Federal Court of Australia

Wills v Woolworths Group Ltd [2022] FCA 1545

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (Act), the settlement of this proceeding be approved on the terms set out in:

2.    Pursuant to s 33ZF of the Act, the Court authorises the applicants, nunc pro tunc, to enter into and give effect to the Deed for and on behalf of all group members.

3.    Pursuant to s 33ZF of the Act, each of the Released Parties (as defined in the Deed) is released by the applicants and each of the group members from each Claim (as defined In the Deed) made by or on behalf of the applicants or any group member in the proceeding.

4.    All previous costs orders made in the proceeding be vacated.

5.    Pursuant to r 2.43(1) of the Federal Court Rules 2011 (Cth), all amounts paid into Court by or on behalf of the applicants as security for the respondent’s costs of the proceeding, and any interest accrued on those amounts, be repaid to Maurice Blackburn Pty Ltd.

6.    Pursuant to s 33ZF of the Act or otherwise, Maurice Blackburn Pty Ltd be appointed Administrator of the SDS, and to act in accordance with the SDS and be given the powers and immunities contemplated by the SDS nunc pro tunc from the date of the orders made on 12 February 2021.

7.    Pursuant to ss 33V(2) and/or 33ZF of the Act, for the purposes of the SDS the amount of the ‘Funder’s Commission’ be approved in the amount of $4.73 million.

8.    Pursuant to ss 33V(2) and/or 33ZF of the Act, for the purposes of the SDS the amount of the ‘Applicants’ Reimbursement Payment’ be approved in the amount of $20,000.

9.    Pursuant to ss 33V(2) and/or 33ZF of the Act, for the purposes of the SDS the amount of the ‘Administration Costs’ be approved in an amount of up to $756,433 (without prejudice to the Administrator’s right to seek from the Court approval of any additional ‘Administration Costs’ over and above that amount).

10.     The proceeding be dismissed as and from the date of completion of the administration of the SDS (being the date on which the final distribution under the SDS is confirmed to the Court by the Administrator), and there be no order as to the costs of the proceeding (such that each party bear their own costs of the proceeding).

11.    Maurice Blackburn have liberty to apply in relation to any matter arising under the SDS.

12.    Pursuant to ss 33J(3) and/or 33ZF of the Act, each of the persons identified in Schedule 1 to the Deed shall be deemed to have validly opted out of the proceeding notwithstanding their failure to lodge an opt out notice before the deadline specified in order 2 of the orders made on 22 October 2019, and to the extent necessary, that deadline be extended in relation to each of those persons to the respective dates on which they did lodge an opt out notice.

13.    Pursuant to s 33ZF of the Act, each of the following persons shall be deemed to be a ‘Registered Group Member’ as defined in the SDS and shall be permitted, if otherwise entitled, to receive a distribution under the SDS:

14.    Pursuant to s 33ZB of the Act, the persons affected and bound by these orders are the applicants, the respondent and all group members.

15.    Pursuant to s 37AF(1)(b) of the Act, on the ground that the order is necessary to prevent prejudice to the proper administration of justice and until further order, the material contained in:

not be published or disclosed without the prior leave of the Court to any person or entity other than the applicants, the applicants’ legal advisers and the Court.

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

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 54A(3)(c) of the Federal Court of Australia Act 1976 (Cth) and rule 28.67 of the Federal Court Rules 2011 (Cth), the report of John David White dated 7 December 2021 be rejected in whole.

2.    Pursuant to ss 33V(2) and/or 33ZF of the Act, for the purposes of the SDS the amount of the ‘Applicants’ Legal Costs and Disbursements’, up to the date of these orders, be approved in the amount of $14,576,736.36.

3.    For the avoidance of doubt, order 15 of the orders made on 2 August 2022 shall extend to all annexures to the two affidavits referred to including the costs referee’s report.

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

REASONS FOR JUDGMENT

BEACH J:

1    On 2 August 2022, I approved the settlement in this matter pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth).

2    Under that settlement, Woolworths Group Limited agreed to pay the sum of $44.5 million in settlement of the applicants’ and group members’ claims.

3    The relevant principles that I applied are well known and not necessary to set out; see Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 at [19] per Goldberg J, Blairgowrie Trading Ltd v Allco Finance Group Ltd (in liq) (No 3) (2017) 343 ALR 476 at [82] to [84] and Foley v Gay [2016] FCA 273 at [7].

