Federal Court of Australia

Spozac Pty Ltd as trustee for the LDB Family Trust t/as Not Just Cakes v Tyro Payments Ltd (No 2) [2023] FCA 643

ORDERS

THE COURT ORDERS THAT:

1.    The parties prepare a draft settlement distribution scheme and draft orders to give effect to the Court’s reasons for judgment delivered today.

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:

Introduction

1    On 19 May 2023, I made an order under s 33V(1) and or s 33ZF of the Federal Court of Australia Act 1976 (Cth) approving the entry by the parties, the applicant, Spozac Pty Ltd as trustee for the LDB Family Trust trading as Not Just Cakes, for itself and all group members who had not opted out of the proceeding, the respondent, Tyro Payments Ltd, the funder, CHC Investment Fund Pty Ltd as trustee for the CHC Investment Fund Unit Trust and Court House Capital Management Ltd, and Spozac’s solicitors, BLCA Pty Ltd trading as Bannister Law Class Actions, into a settlement deed for this representative proceeding under Pt IVA of the Act under which Tyro would pay a total sum of $5 million to discharge its liabilities to Spozac and all group members: Spozac Pty Ltd as trustee for the LDB Family Trust t/as Not Just Cakes v Tyro Payments Ltd [2023] FCA 590.

2    During the course of that hearing, I raised a number of concerns about my understanding of the structure of the final proposed settlement distribution scheme and payments that CHC and Bannister Law were to receive under the scheme. I adjourned that hearing, as the parties to that application proposed, to allow them to address those concerns for the purposes of determining today whether, under s 33V(2), I would make the orders that they proposed or some other order or orders that I considered to be “just with respect to the distribution of any money paid under a settlement” within the meaning of s 33V(2).

Background

3    Over the adjournment, perhaps in light of concerns I expressed, CHC withdrew its claim to be paid $177,600 (inclusive of GST) out of the settlement, in respect of part of the premium that it had expended for after the event insurance. When the matter resumed today, CHC confirmed that it had reduced its claim for funding commission from 25%, as provided in its original contract with Bannister Law and Spozac, down to 20%, or $1 million out of the $5 million settlement. In addition, CHC claimed reimbursement of costs totalling $1,195,685.83 that it paid to Bannister Law.

4    CHC began its funding initially under a letter of indemnity that covered the period between 8 April 2021 and until it entered into a funding agreement. During the term of the letter of indemnity, CHC paid a capped total of $300,000 to Bannister Law.

5    Charles Bannister, the principal of Bannister Law, gave further affidavit and oral evidence about the composition of the supporting invoices for the sum of $560,711.95 which his firm invoiced as costs, including disbursements of about $140,000 in counsel’s fees, for work done, and covered by the letter of indemnity, between the initial involvement of Bannister Law from about 18 January 2021 and 20 October 2021, the day after the originating application and statement of claim were filed. Bannister Law sought to be recouped from the settlement the balance of those fees after deducting the $300,000 that CHC had paid it.

6    In addition, Mr Bannister gave oral evidence elaborating on the difficulties that he and his firm had encountered in progressing the proceeding. These included that, under the letter of indemnity, his firm would be paid no more than $300,000 in total for work all done prior to CHC deciding whether or not to enter into a funding agreement and that, accordingly, his firm had not yet been paid about $260,000 of the pre-filing work.

7    As events transpired, and partly due to the introduction during 2021 of managed investment scheme regulations applying to the funding of class actions, CHC took longer to put itself into the position of being able to enter into a funding agreement. When the funding agreement was made, it provided that CHC would pay the disbursements incurred by Bannister Law in full, but only 35% of its legal costs, and that the balance would be carried by Bannister Law until a settlement or judgment in the proceeding would enable it to be reimbursed in full for its work. As Mr Bannister explained, that created significant financial pressure on his firm which had had to do considerable work. That work included liaising with group members to discuss their claims and building up a sufficient number of interested group members who wished to enter into a costs agreement and or arrangements to support the bringing of the litigation. Mr Bannister gave evidence of having had discussions with many group members in detail about how they understood they had suffered loss or damage and of obtaining expert opinion which was used for the purposes of discussions leading up to, and in, the mediation about generalised evidence of losses that Tyro could be expected to understand would have been suffered by group members, including from its own data that it collected concerning the transactions on its terminals and the periods in which they were inactive.

