Federal Court of Australia

Spozac Pty Ltd as trustee for the LDB Family Trust t/as Not Just Cakes v Tyro Payments Ltd [2023] FCA 590

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 33V(1) and or s 33ZF of the Federal Court of Australia Act 1976 (Cth) (the Act), the terms of the settlement of the proceedings recorded in the settlement deed, executed on 16 February 2023 by the applicant (on its behalf and for and on behalf of the group members, excluding those group members who opted out of the proceeding both before 30 October 2022 together with the 93 group members who opted out after 30 October 2022 and (excluding Tamika Little) as recorded in the spreadsheet contained at Tab 8 of Exhibit CJB-1 to the affidavit of Charles John Bannister sworn 8 May 2023 and to which he deposed in paragraphs 26(b) and (c) of that affidavit), the respondent, CHC Investment Pty Ltd as trustee for the CHC Investment Fund Unit Trust, Court House Capital Management Ltd (the funder) and BLCA Pty Ltd trading as Bannister Law Class Actions be approved.

2.    Pursuant to s 33ZB of the Act, the following persons are affected and bound by the settlement recorded in the settlement deed, namely:

(a)    the applicant;

(b)    group members;

(c)    the respondent;

(d)    CHC; and

(e)    the funder.

3.    Pursuant to ss 37AF(1)(b) and 37AG(1)(a) of the Act, in order to prevent prejudice to the proper administration of justice, the confidential joint opinion of counsel for the applicant dated 8 May 2023, which is at pages 447 to 492 (also numbered pages 339.113 to 339.158) of Confidential Exhibit CJB-2, to the affidavit of Charles John Bannister sworn 8 May 2023, not be published otherwise than to the applicant, its lawyers and its litigation funders and its contents be suppressed indefinitely on the ground that its contents are subject to the applicant’s right to legal professional privilege.

4.    The proceeding be fixed for further hearing on 30 May 2023 at 11:00am.

5.    Charles John Bannister, solicitor for the applicant, attend personally at the hearing on 30 May 2023.

The Court Notes That:

6.    When final orders to resolve the proceeding are to be made the parties have agreed that:

(a)    the proceeding should be dismissed with no order as to costs and that all previous costs orders be vacated and be without prejudice to their right to relist the matter for the purposes of seeking orders consequential to or in connection with the settlement deed or the settlement distribution scheme that they propose to draft and seek the Court’s approval of its provisions pursuant to s 33V(2) of the Act; and

(b)    the dismissal of the proceeding will be a defence for, and absolute bar to, any claim or proceeding against the respondent by the applicant or any group member, other than those who have opted out with respect to the proceeding or its subject matter.

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

REASONS FOR JUDGMENT

(Revised from the transcript)

RARES J:

Background

1    On 19 October 2021, the applicant, Spozac Pty Ltd as trustee for the LDB Family Trust, trading as Not Just Cakes, filed an originating application and statement of claim against Tyro Payments Ltd to commence this representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). Tyro was a supplier of banking and financial products that included Tyro EFTPOS terminals used in retail and other businesses. Spozac has applied today for orders approving a settlement of this proceeding under s 33V of the Federal Court Act which provides:

33V    Settlement and discontinuance—representative proceeding

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

(2)    If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.

Spozac’s Claims

2    Spozac claimed that many Tyro terminals had become inoperable for a period commencing on 5 January 2021 (the connectivity issue), in the midst of the COVID-19 pandemic and during periods of lockdown, at least in New South Wales and Victoria. The Tyro terminals could not be repaired by the use of remote software because of a software malfunction that treated a digital certificate as being out of date and required individual replacement or repair, all of which took time. Spozac’s statement of claim pleaded that:

    many group members who had contracted for the provision of Tyro terminals were unable to trade using them for a substantial period of time, in circumstances where many in the community took the precaution of not using cash, which may or may not have carried the pathogen causing infection, and depended upon electronic funds transfer systems such as that offered by Tyro;

    predictably, persons, including Spozac, who had contracted with Tyro relied on contractual terms with, and representations by, Tyro as to the reliability of its service, the Tyro terminals it provided and, by reason of their inoperability, had suffered loss or damage;

    after its Tyro terminals became inoperable and it began suffering the connectivity issue on 5 January 2021, on 18 January 2021, Spozac obtained alternative EFTPOS access with National Australia Bank and, on 20 January 2021, terminated its contract with Tyro;

    every conceivable cause of action arose in contract, negligence and under 10 provisions of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth), based largely on Tyro, first, engaging in conduct which was misleading or deceptive or likely to mislead or deceive in representing that the Tyro terminals were of a standard which could be relied on in 99.9% of cases and, secondly, breaching the statutory consumer guarantees; and

    Tyro was not able to provide a level of service to the customers that it represented it would.

