they will not and the applicants have therefore failed to meet the onus of establishing that they will not.

46    Another concerning feature of the Deed is the agreement by Bounty Law, Mr Turnbull and Mr Coburn to be restrained from acting in any future proceedings against Oculus and from assisting or being involved in any actual or prospective proceedings against Oculus in future. The consideration for their acceptance of such restraint appears to lie in the manner in which the settlement sum is to be distributed but, again, this was not the subject of evidence.

47    The approval of a settlement or discontinuance is not to validate or pass judgment upon the enforceability of the terms on which that is to occur: Williams v FAI Homes Security Pty Ltd (No 5) [2001] FCA 399 [26]. Likewise, it would not be appropriate on this application to conclude that such a restraint is not enforceable. For present purposes, it is sufficient that the restraint may be enforceable and thus may affect the interests of other group members.

48    Although such a restraint may not be objectionable in the context of a settlement of the claims of all group members: see e.g. P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4) [2010] FCA 1029 [31]; the agreement to the restraint in this case substantially undercuts the applicants’ written submissions as to the position of other group members if they wished to proceed individually against Oculus following the discontinuance of the proceedings. In particular, those submissions stated:

Next, it is respectfully pointed out that the court file of the representative proceedings contains all of the pleadings filed and delivered by both the applicant and the respondent. Further, the respondent has completed disclosure of relevant documents. This material will give any legal advisor considering individual action by another group member a “head start” on understanding the issues involved in the proceedings and obtaining access to the disclosure documents. Therefore, all of the time and effort which has been contributed by both the applicants in the representative proceedings, and the court resources which have also been expended on the proceedings, will not be wasted, but in fact will confer a substantial benefit upon each group member, obtained by them without any expenditure or effort on their own part.

49    Likewise, Mr Turnbull for the applicants made the following submission at the case management hearing on 2 July 2021:

I’m sure Mr Dickie [Counsel for Oculus] recognises that anybody who is a class member can commence their own proceedings probably in the Magistrates Court and they’ve got the fruits of all the effects that have been put in to date. Pleadings, disclosure, it’s all on the court file and they can get access to the disclosure.

I understand Mr Dickie is quite content that that would be made available on request.

50    Those statements stand in contrast to the restraint, which would ostensibly prevent Bounty Law from providing other group members with the fruits of the representative proceeding in terms of disclosure and any other documentation which is not readily accessible by members of the public from the court file: see Rules, r 2.32. It is a separate matter whether the applicants or Bounty Law would be free to provide other group members with documents disclosed by Oculus as part of disclosure without breaching the obligation discussed in Hearne v Street (2008) 234 CLR 125. That obligation is owed to the Court and could not simply be waived by Oculus. It is to be acknowledged that the applicants’ solicitors included a “Dropbox” link in the notice sent to group members by which documents relating to the proceedings could be accessed. However, that does not determine whether Bounty Law could or would continue to provide such access following the discontinuance of the proceedings. Indeed, the provision of continued access may constitute a breach of the restraint in the Deed.

51    The essential problem with the position created by the restraint is that, apart from being able to access some documents on the court file such as the pleadings, the group members would not have any real “head start” in individual proceedings against Oculus. The access to the pleadings is of limited value where the legal representatives for any group member bringing individual proceedings against Oculus would have to start afresh in terms of gathering evidence to support the matters alleged in the pleading. The Deed also purports to have the effect of preventing group members from briefing the Counsel who have acted on their behalf in the representative proceeding and who would, presumably, have the greatest familiarity with the pleadings, the material and the issues in the proceedings. This means that approval of the proposed discontinuance entails taking from the other group members any benefit which they have accrued by these proceedings have been brought on their behalf. The discontinuance may therefore be considered to be unfair, unreasonable and adverse to the interests of group members.