4    Although I have previously given brief oral reasons, there are two matters that it is appropriate to elaborate on. One matter concerns the question of the funding commission. The other matter concerns the amount allowed for legal costs and disbursements.

Funding Commission

5    The applicants sought an order approving a funding commission of $7.42 million. But I declined to so order and instead approved a deduction of $4.73 million, which reflected the funder’s contractual entitlement. In essence, the order sought by the applicants and the funder was a common fund order well in excess of the contractual entitlement and which I did not consider to be appropriate in the circumstances. I made a funding equalisation order as to the lesser amount.

6    Now the funded group members were contractually obliged to pay the funder a funding commission pursuant to their funding agreements. The standard form funding agreement executed by all relevant group members set out the specific percentage commission sought by the funder on the resolution of the proceeding. The funder was, subject to any court order, to be entitled to a percentage of the resolution sum ranging from X% to Y%, depending on the number of shares in Woolworths acquired by the individual group member during the relevant period and held as at the end of the relevant period.

7    It had been calculated based on the total loss estimates for the registered group members as at the time of the mediation, and premised upon the trade data provided by group members at the time, and the inflation values that had been calculated, that the losses attributable to registered group members who had entered into a funding agreement with the funder were marginally below 50% of the total losses of all registered group members.

8    Accordingly, the funding commission to which the funder was contractually entitled from the settlement sum at that point in time and prior to further registrations could be approximated by calculating one-third of one-half of the gross settlement sum. This equated to approximately one-sixth of the gross settlement sum, being $7.42 million. This was the basis on which the $7.42 million funding commission was sought by the applicants and the funder to be deducted.

9    But following the mediation and distribution of the settlement notice, 7,000 group members who had not signed funding agreements with the funder then registered to participate in the distribution of the settlement sum. These new registrants thereby diluted the portion of the settlement sum to which the funded group members were entitled. Accordingly, the proposed funding commission of $7.42 million represented more than the funder’s contractual entitlement.

10    After a review of the extensive trade data provided by the newly registered group members it was calculated that funded group members would be entitled, prior to deductions, to approximately 32.5% of the $44.5 million gross settlement sum, being $14.46 million. So on this basis they were contractually liable to pay the funder a funding commission of approximately $4.7 million. Now whilst an order approving the deduction of this $4.7 million portion of the funding fee and associated orders distributing the burden of that deduction across participating group members was most analogous to a funding equalisation order, the order sought by the applicants approving the deduction of the remaining $2.72 million, being the sum in excess of the funder’s contractual entitlement, was akin to a common fund order.

11    Now it was contended by both the applicants and the funder that I should approve this higher deduction and in essence make a common fund order in the proper exercise of my discretion because:

(a)    the total fee of $7.42 million represented approximately 16.67% of the gross settlement sum of $44.5 million, and was low relative to other funding commissions that had been approved;

(b)    the funder assumed the risk of significant adverse costs orders, and paid cash into Court in the sum of $2.5 million and was ordered to pay a remaining $1.5 million prior to the commencement of the trial;

(c)    as at the date the parties reached an in principle settlement, the funder had paid $X million of the costs expended in the proceeding, whilst bearing the risk associated with the proceeding;

(d)    the funder’s return on capital, if the payment was made in the amount sought, was approximately a Y multiple of the costs that it had incurred which was considerably lower than the commonly required return of not less than three times the capital invested by the funder; and

(e)    approximately 3,800 group members who had entered into funding agreements accepted a higher funding commission rate than what was being sought to be deducted.

12    But I rejected these submissions for a number of reasons.

13    First, the applicants had never previously sought or indicated that they were going to seek a common fund order. Indeed at an early stage of this proceeding they expressly eschewed the idea of making such an application at any stage.

14    Second, no application was notified to group members in the notice of settlement that they were going to seek such an order.

15    In essence then, it was my view that it was only appropriate to permit the applicants and therefore the funder to deduct the contractual funding entitlement of $4.73 million but shared over all group members under one permutation of a funding equalisation mechanism. I so ordered.

16    Let me turn to the second matter.

Legal costs and disbursements

17    An issue was raised by me at the first return of the settlement approval hearing concerning the quantum of the applicants’ legal costs and disbursements. I do not need to delve into the entrails of what then occurred. Given the amount sought, I considered that the total sum potentially was disproportionate, notwithstanding the cost assessor’s report of Mr Ian Ramsey-Stewart.