8    Bannister Law, through Mr Bannister, had agreed to make significant reductions in its claim for a proportion of its fees that it had carried through most of the litigation, being a proportion of its monthly bills of which CHC had agreed to pay 35% initially and from September 2022 60%. Effectively, Bannister Law was proposing that it give up about $1.17 million in fees including its entitlement to interest under its costs agreement.

9    In common with most litigation, all parties appreciated that there were risks as to what would happen in the course of both the preliminary stages of the case and its progress towards either a hearing or settlement.

10    As I noted in my previous reasons, I had regard to the contents of an expert opinion by John Sharpe of counsel as an experienced cost assessor. He assessed that Bannister Law’s fair and reasonable costs and disbursements should be $2,419,834.06. In arriving at that total, he said that he had regard to the decision of Beach J in Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs and mgrs apptd) (in liq) (No 3) (2017) 343 ALR 476 at 521 [180]–[181] and, in particular, to his Honour’s remarks there about the relationship of proportionality between the claimed costs and disbursements, the nature of the litigation and the result achieved.

11    I raised my concerns today about proportionality and made suggestions as to my initial perception that an order that would be just with respect to the distribution of the $5 million would leave about 50% payable to the group members and the balance to those who had worked to generate the settlement. This resulted in Mr Bannister agreeing that Bannister Law would reduce its claim to $450,000 and CHC its claim for the legal costs that it had reimbursed Bannister Law to $1,095,000. Understandably, each did so reluctantly and in circumstances where it was seeking to have a resolution of the proceeding, albeit with a harsher result for each than it had anticipated at the outset of the litigation.

The revised proposed settlement distribution scheme

12    The parties have proposed a revised settlement distribution scheme that will require further notices under s 33X of the Act to be sent to all group members. The new notice will request banking information from those who did not submit a claim with supporting financial details of loss or damage in response to the registration process that I described in Spozac [2023] FCA 590. Under the revised scheme, other than those few group members whom I allowed to make claims at the last hearing, the bulk of group members will be entitled to receive an electronic transfer of $100 into their bank accounts. The economic effect of this will be that, if the approximately 13,000 group members avail themselves by providing the scheme administrator with their banking information and other details sufficient to enable payments to be made to them, a total of about $1.3 million will be expended from the $5 million settlement with the balance to be distributed equally among the 331 group members who registered under the s 33X notice sent to group members pursuant to the orders that I made on 22 July 2022 and also provided financial documentation of loss or damage to support their claims (the registrants) or those few whom I have allowed the further opportunity to do so.

13    During the course of argument at the beginning of the hearing today, I again reiterated my concern that, economically, the parties’ revised scheme would result in about 58% of the $5 million being paid in legal fees, funder’s commission and reimbursement (after CHC reduced its claim by withdrawing the application for after event insurance cost reimbursement). This raised the proportionality of those deductions as a significant issue against what reasonably might have been anticipated at the outset, in the conduct of the proceeding, would be recoverable.

14    At the hearing on 19 May 2023, senior counsel then appearing for Spozac said that the confidential joint opinion which he co-authored “boil[ed] down” to:

A very strong case on liability. A very problematic case on quantum, which, if particular members of the class can prove anything, it won’t be nearly as much as perhaps they hope and expect, and will be a very costly and difficult exercise.

(emphasis added)

15    He added that he had:

done a selective look of the information that has been provided [and the] evidence, if you can call it that, is obviously very weak. The ability of people looking at these claims to then make a sensible, rational assessment is close to impossible.

(emphasis added)

16    The joint opinion confirmed that, in counsel’s perception, in effect, group members would have significant difficulties of proof of any substantive loss or damage beyond what I raised in my previous reasons, namely, generalised inconvenience and a loss of sales when their Tyro terminals went offline in the context that few people were using cash because of the risk of contagion from COVID-19, particularly in areas affected by lockdown periods. Those problems of proof included establishing the value of undocumented lost sales or customers who had walked away from businesses because Tyro terminals were not operating.

17    Most small businesses, such as a corner store or café, would have no records of, and not be motivated to record, any loss of clientele or what the customer was intending to buy, so that most people who suffered, perhaps small, but still, real loss or damage from the connectivity issue with the Tyro terminals would not be able to substantiate, with any precision, a demonstrable claim for quantifiable loss or damage. Hence the ultimate recognition by the parties, at my urging, that some form of payment should be made to all group members, albeit that it will be a nominal amount. But, nonetheless, if that payment were accepted by most group members, it would significantly deplete the remaining settlement money available for those who were able to put together some formulation of their claim, albeit that those claims appeared to senior counsel and his juniors to be weak and unlikely to be successful if the matter went to trial without at least much more work.