3    The originating application and statement of claim alleged that one of the common questions was whether Spozac and group members were entitled to recover loss or damage comprising loss of profits, loss of goodwill, costs of mitigating their losses, including of obtaining temporary replacement EFTPOS terminals or payment processing services, and increased costs arising from obtaining permanent replacement EFTPOS terminals and other payment processing services.

4    One might be forgiven for thinking that, in those circumstances, reasonably crystallised and clear particulars of loss and damage could have been formulated for Spozac for the short period between it losing its ability to engage in electronic funds transfers with its customers at its three shops and getting replacement terminals that performed exactly the same function 13 days later. However, as appears in the evidence before me, Spozac did not serve any particulars of loss on Tyro.

5    As I raised in the course of argument today, it is apparent that a considerable number of Tyro’s customers affected by the connectivity issue, who were able to and did trade during COVID lockdowns or in places not subject to lockdowns, will have suffered general inconvenience and some loss of custom. That follows since it is very likely that customers who were averse to using cash as legal tender because of the risk of infection being spread or who did not have or wish to arrange an alternate means of payment did not complete intended transactions because of inoperative Tyro terminals. It would be very difficult for small businesses to quantify with any precision such losses since no one running a café or small retail store could be expected to keep records of customers who walked away because they did not have cash when a Tyro terminal was not working. Such a generalised loss of business and inconvenience could well be expected to have been suffered by many of the approximately 13,000 group members in this open class action, being the persons to whom notices were sent on 22 July 2022 pursuant to orders that I made under s 33X of the Federal Court Act (the s 33X notice).

The Defence

6    On 22 December 2021, Tyro filed its defence in which it pleaded:

    admissions that the connectivity issue had occurred and that it had to take steps manually to replace or repair its customers’ Tyro terminals;

    once it became apparent that the Tyro terminals were not working, its customers, such as Spozac, were under a common law duty to mitigate their loss including by taking cash or arranging other ways of taking customers’ money, directly or indirectly, through electronic devices;

    it had purchased those terminals from the manufacturers, being either Banksys SA or Worldline SA, which acquired Banksys in 2006;

    it had relied on the manufacturers to provide software and systems that worked properly and would not suffer the fault that caused the connectivity issue; and

    accordingly, to the extent that Tyro may otherwise have been liable, Banksys and Worldline were concurrent wrongdoers, for the purposes of s 87CB of the Competition and Consumer Act and its analogues.

7    No doubt, those defences would have added some complexity to any trial. As a result of the allegations in the defence, Spozac and its solicitors, Bannister Law Class Actions, and litigation funders, CHC Investment Fund Pty Ltd as trustee for the CHC Investment Fund Unit Trust and Court House Capital Management Ltd, had reason to think that whatever damages may have been recoverable against Tyro may be reduced or potentially eliminated, depending on the degree of fault of the manufacturers or vendor of the terminals to it. Extraordinarily, Bannister Law never sought any particulars of that part of Tyro’s defence, including the allegation that the manufacturers were concurrent wrongdoers.

The Mediation Process

8    I referred the proceeding to mediation which was conducted by the Hon Patricia Bergin AO SC over two days on 21 June 2022 and 13 February 2023.

9    Senior counsel for Spozac said today that those acting for Spozac as the representative party for the wider group realised on the first mediation day that they were unable to formulate any sufficiently cogent claim to quantify the loss or damage that Spozac or group members may have suffered. As a consequence (although this reason was not clear at that time to the Court), on 22 July 2022, I approved the s 33X notice that Tyro sent to group members. It informed them, first, of their right to opt out of the proceeding, secondly, of the establishment of a claims registration process and, thirdly, if there were a settlement at the mediation, then, subject to the Court’s approval under s 33V, the parties would seek an order that, if made, would have the effect of providing that any group member who, by 30 October 2022, had not registered with Bannister Law or opted out of the proceeding would remain a group member for all proposes, but would not be able to seek any benefit from that settlement without leave of the Court. That foreshadowed application is known as a class closure order.