18    In the circumstances, I sent the matter out for assessment by a special referee. Unfortunately there were significant delays that attended this process.

19    Ultimately the report was delivered, but it said little on the question of proportionality other than to assert the general conclusion that the amount sought in total lacked proportionality. Rather, the report seemed to focus on many other matters to justify a substantial reduction in the amount sought, matters that I might say had not been my principal concern and indeed had dubious aspects although they had been floated before me in the respondent’s earlier written submissions.

20    Now I have rejected the report. But before explaining my reasons, let me begin with some general matters.

21    The following factors should be considered when determining the reasonableness of the costs to be allowed and therefore deducted being:

(a)    whether the quantum of legal costs and disbursements exceeds the quantum that was estimated and disclosed;

(b)    the total quantum of the legal costs and disbursements proposed to be paid from the settlement in comparison to the quantum of the total settlement, but subject to other questions of proportionality;

(c)    the complexity of the litigation in the conduct of which the legal costs and disbursements were incurred;

(d)    the number of respondents litigated against and the vigour with which those respondents defended the proceedings;

(e)    the reasonableness of the contractual arrangements applicable to the quantification of the legal costs and disbursements, and whether such arrangements have been properly implemented;

(f)    whether one has a closed class confined to persons who contracted with the funder and who are clients of the law practice acting for the representative applicant;

(g)    the scrutiny that the legal costs and disbursements have been subjected to by the funder or any independent assessor;

(h)    the quantum of the legal costs and disbursements incurred prior to commencement of the proceeding;

(i)    where more than one firm has acted, whether legal services have been replicated;

(j)    whether the personnel who provided legal services for the applicant have been identified by name and position and whether each personnel member’s charge-out rate was appropriate having regard to the level of seniority of the practitioner and the nature of the work undertaken;

(k)    whether work for which legal costs and disbursements have been invoiced is substantiated by work product, was within the scope of the retainer and was reasonably undertaken;

(l)    whether the ratio of work and interrelation of work undertaken by and between the solicitors and counsel retained was appropriate; and

(m)    the stage of the proceeding at which the settlement had been reached.

22    This is a non-exhaustive list of factors. Further, overall a pragmatic approach should be taken to assessing reasonableness. After all, my scrutiny is not a taxation of costs.

23    Further, there is a need to keep in mind the question of proportionality. As I explained in Blairgowrie at [181]:

But what is claimed for legal costs should not be disproportionate to the nature of the context, the litigation involved and the expected benefit. The Court should not approve an amount that is disproportionate. But such an assessment cannot be made on the simplistic basis that the costs claimed are high in absolute dollar terms or high as a percentage of the total recovery. In the latter case, spending $0.50 to recover an expected $1.00 may be proportionate if it is necessary to spend the $0.50. In the former case, the absolute dollar amount as a free-standing figure is an irrelevant metric. The question is to compare it with the benefit sought to be gained from the litigation. Moreover, one should be careful not to use hindsight bias. The question is the benefit reasonably expected to be achieved, not the benefit actually achieved. Proportionality looks to the expected realistic return at the time the work being charged for was performed, not the known return at a time remote from when the work was performed; at the later time, circumstances may have changed to alter the calculus, but that would not deny that the work performed and its cost was proportionate at the time it was performed. Perhaps the costs claimed can be compared with the known return, but such a comparison ought not to be confused with a true proportionality analysis. Nevertheless, any disparity with the known return may invite the question whether the costs were disproportionate, but would not sufficiently answer that question.

24    Further, it is relevant to consider whether the costs agreement pursuant to which the costs were charged met the applicable statutory requirements to be valid, and if not, how one should determine the fair and reasonable costs payable to the practitioners. This was a question of some importance in the special referee’s report. Let me elaborate.

25    In the present case the referee found that the applicants’ solicitors (MBL) had failed to provide an updated estimate of total legal costs in December 2020 or January 2021, as required by s 174(1)(b) of the Legal Profession Uniform Law (LPUL) (see Schedule 1 of the Legal Profession Uniform Law Application Act 2014 (Vic)), and consequently this resulted in MBL’s costs agreements being void pursuant to s 178(1).

26    Sections 174(1) and 178(1) provide as follows:

174    Disclosure obligations of law practice regarding clients

(1)    Main disclosure requirement

A law practice—

(a)    must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and

(b)    must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client—

together with the information referred to in subsection (2).

