Federal Court of Australia

Jack v CoreStaff NT Pty Ltd [2022] FCA 1005

ORDERS

THE COURT ORDERS THAT:

Approval of Settlement

1.    Pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (Act), the proposed settlement is approved and the proceedings NSD2162/2018 and NSD2024/2018 (together, the Proceedings) are dismissed on the basis that there be no order as to costs of or incidental to the Proceedings (including the application for these orders), and otherwise upon the terms of:

2.    Pursuant to s 33ZF of the Act:

3.    Pursuant to s 33ZB of the Act, the persons affected and bound by the Settlement are the applicants and respondent to the Proceedings, Group Members, Stewart Alan Levitt, and Omni Bridgeway Ltd (ACN 067 298 088) (Omni Bridgeway) in its capacity as appointed agent and investment manager for each of Omni Bridgeway (Fund 2) Pty Ltd (ACN 621 682 504) and Omni Bridgeway (Fund 3) Pty Ltd (ACN 621 682 460).

Administration of Settlement

4.    Pursuant to s 33ZF of the Act, Stewart Alan Levitt is appointed as the Administrator of the Settlement Scheme and is to administer it in accordance with its provisions, subject to any direction of the Court.

Confidentiality

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

Final orders

6.    The Proceedings are dismissed with no order as to costs of the Proceedings or the costs of or incidental to the proceedings (including the application for order 1 above).

7.    Pursuant to s 33ZF of the Act, all costs orders previously made in the Proceedings are vacated.

8.    Stewart Alan Levitt (as the administrator of the Settlement Scheme) and the parties to the Proceedings have liberty to apply.

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

REASONS FOR JUDGMENT

(Delivered ex tempore)

BROMWICH J:

1    This is an application under ss 33V and 33ZF(1) of the Federal Court of Australia Act 1976 (Cth) (Act) for approval of a settlement of a representative proceeding, and related individual claims both contained within the representative proceeding and in a separate proceeding. The respective proceedings all commenced in late 2018. The representative aspect of the representative proceeding and the separate individual case were set down for a 7-day trial to commence on 21 March 2022. However following a second mediation in November 2021, settlement was reached on all claims and the trial dates vacated.

2    The live question for determination is whether the proposed settlement is fair, reasonable and in the interests of group members as a whole, and not just in the interests of the applicants and respondent. Satisfaction as to those features is necessary to discharge the protective role of the Court in relation to the potentially vulnerable position of group members who are in most cases, and especially in this case, unable or otherwise unlikely to be present for the settlement hearing, noting that the settlement hearing was live streamed: see Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 per Branson J at 258C; Tasfast Air v Mobil Oil Australia Limited [2002] VSC 457 per Bongiorno J at [4]; Australian Securities and Investments Commission v Richards [2013] FCAFC 89 per Jacobson, Middleton and Gordon JJ at [8] (cited with approval in Wigmans v AMP Limited [2021] HCA 7; 270 CLR 623 at [82], albeit in a different context); Mitic v Oz Minerals (No. 2) [2017] FCA 409 per Middleton J at [7]-[9]. Although s 33V of the Act does not apply to the related individual claims, they can form part of the proposed settlement approval if I conclude that it is appropriate or necessary to ensure justice in the proceedings overall as provided for by s 33ZF(1), and is amply covered in this case by the s 33V principles and related considerations.

3    The nature of the proceedings may be briefly stated. In about 2011 and or 2012, there was an On Hire Labour Agreement between the respondent and the Commonwealth of Australia. Pursuant to that agreement, the respondent sponsored and employed skilled workers from Papua New Guinea to work in Australia. From about November 2012, the respondent terminated the employment of some of those workers.