10    Bannister Law established an online registration form on its website in accordance with the s 33X notice. The form required each group member seeking to register a claim to provide the person’s name, email address, telephone number, business name, Australian Business Number, role of the individual in the business and to complete a form with information with respect to the losses incurred by reason of the outage that the connectivity issue had caused. Once that had occurred, Bannister Law asked the registrant to complete a detailed questionnaire, which, no doubt, assumed a degree of daunting complexity for many small business owners who may have suffered only generalised loss and irritation of the kind I mentioned earlier and or whose first language was not English.

11    Ultimately, about 575 group members filed opt out notices, of which Bannister Law received over 80 and the Court received the others. Another 93 group members sought to opt out after 30 October 2022.

The Proposed Settlement

12    When the mediation resumed before Ms Bergin AO SC on 13 February 2023, Spozac was represented by senior counsel, who has appeared today, and others.

13    I have had the benefit of reading a confidential joint opinion by Spozac’s senior and junior counsel. They identified why, in their opinion, the settlement reached at the mediation, and reflected in the deed dated 16 February 2023, between Spozac, Tyro, the funders and Bannister Law was the best achievable in the circumstances. Under the terms of the settlement, which Tyro announced to the Stock Exchange in accordance with its reporting obligations, it agreed to pay a total sum of $5 million to settle any liability that it may have had to Spozac and all group members in consideration of which Spozac, on its own behalf and all group members, together with the funders, agreed to release Tyro from any further liability arising out of the subject matter of the proceeding and that Tyro could plead that release in bar. The $5 million was to be paid to an interest-bearing holding account with an Australian authorised deposit-taking institution to be held on trust for distribution under a proposed settlement distribution scheme.

14    In the course of negotiations for settlement, both Bannister Law and the funders agreed to reduce their total claims to $3 million so as to allow a net sum of $2 million to be distributed to group members. The parties proposed that Andrew Chen of Findex be appointed scheme administrator. He had agreed to act for a fee of $25,000 on the basis of the then proposed scheme.

15    At the hearing today, no one opposed the making of an order under s 33V(1) approving the settlement in the deed, which I propose to do.

The Concerns about the Proposed Distribution of the $5 million

16    However, during the course of argument, particularly since there was no contradictor, I raised concerns about several matters concerning the proposed distribution of the $5 million under any order pursuant to s 33V(2) and the quanta sought to be paid out of that sum of the legal costs claimed by Bannister Law and of the payments claimed by the funders.

17    One concern was that, as a result of the registration process, out of the total of 13,128 group members, only 429 registered to participate in the settlement, and of those, 98 did not provide any estimate of their loss. The remaining 331 registrants claimed a total of nearly $8.7 million, based on losses ranging from $50 to $200,000 but, as senior counsel said at the hearing, none of those claims and the material provided by the registrants in support appeared to provide sufficient evidence that any claimed loss or damage was caused by the connectivity issue.

18    Counsel opined that the cost of investigating and determining each of the 331 individual registered claims would significantly deplete the remaining $2 million in the proposed scheme. Accordingly, they suggested that each registrant who had taken the trouble to put in some substantiation for a claim, however inadequate, ought be paid equally out of the $2 million. That would result in a payment of about $6,000 to each of those registrants. However, this involved the remaining registrants who had not tried to substantiate their claims, as well as all the other thousands of group members, receiving nothing.

19    I raised concerns in the course of argument about the fairness of such a proposal. Because of statements made last year during case management hearings, I understood that, after being put on notice of this representative proceeding, a substantial number of Tyro’s customers may not have entered into a remediation agreement and release of Tyro, which it had sensibly and appropriately offered from early on after the connectivity issue occurred. That was because of the relief that group members may have been led to believe that they might achieve from a settlement of or judgment in this proceeding. I was also concerned that a distribution that ignored the non-registrant group members would be unfair to those who, as a matter of common sense, are likely to have suffered some inconvenience, unquantifiable financial loss or difficulties caused by the connectivity issue.

20    As a result of those matters and the other concerns I had expressed about the quanta of the legal fees and funders fees, the parties today proposed that I make an order under s 33V(1) approving the settlement but allow them time to formulate a new settlement distribution scheme. They envisaged that this will include a reasonable, but nominal, payment of $100 to be made to group members who had not been able to provide, or had not provided, details of some credible financial loss.

21    Today, I also admitted a number of non-registrants who applied orally to be allowed to seek to establish to the scheme administrator that they had suffered a loss. I did so because those persons had not received or, through language difficulties, did not understand, the opt out notice. As might be expected, a number of Tyro’s customers, including persons to be included in any settlement, did not have English as a first language or were not persons able to read and fully or easily comprehend documents of the complexity of the opt out notices.