…

178    Non-compliance with disclosure obligations

(1)    If a law practice contravenes the disclosure obligations of this Part—

(a)    the costs agreement concerned (if any) is void; and

(b)    the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and

(c)    the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and

(d)    the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

…

27    Contravention of s 174(1)(b) will result in the costs agreement concerned being void. There is no discretion to be exercised under s 178(1)(a) which might permit the relevant decision maker to find that a costs agreement is not void in the face of a finding that s 174(1)(b) was breached.

28    But importantly, the proper construction of ss 174(1)(b) and 178(1)(a) indicates that a failure to comply with the disclosure obligation under s 174(1)(b), which necessarily is an obligation which arises after initial instructions are given and an initial disclosure is made pursuant to s 174(1)(a), will result in the costs agreement concerned being void in terms of its operation in futuro rather than ab initio. So where a law practice fails to provide an updated estimate of total legal costs “as soon as practicable after there is any significant change” to the estimate of total legal costs previously disclosed to the client, the costs agreement between the law practice and the client is only void from the date of the contravention, rather than from the date of commencement of the costs agreement. To suggest the latter would be absurd and is not consistent with the text when read in context and with the relevant statutory purpose sought to be achieved.

29    First, s 178(1)(a) uses the present tense “is void” rather than “is and was at all times from inception void”.

30    Second, if the legislature intended the latter, it would likely have had a claw back for all legal costs previously paid by the client from the date of inception. But there is no such claw back; contrast this with s 185(2). Indeed, s 178(1)(c) only speaks about present or future recovery of legal costs which by definition have not yet been paid. Likewise, s 178(1)(b) only speaks to legal costs not yet paid.

31    Third, it is implausible to suggest that a valid costs agreement say running for 2 years with legal costs happily being paid thereunder should suddenly become void ab initio merely because at the 2 years mark there was a deficiency in a disclosure of a forward estimate of costs from that 2 years mark. Such a consequence would be disproportionate. Further, it would be against the s 169(a) objective. If a disclosure is deficient at the 2 years mark, the proportionate response is to void the costs agreement at that time in terms of going forward as the deficient disclosure would have denied the client an informed choice going forward from that 2 years mark. But it makes no sense to void the agreement ab initio. If the legislature intended such an unnecessarily penalising outcome, it should have expressly made this clear.

32    For completeness, I need not trouble myself with s 185(1). No one is saying that the relevant costs agreement was entered into in contravention of a provision. Moreover, no one is saying that the costs agreement in terms contravenes a provision. Rather, the contravention here is one of non-disclosure or inadequate disclosure, with such conduct then having consequences for recovery under the costs agreement. But I do accept that the use of “is” in s 185(1) does perhaps water down the present tense point I made earlier concerning s 178(1)(a) reflecting perhaps a consistency in legislative sloppiness. Normally one would give it the same reading even in different provisions. But there is a basis to explain the different use as I have indicated. But in any event the second and third points I have made concerning s 178(1) still hold. Moreover, the existence of a claw back in s 185(2) but none in s 178(1) re-inforces my second and third points.

33    But in any event, even if a costs agreement is found to be void either in futuro or ab initio due to a failure to comply with the disclosure obligations, the law practice is still entitled to be paid fair and reasonable legal costs (s199(2)). And this could include the payment of an uplift fee on costs the payment of which was conditional on a successful outcome, as such a fee is only statutorily prohibited where a law practice has entered into a costs agreement in contravention of s 182. I will return to this later.

34    Let me return to the wording of s 174(1)(b). Two conditions need to be met in order to establish a breach of the provision.

35    First, there must as a matter of fact be a significant change to something previously disclosed. A belief that there may be a significant change to something previously disclosed, including information about any significant change to the legal costs that will be payable by the client, is not sufficient to engage the provision. A requirement to provide further disclosure only arises when there is a significant change to anything previously disclosed.

36    Second, it must be reasonably practicable to provide the client with information disclosing the change. Contravention of the provision will only arise when the time when it was reasonably practicable to have provided the necessary information has passed.

37    Now before addressing specific problems with the report, let me set out some background facts.

38    MBL began investigating a potential claim against Woolworths from 27 February 2015 and retained counsel.

39    In early April 2017 IMF Bentham Ltd (now called Omni Bridgeway Ltd) (IMF) began book building and the first group members entered into a funding agreement with IMF (IMF funding agreement) and a costs agreement with MBL (original costs agreement). The first client to retain MBL did so on or about 12 April 2017 with the result that the LPUL applied to that retainer rather than the Legal Profession Act 2004 (Vic).