4    In October 2018, one of those workers, Mr Tami Kunjil, commenced proceedings in this Court against the respondent (and others): NSD 2024 of 2018. He alleged the respondent made misleading or deceptive representations to him in relation to his employment and also breached the employment contract by underpayment of wages. In November 2018, Mr Alois Jack and 19 other named applicants commenced separate representative proceedings in this Court against the respondent for themselves and on behalf of group members: NSD 2162 of 2018. In those representative proceedings it is also alleged that the respondent made misleading or deceptive representations in relation to employment and also breached employment contracts by underpayment of wages. The pleadings for the representative case also advanced individual non-representative claims in the alternative. In December 2018, the Court ordered that all of the representative parts of that proceeding and Mr Kunjil’s proceeding be heard concurrently and the individual claims be stayed pending further order.

5    The case brought by the applicants was not an easy one, with a complex interplay between the different statutory and contractual causes of action relied upon. A further aspect of complexity arises from the respondent’s case, disputed by the applicants, that the initial individual contracts had been supplanted by subsequent individual contracts, and it was these contracts that had been terminated. There were also some limitation issues, and reliance issues, and doubtless many other issues yet to be discovered or disclosed, including of an evidentiary nature. Importantly, the affected workers were not Australians, and many, if not most of them, were no longer residing in Australia, with all the practical and logistical difficulties that necessarily entailed. There were likely to be live issues as to mitigation and related evidentiary problems.

6    A mediation in April 2021 failed to reach a settlement. A further mediation took place in November 2021, and succeeded, subject to court approval, without any admission of liability by the respondent. By that time, the pleadings had closed, the applicants’ lay and expert evidence had been filed and served, and the respondent’s lay evidence had been filed and served. It seems that the settlement was of the first kind identified in Masters v Cameron (1954) 91 CLR 353 at 360, being a final agreement as to the terms of the settlement bargain and intention to be bound, with the details to like effect still to be sorted out. That was my general understanding in vacating the trial dates.

7    It is apt to describe the settlement as reflecting an essentially commercial resolution of proceedings that had some complexity, both factual and legal, and ample litigation risk all around. Victory by either side was far from assured, with each side most likely expressing the usual optimism and confidence to the other, while assessing the risks and evaluating concerns in private, as is the very nature of seriously contested litigation. The settlement arrived at was very much a genuine compromise, not a capitulation by either side. In that context, the respondent supports the settlement approval upon the basis of no admission of liability and effectively still maintains that the proceeding could well have been successfully defended.

8    The key and critical term that was agreed in November 2021 and maintained in the final signed deed of settlement and release (subject to the approval of this Court) is that the respondent pays $6.4 million in settlement of all aspects of the proceeding commenced in October and November 2018, inclusive of costs, interest, and administration of the settlement.

9    A proposed deed of settlement and release and a proposed settlement notice was negotiated, with the versions arrived at by 25 February 2022 provided to the Court at the same time as the interlocutory application of that date. The applicants sought interim orders seeking leave to distribute a notice of proposed settlement and opt out and objection notices, with provision for associated notification and advertising by conventional media, social media (Facebook) and the website of the Court and the applicants’ solicitors. That interlocutory application also provided for a settlement approval process. Orders were made to facilitate all aspects of the settlement process.

10    By 30 June 2022, the final deed of settlement and release had been executed by all the parties to it. It covers all of the claims made in the proceedings. That document is before me as part of an exhibit to a confidential affidavit. I also have before me as part of the confidential exhibited material to that affidavit two confidential opinions from senior and junior counsel for the applicants. Those opinions between them furnish a detailed analysis and explanation of the settlement distribution, and address the evidence relied upon to establish the fairness and reasonableness of the proposed settlement. This includes addressing the evidence that I have separately considered as to the payment of a 35% commission to the litigation funder (which is sought to be paid by a funding equalisation order, rather than a common fund order), payment of legal costs and disbursements, the gross and net distributions for each group member, the fee notes of the applicants’ solicitors and counsel (together with an explanation of them) and other correspondence, including in particular as to the process of notification of group members. There has been no opt out or objection raised requiring any adjudication by the Court. I am satisfied that the process of advising potential group members was as thorough as it could reasonably have been, noting without descending into undue detail that the success in those efforts far exceeded the prediction originally given to me and aimed for.