22    As a consequence of the proposal to reformulate the proposed scheme, senior counsel for Spozac suggested that a further notice under s 33X be sent to all group members inviting non-registrants to provide the scheme administrator with bank account details to enable payment to them of any compensation. That appears to be a sensible course.

The Claimed Legal and Funding Costs

23    I have had regard to the contents of an expert opinion by John Sharpe of counsel. He was a costs assessor appointed by the Chief Justice of the Supreme Court of New South Wales in 1994 and has been a member of the Chief Justice’s Costs Assessment Rules Committee since 1997. He concluded that the fair and reasonable costs of Bannister Law, in respect of tax invoices up to and including 3 April 2023, should be reduced by about 10% and then subjected to a 25% uplift totalling $1,875,000, together with disbursements for counsel’s fees of $457,968.93 and other expenses of $86,865.13. That brought the total costs which Mr Sharpe opined to be fair and reasonable to $2,419,834.06.

24    Charles Bannister, the principal of Bannister Law, and who made the principal affidavit in support of the orders Spozac sought, was according to senior counsel for Spozac inexplicably unavailable today to appear or deal with the issues about how the costs which he submitted to Mr Sharpe for assessment had been properly incurred or were justifiable. In particular, I raised with senior counsel for Spozac that, before the proceeding commenced, in the period between 6 April 2021 and 20 October 2021, Bannister Law had rendered invoices in respect of work done, from about 18 January 2021, totalling $560,711.95, including approximately $140,000 in counsel’s fees. This seemed to be a very large sum indeed for what appeared to be a relatively straightforward claim that involved limited work in drafting of Spozac’s pleadings. In particular, I had regard to the difficulties caused by the lack of preparation of Spozac’s claim revealed in the confidential joint opinion, that, at latest, became apparent both at the initial and final mediation meetings. Mr Bannister will need to identify why I should allow the claimed substantial sum for the legal costs.

25    Likewise, the funders seek an order approving payment to them of $1,195,685.83 for legal fees that they already had paid Bannister Law and $1,177,600 as their funding charge or commission of 20% of the settlement sum. The latter claim incorporated a net sum of $177,600 (inclusive of GST) being a proportion of about 70% of after the event insurance premiums that the funders paid.

26    I indicated that, as a matter of principle, a litigation funder, ordinarily, will only undertake funding litigation after making a reasonably sanguine and experienced assessment of the risks of the proposed litigation and then concluding that it will be significantly more likely than not that the case would succeed at trial and or in producing a reasonable settlement sum. Once it decides to fund such a proceeding, a funder can agree to charge an appropriately rated percentage of the recovery or other amount for the risk to be undertaken in financing the litigation.

27    Funders are now able to defray some risk in respect of adverse costs orders by the ready availability of after the event insurance. That insurance requires a funder or person seeking to be the policy holder to pay not insignificant sums as premiums upfront, which, normally, would be beyond the reach of the ordinary person selected as a lead applicant in a representative proceeding. Nonetheless, obtaining such insurance is ordinary commercial common sense for a person in the business of funding representative or other proceedings. Such premiums should form part of a funder’s ordinary overheads and expenses and be included in the calculation of any overall commission or reward on any settlement or judgment sum recovered. That expense, like its other overheads, is one that a funder ought to bear out of its own resources.

28    After the event and similar insurance significantly reduces an important aspect of the overall risk of litigation funding and the justification for what, in the past, had been large percentage commissions that courts have felt, however reluctantly, from time to time, obliged to approve.

29    These are matters which will need to be debated on the next occasion.

Conclusion

30    I have had regard to the confidential joint opinion and noted the difficulties that it, and senior counsel today, explained Spozac and its representatives had had in establishing the amount of, or substantive basis for, Spozac’s and group members’ claims for loss or damage, notwithstanding the reasonably strong and clear case on liability, coupled with the unknown risks of whatever Tyro’s concurrent wrongdoer defences may raise so as to reduce its liability, together with the possibility that Worldline and or Banksys may need to be joined, in circumstances where the funder had indicated an unwillingness to continue with funding the litigation.

31    In all the circumstances, the settlement appears to be a reasonable compromise of the claims of Spozac and the group members against Tyro based on the advice in the confidential joint opinion that the settlement for a total of $5 million was fair and reasonable.

32    I am satisfied that, on the basis of counsel’s opinion and the evidence before me, the proposed settlement is a fair and reasonable one, achieves the best that can be done in all of the circumstances and that I should approve it under s 33V(1) of the Federal Court Act. I will so order.

Associate:

Dated:    9 June 2023