40    On 1 September 2017 the applicants entered into an IMF funding agreement and the original costs agreement. The IMF funding agreement provided for IMF to pay the “Project Costs”, which was defined to include “X1% of the reasonable professional fees and X2% of the disbursements of [MBL] incurred for the sole purpose of investigating, preparing for, prosecuting and resolving the Proceedings”.

41    The original costs agreement provided that:

(a)    the remaining percentage of MBL’s professional fees not paid by IMF were conditional, and only payable in the event of a “Successful Outcome”;

(b)    in the event of a “Successful Outcome”, MBL was entitled to charge an “uplift” of 25% on the conditional component of its professional fees;

(c)    MBL could charge for “Investigation Work” done prior to the date of the original costs agreement; and

(d)    total costs were estimated to be $A1 inclusive of GST, plus $B1 by way of uplift, inclusive of GST, that is, total costs were estimated to be $C1.

42    The obligations of IMF under the IMF funding agreement were subject to IMF confirming that the claim was commercially viable for IMF. By late 2017 IMF had decided not to proceed with funding the claim. In the end result, IMF did not pay any portion of MBL’s professional fees up to and including 31 December 2017, however fees were paid by IMF to counsel, including in relation to advices as to prospects prior to the commencement of the proceeding.

43    Subsequently International Litigation Funding Partners Pte Ltd (ILFP) agreed to fund the proceeding.

44    On 9 July 2018 MBL wrote to each of the then registered group members who had previously entered into a IMF funding agreement and the original costs agreement and invited them to enter into a funding agreement with ILFP (ILFP funding agreement). MBL also gave written notice of amendments to the original costs agreement so as to bring it into conformity with the ILFP funding agreement (revised costs agreement). Further, any group members who had not previously registered to participate in the proceeding were thereafter invited to enter into the ILFP funding agreement and the revised costs agreement.

45    As a consequence, many group members, including the applicants, entered into the ILFP funding agreement and the revised costs agreement, which had the effect of mutually discharging the original costs agreement.

46    The substantial changes from the original costs agreement, as set out in the revised costs agreement, included a change to the conditional component of MBL’s professional fees, changes to the hourly rates specified in the original costs agreement and a change in the estimate of total costs from $A1 to $A2 inclusive of GST, plus $B2 by way of uplift, inclusive of GST, that is, total costs were estimated to be $C2.

47    Under the revised costs agreement MBL was still entitled to charge an uplift of 25% in the event of a successful outcome and for investigation work done prior to the date of the agreement.

48    The terms of the revised costs agreement came into effect on 8 August 2018.

49    A mediation was held on 18 December 2020. On that day MBL estimated that total legal costs incurred up to the end of November 2020 were approximately $A3 inclusive of uplift and GST. In other words, the total costs were at that stage around $950,000 below the estimate of total costs previously given, although that did not include the costs that were incurred from 1 December 2020 to 18 December 2020.

50    Now as the matter did not settle at that point the MBL team, two senior barristers and one junior barrister had to continue to prepare for the trial which was scheduled for a three-week hearing before me in Melbourne commencing on 2 February 2021. In recognition of this, Mr Steven Foale of MBL sent an email to his colleagues in which he stated:

This [the total costs incurred up to the end of November 2020] compares with the total estimate in our ILFP retainer … of [$E1] for fees (incl GST, deferred and uplift) and [$E2] for disbursements, a total of [$E3]. Thus, we’re still about $950k shy of the estimate, so if we do go to trial, we will undoubtedly exceed the estimate …

51    But settlement discussions between the parties continued thereafter and into January 2021, concurrently with preparation for the trial.

52    In mid-January 2021 consideration was again given to whether a revised costs estimate should be given. At that time Mr Foale formed the view, on the basis of the settlement discussions that were taking place at that time and his previous experience in shareholder class actions, that it was very likely that a settlement would be agreed to prior to the commencement of the trial. If that were so, to the extent that the actual costs exceeded the estimate contained in the revised costs agreement, they would do so by only a relatively small amount, which, in his view, would not constitute a “significant change” (s 174(1)(b)).