11    The opinions of counsel comprehensively assess the competing cases, with candour and clarity. Counsel thoroughly and properly assess the fairness and reasonableness of the settlement from the perspective of group members. The main opinion, in particular, reflects considerable care, consideration and analysis as to how justice is sought to be achieved between the different group members, reflecting their common and different attributes. I am satisfied that this endeavour to demonstrate the necessary protective aspect has been thoroughly addressed.

12    I am comfortably satisfied that the agreed settlement amount is a fair, reasonable and appropriate compromise from the perspective of the group members, especially given the factual and legal complexity of the case that would otherwise have gone to trial, the likelihood of the success of the applicants, the real risk of success by the respondent (including partial success having a material impact on the quantum of success and thereby the risk of a pyrrhic victory), and the inevitability of judgment delay and quite likely appeal proceedings whatever the outcome. The complexity and difficulty in the litigation, and in particular in identifying claimants, was touched upon in my prior judgment in which an application by the respondents to set aside a notice to produce issued by the applicants was dismissed: Alois Jack v Corestaff NT Pty Ltd [2020] FCA 973. There was also a range of appeal-worthy issues that are not necessary to detail. In all the circumstances, the settlement is well within the range of being fair and reasonable, subject to the issues addressed below. I return to this topic below in the context of the percentage of the settlement to be distributed.

13    Turning to the question of costs, the settlement took place at a very late stage. All that was left to be incurred on the applicants’ side was trial preparation and the trial itself. The costs that have been incurred are certainly substantial, but I am satisfied that considerable efforts were taken to contain and minimise them, including by using lawyers at the appropriate level of seniority to the maximum extent possible.

14    The simple fact is that this was difficult litigation to conduct, both as to evidence gathering and legal assessment, and would have been even more difficult at trial. The membership of the group was not large, requiring the costs to be spread over a fewer number of ultimate beneficiaries than in many class actions, reducing the scope for substantial economies of scale. Yet this was archetypal class action litigation because it was never likely to be viable at the individual level, especially given the logistics involved. The solicitors’ fee notes, which I have perused, were quite detailed and clear. Nothing stood out as being overtly questionable. I am similarly satisfied that there was no basis for concern as to counsel’s fees. I am satisfied that that on the evidence before me, this was not an appropriate case to expend yet more on a costs assessment with little real prospect of any different view being reached.

15    There was a substantial increase in costs from the time of the settlement proposal to the time of the settlement hearing, but that was largely, although not entirely, due to an error in initially referring to GST inclusive, rather than plus GST figures. I am satisfied that the net increase was not excessive.

16    The final and perhaps potentially most troubling consideration was the net proportion of the settlement moneys to be distributed to the group members after deduction of the funder’s commission and the legal cost and disbursements. I expressly raised this concern at a case management hearing on 22 March 2022, seeking that it be addressed by counsel. I did so by reference to the decision of Beach J in Evans v Davantage (No 3) [2021] FCA 70 dealing with this topic as follows:

[62]    Now it is convenient at this point to say something more generally on the topic of % returns to group members from a gross settlement sum.

[63]    In Kuterba v Sirtex Medical Limited (No 3) [2019] FCA 1374 at [17] to [19] I said:

Let me deal with another matter although I do not propose to detail the arithmetic. In terms of the settlement sum paid by the respondent, group members are to receive after all deductions very close to 50% of that sum; that is very similar to the 51% in Blairgowrie (No 3).

Further, such a 50% level compares favourably with other contexts. But one has to be careful with such a metric, let alone some general assertion that “in every class action, group members should get at least 50% of the gross settlement sum”. Take the following situation. Assume that a litigation funder and external lawyers take on a very complex and high risk case (with a commensurably higher commission rate than normal) on behalf of say a large group of persons who have contracted cancer. Say that proving causation by the alleged carcinogen is extremely difficult. Assume that the action has been launched on the basis only of problematic epidemiology showing a heightened risk and some biology that shows only a possible biological pathway. Then assume that after extensive discovery and expensive expert reports it becomes clear that there is no viable biological pathway demonstrated, such that it is apparent that the group members have no cause of action for damages. Let it also be assumed that nevertheless the respondent is prepared to pay a modest amount to settle the matter, and let it also be assumed that legal expenses and the funding commission would soak up 90% of that modest settlement sum. Is it seriously suggested that the group members should receive at least 50% of the settlement sum for what, after forensic investigation that group members did not have to pay for and where the risk for this on their behalf was taken on and funded by others, are shown to be likely valueless claims? One can multiply such examples.