52    It should also be noted that the agreement to the restraint raises some questions in the case of Mr Turnbull and Mr Coburn, each of whom are presumably bound by the 2011 Barristers’ Rule which governs the professional conduct of barristers in relation to practice in Queensland. This is not the appropriate forum in which to reach any conclusion as to the propriety of their agreement to that restraint, particularly in the absence of affording them notice of the issue and the opportunity to make submissions. However, consideration should be given as to whether the position they are taking conflicts with r 24 of the 2011 Barristers’ Rule. As I say I expressly refrain from making any finding on the issue and their agreement to the restraint may be adequately explained. However, it is not irrelevant that the terms of the settlement, which the Court is asked to approve as being reasonable, will deny group members access to the lawyers who are most familiar with the matter.

53    Those issues aside, the other circumstances of this case do broadly support the making of an order pursuant to s 33V approving the discontinuance of the representative proceeding:

(1)    The causes of action presently advanced against Oculus seem to have a reasonable foundation and Mr and Mrs Francis may secure a favourable verdict if the matter proceeds to trial. However, they no longer wish to pursue their action or the representative proceeding. It also seems likely that they do not or will not have access to sufficient resources to continue acting as the representative party in the proceedings. Although the proceedings have been ongoing for some time, there has not been any significant progress towards a trial. The claims advanced are not without some complexity and the costs of bringing them to a resolution would not be inconsiderable.

(2)    It is now apparent that there is unlikely to be any substantial recovery even if a judgment were to be obtained against Oculus. There is no insurer standing behind it or directors who might provide funds to meet any judgment. The company’s directors are without means to meet a substantial judgment against it even if they were so minded. The evidence before the Court also discloses that the directors have largely disencumbered themselves of any substantial assets, although the extent to which they have actually rendered themselves judgment proof is yet to be determined. It suffices to observe that even if they were pursued by some presently unidentified mechanism, it is most unlikely that any recovery would meet the group members’ claims to any great extent.

(3)    The other group members were given notice of the present application by a letter identifying the circumstances faced by the lead applicants, the circumstances of the litigation, the opportunity for any group member to take over conduct of the proceedings, and the opportunity to attend the hearing of the lead applicants’ application and to object to the making of the orders sought. None have raised any objection to the discontinuance or sought to be substituted as the representative party in the proceedings. This is perhaps unsurprising in the absence of any likelihood of substantial recovery.

(4)    The current litigation has no direct funding in the sense that it is not supported by a litigation funder. The lead applicants have an after the event insurance policy which indemnifies them with respect to an adverse costs order. Given the poor chances of recovering any substantial damages, there is little prospect of any other insurer offering cover. The existing insurer does not appear to be willing to provide cover to any other party.

(5)    The solicitors presently engaged by the lead applicants have been acting upon a contingency basis in the sense that they will not charge their usual fees save on the occurrence of particular outcomes. This support is not likely to continue and they are unwilling to act for another group member on that basis given the action’s lack of viability.

54    Those circumstances weigh heavily in favour of exercising the discretion to approve the discontinuance. As the evidence has emerged, it is difficult to understand why the action was commenced as a representative proceeding in the first place. One might assume that the representative parties would have achieved substantially greater success had they commenced proceedings in the standard form. During an interlocutory hearing, the Court received evidence of the large amount of costs paid by Oculus to its own solicitor which, in total, was a multiple of the lead applicants’ claim. Whereas that claim on its own might have been settled favourably for the applicants, that outcome could not occur given the representative proceeding incorporated a wide range of other parties. The representative proceeding was also somewhat mired in difficulties surrounding the availability of insurance cover in respect of the group members’ claims and, ultimately, it was unable to be progressed with anything nearing expedition.

55    The final issue to be considered is the effect of discontinuance on the interests of other group members. On the one hand, it is important to emphasise that discontinuance itself will not determine the claims of other group members: Babscay at 555 [20] – [22]. Save for the next mentioned point, they will be at liberty to pursue their claims individually if they wish to do so and, in that context, it is relevant that the running of limitation periods relevant to those claims has been suspended by s 33ZE of the Act, which provides:

33ZE    Suspension of limitation periods

(1)    Upon the commencement of a representative proceeding, the running of any limitation period that applies to the claim of a group member to which the proceeding relates is suspended.

(2)    The limitation period 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.