53    On 13 January 2021 Mr Foale sent an email to Mr Watson in the following terms:

As indicated in my email on the morning of the settlement conference (copy attached), the total costs incurred up to the end of November was [$F1], which was about $950k shy of the [$C2] total estimate contained in our retainer. The December invoice was about [$V], which leaves us about [$Y] headroom. If the trial does run, we will therefore undoubtedly exceed the estimate, albeit not to any enormous extent. I was proposing to send an update to our clients to let them know that fact, and to provide a revised estimate of [$G1]. However, when I checked the Victorian Uniform Legal Profession Law, s 174(1)(b) only requires us to notify the clients when there is any “significant change” to the estimated costs. It’s a bit hard to know what ‘significant’ means in that context, but I would’ve thought it’s arguable that a change of around 10% is not that ‘significant’. On the one hand, I don’t want to go to the hassle of sending out a letter to all of our clients if we don’t have to…. Please let me know what you think.

to which Mr Watson replied:

Maybe let’s just wait and see whether it looks like settling in the next week or so.

54    In my view Mr Foale properly considered at this time and up until the execution of the Settlement Deed, that until such time as it was clear that there would be no settlement, there was not a significant change to the estimate given in the revised costs agreement. But if the matter did not settle in mid to late January 2021, MBL intended to provide MBL’s clients with a revised costs estimate which would have included the anticipated costs of the trial. In my view, that was a sensible and justifiable approach.

55    Mr Foale also considered that it would not be reasonably practicable to provide an updated disclosure regarding the relatively small increase in the expected total costs should the matter settle, in circumstances where a Court-approved notice would be distributed to all group members very shortly after settlement in any event, advising of the estimated costs to be deducted from the settlement sum. There were several thousand clients who had registered with MBL and who had entered into the revised costs agreement. Consequently the giving of a notice to clients would have been a substantial and expensive undertaking which would have required a bulk mailout to clients, mostly by email, but in some cases by hard copy. Further, such a mailout would invariably result in numerous email bounce backs and hard copy “return to senders”, with the necessity to follow up those clients to obtain up-to-date contact details. MBL considered that the incurring of such expense was not only unnecessary but also wasteful in circumstances where, following the in-principle settlement, all group members would soon be receiving a Court-approved notice which would inform them of the amount of legal costs for which approval would be sought. Again, MBL’s consideration and approach was pragmatic and reasonable.

56    Further, Mr Foale also considered that it would not be reasonably practicable to provide an updated estimate of total legal costs based on the matter proceeding to trial, until such time as it was clear the matter was proceeding to trial, given the cost involved and the potential for confusion if the matter ultimately settled. Again, such a stance was sensible in my view.

57    On 26 January 2021 and following further negotiations, an in principle settlement of the substantive dispute was achieved. The Settlement Deed was executed on 29 January 2021.

58    The application seeking approval of the settlement was filed on 10 February 2021 and on 12 February 2021 I made orders approving the form and content of a notice to be distributed to group members and text to be published on the MBL website. The notice contained a link directing group members to the website text which in turn contained the following statement:

Legal costs and disbursements: Maurice Blackburn will seek payment of the reasonable legal costs incurred in conducting the Woolworths Class Action, estimated at approximately $13.6 million up to 31 January 2021 (and, as indicated above, so that they are shared on an equitable basis by all Group Members). It will be a matter for the Court to determine the amount of legal costs which it considers is fair and reasonable, and which may therefore be deducted from the Settlement Sum.

59    The notice and website text was published on or before 26 February 2021, in accordance with my orders.

60    The legal costs and disbursements ultimately sought by MBL at the approval hearing on 20 May 2021 was $13,819,927 for costs incurred up to 23 April 2021. That sum exceeded the estimate provided in the revised costs agreement by approximately 7%. It exceeded the amount advised in the settlement notice by around $220,000.

61    Let me now return to the special referee’s report. The errors and issues with the report may be summarised as including the following.

62    First, the referee wrongly decided that the revised costs agreement was void, with the result that he wrongly disallowed MBL’s 25% uplift fee.

63    Second, the referee wrongly reduced professional fees incurred prior to 12 April 2017 as a result of wrongly deciding that the revised costs agreement was void, with the result that he incorrectly disallowed investigation work.

64    Third, the referee’s reasons for reducing professional fees incurred for the period 12 April 2017 to 7 August 2018 by $95,971.26, for the period 8 August 2018 to 31 January 2021 by $817,667.94, for the period 1 February 2021 to 31 March 2021 by $48,902.74 and for the period 1 April 2021 to 30 September 2021 by $45,429.94, are not sufficient to enable the parties and me to know that the reductions made were justified.