No power contained in or philosophy underpinning Part IVA provides a proper basis for giving group members something for what turned out to be nothing or to give them something beyond what the true value of their claims are worth, reflecting the product of the face value times the probability of success times the probability of recovery. Moreover, to so artificially allocate is economically distortive and unnecessarily disincentivises the reasonable investment of time and expense in investigating, funding and prosecuting class actions.

[64]    Now in that case I was dealing with what I discussed as a 50% return. But in the present case what is being proposed is a 37.4% return. Now this may shock the conscience of the uninformed, so I should say something further about it. For that purpose, I need to begin with some arithmetic before discussing the characterisation and value of claims.

[65]    It is important not to confuse two types of percentages. Let me illustrate by the present case. A fund of 37.4% of the gross settlement sum of $9.5 million is to be set aside for group members. But we know that only 1,244 group members, including 97 who registered after the registration deadline, have registered to participate in the settlement. And on the current arithmetic they are likely to get close to 100% of their claims. Indeed, on one view the current form of the SDS allows them to get more. And it is for that reason that I will discuss later the potential application of the cy-prés doctrine. So the present case is a good example of the fallacious reasoning of those who take headline percentages of gross recoveries from settlement sums and seek to transmute them into the real returns of group members who have taken proper steps to protect their interests by registering their participation in any settlement. Such a class in the case before me are likely to receive close to 100% of their claims plus interest. On any view they will receive much more than 37.4% of their claims plus interest. So, you are dealing with different percentages.

17    In this case, the net distribution sum is only a tad over 41% of the total settlement sum, meaning that close to 60% is being paid for the funder’s commission and legal costs and disbursements, including of the settlement approval process. At first blush that might cause considerable disquiet. Without being properly informed, including by way of confidential information that I cannot disclose in these reasons, I might have come to the same conclusion. That is why I referred to Evans v Davantage (No 3), and sought some reassurance on that topic. I have been amply reassured.

18    First and foremost, as already adverted to, the litigation risk on both sides in this case was substantial. While there was a live risk that the respondent might have had to pay more, there was also a live risk that the applicants might have had less, perhaps considerably less, success, or even outright failure. Going to trial would have been a real gamble by both sides. While the funder’s commission is 35%, that was, in this case, a reasonable reflection of the litigation risk being taken in advancing those funds.

19    In any event, and perhaps even more importantly, a substantial proportion of the group members will have distributed to them, after deduction of their share of the funder’s commission and the legal costs and disbursements, quite a high percentage of the individual claim that they might have succeeded upon at trial if all things had gone well. Those group members could scarcely have done better. It is doubtful that anything much more for them would ever have been approved: class actions are not a profit making exercise for any group member, no matter how much they may feel they deserve it because of what they have gone through. Some other group members did not do as well, but that was not a function of any unfairness, but rather of their individual circumstances and the care taken to maintain fairness and reasonableness overall, including as between group members.

20    Viewed holistically, and having regard to the risks involved, being a real risk that was taken by the funder, and the real and significant amount of legal work that had to be done to get these claims to the point of settlement, I am satisfied in all the circumstances that the final distribution arrived at as a proportion of the settlement sum of $6.4 million is fair and reasonable.

21    In all the circumstances, I am satisfied that the settlement arrived at is fair and reasonable to all group members, and that it is appropriate to approve that settlement. I make orders to that effect and for the administration of the settlement scheme accordingly.

Associate:

Dated:    29 August 2022

SCHEDULE OF PARTIES