56    As Lee J observed in Gill v Ethicon Sarl (No 4) [2019] FCA 1814, the reference to a “determination” of a representative proceeding seems to refer to a “judicial resolution” of the proceedings, a concept which would not encompass their mere discontinuance: but see Calinoiu v QLD Law Group – A New Direction Pty Ltd [2019] FCA 2194 [8] per Lee J. In any case, there is at least a real risk that discontinuance might be taken to “determine” the proceedings for the purposes of s 33ZE(2) or, alternatively, that the suspension ceases to have effect upon discontinuance: Babscay at 558 – 559 [33] – [35]. While that might seem to be inconsistent with the plain language of s 33ZE(2), the alternative would be the permanent suspension of the running of the limitation period, an extraordinarily unjust outcome from the perspective of the respondent to a discontinued representative proceeding.

57    In relation to the latter issue, Mr Turnbull for the applicants submitted that an order could be made pursuant to s 33ZF to restart the running of the limitation period once the group members have been served with notice of the discontinuance and thereby protect Oculus from an indefinitely running limitation period. Aside from the impropriety of Counsel for the lead applicants seeking an order which would be adverse to the interests of other group members and which the respondent had not sought, it is not entirely clear that s 33ZF would empower the Court to substantially alter the operation of s 33ZE: Wotton v Queensland at 545 [41]. The applicants’ written submissions referred to the decision in Gill v Ethicon Sarl (No 4) in which orders were made to modify the operation of s 33ZE to ensure that, if the suspension of the running of the limitation period lapsed upon certain persons ceasing to be group members, it did not lapse for a period of time. In discussing the reasons for making that order, Lee J referred to the decision of Goldberg J in Williams v FAI Home Security Pty Ltd (No 5) where a similar order was made extending the suspension of the limitation period in respect of certain persons excluded from a settlement for a period of one month after the giving of notice of the settlement. It seems that the orders made in those cases, which merely delayed any lapsing of the suspension of the limitation periods, can be distinguished from the order proposed by Mr Turnbull to restart the running of the limitation period. That order would not merely alter the timing of the operation of s 33ZE, but would instead change the operation of the section in relation to the other group members’ substantive rights. In the absence of the respondent having moved for such an order and satisfied the Court as to the power to make it, it is not appropriate to make it.

58    The only further observation to be made is that, if the applicants were to seek an order in relation to the possible lapsing of s 33ZE, a more appropriate order might be one that prevents any lapsing of the suspension from taking effect for a period after the discontinuance has occurred. Unlike the order which Mr Turnbull seemed to seek at the hearing, such an order would be consistent with his duty not to act contrary to the interests of those in respect of whom Mr and Mrs Francis act in a representative capacity: Dyczynski at 673 [379].

59    Notwithstanding the issue discussed above, the notice sent to the other group members in advance of the present application advised them of the risk that the running of the limitation periods would resume and none has raised any objection or sought to take over the action from the applicants. It is also relevant that the risk is of the resumption of running of the limitation periods. In that case, the usual limitation period has been extended by the period of time during which these proceedings have been ongoing, being approximately 21 months. Subject perhaps to the making of an order described above to delay the potential resumption of the running of the limitation periods, I am not persuaded that the risk of such resumption outweighs the approval of the proposed discontinuance. If the other group members are provided sufficient opportunity to avoid the potential adverse consequences of the limitation period resuming, those consequences do not really militate against permitting the lead applicants to discontinue these proceedings.

Conclusion

60    It follows from the consideration above that the applicants’ interlocutory application should be dismissed. The costs of that application will be reserved so the parties will have an opportunity to make submissions as to the appropriate order as to costs.

61    It ought to be stressed that the issues described above concerning the proposed discontinuance are not insurmountable. It may be necessary for the parties to agree to modifications to the Deed in order to resolve the issues in relation to the distribution of the settlement. There may also be undertakings which could be offered to the Court with respect to the provision of documents to other group members. Likewise, orders could be sought to relieve the applicants and their legal representatives from the restrictions upon the provision of documents provided under compulsion. However, it is not the role of this Court to propose and craft such solutions for the applicants. That is a matter for them and their legal representatives.

Associate:

Dated:    20 October 2021