65    Fourth, the referee’s “Global reduction to Professional Fees as allowed” of $789,537.98, to the extent that it was based on a lack of proportionality, was not properly justified.

66    Let me address three principal topics and begin with the uplift question.

67    The referee found that the failure of MBL to provide any updated estimate in December 2020 or January 2021, as required by s 174(1)(b) of the LPUL, resulted in both the original costs agreement and the revised costs agreement being void pursuant to s 178(1). Consequently he considered that MBL had no entitlement to an uplift fee.

68    But even if a costs agreement is found to be void due to a failure to comply with disclosure obligations, the law practice is still entitled to be paid fair and reasonable legal costs (s 199(2)). This could include the payment of an uplift fee on costs the payment of which was conditional on a successful outcome, as such a fee is only statutorily prohibited where a law practice has entered into a costs agreement in contravention of s 182 which was not the case here. So even if the costs agreement was void, that would not necessarily preclude seeking an uplift.

69    Section 185(3) makes it plain that an uplift fee is only to be denied where the costs agreement was entered into in contravention of s 182, which deals specifically with conditional costs agreements and uplift fees.

70    But in the present context, no one is suggesting that s 182 was contravened. Therefore the prohibition in s 185(3) on recovery of an uplift fee is simply inapplicable.

71    So even if it is assumed that the costs agreement is void under s 178(1) because of the non-disclosure required under s 174(1), the costs still need to be assessed (ss 178(1)(b) and (c)). But then fairness and reasonableness is the touchstone (see for example ss 172, 199(2) and 200). There is no reason why an uplift fee could not be recovered if it was considered to be fair and reasonable.

72    But in any event, the referee’s finding that the original costs agreement and the revised costs agreement were void from their commencement or at all constituted an error.

73    For s 174(1)(b) to be engaged there must as a matter of fact be a significant change to something previously disclosed. Section 174(1)(b) only required an updated estimate to be given “as soon as practicable after there is any significant change to anything previously disclosed … including information about any significant change to the legal costs that will be payable by the client”.

74    The evidence before the referee reveals that at all times from the date of the mediation on 18 December 2020 through until the execution of the Settlement Deed on 29 January 2021, there had not been a significant change to the expected total costs.

75    The evidence shows that as a matter of fact, the costs incurred to the end of January 2021 were approximately only 2.8% more than had been estimated in the revised costs agreement.

76    Now if the matter did not settle during mid to late January 2021, there may have been a basis for a finding that there had been a significant change to the estimate of total costs. But until it was clear that settlement would not occur, there was no obligation to provide a revised estimate to clients.

77    In the circumstances the referee was wrong to state that Mr Foale would have been incorrect if he thought Mr Watson’s advice to him to “wait and see whether the matter looked like settling in the next week or so” meant that “there would be no need to update the estimate of total costs”.

78    Leaving aside the evidential difficulty in the referee presuming what Mr Watson meant and/or what Mr Foale thought, the reality was that as at 13 January 2021 when that email exchange occurred, MBL was genuinely of the view that if the matter were to settle the costs would come in at, or only slightly more than, the estimate and therefore there would be no need to update the estimate.

79    In any event Mr Foale also considered that it would not be reasonably practicable to provide an updated disclosure regarding the relatively small increase in the expected total costs should the matter settle, in circumstances where, in that event, a Court-approved notice would be distributed to all group members very shortly after settlement, advising of the estimated costs to be deducted from the settlement sum and in light of the considerable time and expense involved in that exercise and the potential for confusion.

80    The referee did not consider whether provision of an updated estimate in December 2020/January 2021 was reasonably practicable.

81    Now the concept of “as soon as practicable” in s 174(1)(b) is to be informed by the statutory context. Let me make the following points.

82    First, one of the objectives of Part 4.3 is “to ensure that clients of law practices are able to make informed choices” (s 169(a)). So, the necessity to make timely disclosure of changes in estimates is informed by that goal. So in the context I am dealing with, what MBL did was consistent with that objective. If the matter settled, it was impractical and not sensible to update any disclosure (assuming that the LPUL required it). That would have been done as part of the settlement approval process under my control. I would then be reviewing the reasonableness of the quantum sought. And there would be no relevant “informed choice” for group members to make at that stage. And if the matter did not settle, then there was to be an update.

83    Second, this context of “as soon as practicable” is also re-inforced by s 174(2)(b) which refers to disclosure such as “to allow the client to make informed decisions about the future conduct of the matter”. But again the matter was settling, with all necessary approvals under my control. And if the matter was not settling then there was to be updated disclosure.

84    So in summary, what MBL did was consistent with making disclosure “as soon as practicable” where practicability properly looked at what was known to MBL, the position of group members at the time in terms of what disclosures had been made and what usefully could or should have been further disclosed at that time, the stage at which the proceedings had been reached, and my then anticipated control of the approval process. Now at the time of approval, the opt out period had passed. But at that approval hearing, any group member could have challenged the reasonableness of the fees sought. So no informed choice was lost. Now I have found that at the time there was no “significant change to anything previously disclosed” (s 174(1)(b)). But even if there was, I cannot say that MBL did not act “as soon as practicable”.

85    Further, the legal costs and disbursements ultimately sought by MBL at the approval hearing on 20 May 2021 was $13,819,927 for costs incurred up to 23 April 2021. That sum exceeded the amount advised in the settlement notice, being “approximately $13.6 million” published on or around 26 February 2021 by around $220,000, or 1.6%.

86    In summary then, the referee made three errors. First, he was wrong to find non-compliance with s 174(1)(b). Second, even if there was non-compliance with s 174(1)(b), the relevant costs agreements were only void going forward and not ab initio. Third, in any event whether or not the costs agreements were void ab initio or in futuro, such a conclusion did not preclude recovery of an uplift fee.

87    For all these reasons, an uplift fee in the amount sought should be included.

88    Let me now address the reduction of professional fees incurred prior to 12 April 2017. The referee found that the only basis upon which MBL was entitled to costs of investigation work was pursuant to the express terms of the original costs agreement and the revised costs agreement. But as a result of finding both the original costs agreement and the revised costs agreement void for failure to comply with s 174(1)(b) the referee found that MBL “are not entitled to look to the Lead Applicants or group members for any costs incurred prior to 12 April 2017, save for part of the fees claimed for [Counsel] …”. Consequently the referee reduced professional fees by $194,274.74.

89    But if I reject, as I have, the referee’s conclusion that the costs agreements are void, and in any event cannot be void ab initio, there is no justification for the reduction of professional fees of $194,274.74.

90    Let me finally deal with proportionality.

91    In addition to the case law which deals with proportionality in terms of s 33V approvals, I also note that the concept of proportionality is dealt with under the terms of s 172 of the LPUL. Section 172(1) provides that the fairness and reasonableness of costs charged is informed by whether the costs were “proportionately and reasonably incurred” (s 172(1)(a)) and “proportionate and reasonable in amount” (s 172(1)(b)).

92    So, two dimensions of proportionality are dealt with. Section 172(2) sets out the factors to consider including “the level of complexity, novelty or difficulty of the issues involved” (s 172(2)(b)).

93    Now the referee considered that the costs claimed by MBL not including the uplift fee was not proportionate to the settlement sum and as a result there should be a further global reduction of 10% to the quantum of all professional fees.

94    The following criticisms can be made of his approach.

95    First, to the extent that he considered the quantum of the settlement relative to the quantum of costs, he neglected to consider the amount that was reasonably expected to be recovered at the outset of and throughout the matter had the proceedings been successful, relative to the costs.

96    Nowhere in the report does the referee refer to the estimated aggregate value of the claims which the applicants and solicitors considered at the outset were achievable. This information was made available to the referee by way of the confidential materials provided to the Court on the settlement approval hearing, and which revealed that the maximum recoverable if the applicants and group members succeeded on their claims in their entirety was in the order of $AA, but that the solicitors’ expectations reduced over time for reasons which were set out in the confidential opinion of counsel, which reasons were not apparent at the outset of the proceeding.

97    Second, he made a comparison with a figure for costs which does not reflect the costs actually being claimed by MBL.

98    Third, he failed to correctly apply relevant case law such as Blairgowrie at [181] and Foley v Gay [2016] FCA 273 at [23] and [24].

99    So, the referee misapplied the standard of proportionality and otherwise did not sufficiently reveal how and why the proposed reduction was made. I have rejected the reduction.

Conclusion

100    In summary, given the nature of the legal and factual errors made by the referee that permeated his report, I decided not to adopt any part of it.

101    In the circumstances, in determining the reasonableness of the legal costs and disbursements to be approved, I accepted the views and analysis of Mr Ramsey-Stewart, with the amounts sought updated from the time that he had expressed his opinion.

Associate:

Dated:    20 December 2022