Consideration

18    In Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) (2018) 132 ACSR 258 at 287–288 [134], Murphy J cited Beach J’s reasons in Blairgowrie 343 ALR at 521 [181] with approval in the following passage:

Beach J explained the requirement for costs to be proportionate in Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs and mgrs apptd) (in liq) (No 3) (2017) 343 ALR 476; 118 ACSR 614; [2017] FCA 330 (Blairgowrie) at [181]. His Honour said, and I respectfully agree:

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.

(Emphasis added.)

(emphasis in original)

19    Murphy J observed (at 286 [129]) that there was an increasing problem in class action litigation in 2018 (and, in my opinion, that continues today) in balancing the quantum of legal costs and funding charges with the recoveries by class members because those are, or can be, disproportionate. He noted that this problem arose in cases where, among other factors, such as here, the damages recovered or the settlement is less than $30 million. His Honour referred to his own reasons in Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 at [148]–[152] (see Peterson 132 ACSR at 288–289 [135]) and noted the impact of the inherent uncertainties in class action litigation which result in judicial determination of what an applicant’s lawyers might reasonably expect to achieve in litigation at the time of incurring costs and disbursements not being as straightforward as it would be in ordinary inter partes litigation.

20    His Honour explained in Caason [2018] FCA 527 at [148], in a passage he cited with his own emphasis, that class actions are to be conducted for the benefit of applicants and group members rather than a service provider, such as lawyers or a funder, and the costs should be reasonably proportionate to the outcome. He said that:

Like Beach J, I consider the appropriate question is the benefit which the solicitors reasonably expected the applicants and class members would achieve not the benefit they actually achieved.

21    In Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7]–[8], Jacobson, Middleton and Gordon JJ said:

7    Justice will be satisfied where a settlement is “fair and reasonable having regard to the claims made by group members who will be bound by it”: Jarra Creek Central Packing Shed Pty Ltd v Amcor Limited [2011] FCA 671 at [70], see also Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258.

8        The role of the Court is important and onerous: Lopez v Star World Enterprises Pty Ltd [1999] FCA 104 at [16]. It is protective. It assumes a role akin to that of a guardian, not unlike the role a court assumes when approving infant compromises: P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4) [2010] FCA 1029 at [23]; Tasfast Air Freight Pty Ltd v Mobil Oil Australia Ltd [2002] VSC 457 at [4], Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 at 408. In the current context, the Court’s role is to protect those group members who are not represented by Levitt Robinson and whose interests may be prejudiced by their absence: Chats House Investments at 258; Darwalla Milling Co Pty Ltd (ACN 009 698 631) v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 at [41].

(emphasis added)

22    In the circumstances set out above, it is very difficult to formulate an order or orders pursuant to s 33V(2) of the Act to finalise the proceeding that is or are just as to the distribution of the balance of the settlement after payments to Bannister Law and CHC for their efforts in realising the resolution. Apart from Spozac itself, the registrants and all other group members will receive a smaller amount out of the $5 million settlement than they would have wished or anticipated or was originally proposed.

23    I accept that Bannister Law and CHC had made significant financial and other contributions to achieve the settlement. Bannister Law and CHC had taken risks in pursuing the litigation that has had some benefit for the group members.

24    The difficulty that I perceived in the significant amount of legal costs that had been expended, in the lead-up to both the commencement of the proceeding on 19 October 2021 and in reaching the initial mediation, was that it was obvious that Spozac’s and group members’ ability to prove substantive loss or damage was always going to be problematic in the way in which senior counsel explained in the passages from the joint opinion I have quoted above.

25    That was because proof of sales that did not occur and why they did not occur would be inherently problematic and difficult to establish with any particular precision beyond a general loss of business. The common law is able to deal with claims that a person has suffered a general loss of business caused by another’s wrong provided that there is a reasonable basis for doing so: Ratcliffe v Evans [1892] 2 QB 524 at 532–533 per Lord Esher MR, Bowen and Fry LJJ and Andrews v John Fairfax & Sons Ltd [1980] 2 NSWLR 225. Those cases dealt with a general loss or downturn of business after publication of a malicious falsehood or defamation.

26    Here, the parties were well advised and represented. I formed the view, as expressed in the joint opinion, that the settlement was reached after hard bargaining and dedicated effort by those acting for Spozac and on behalf of group members in seeking to maximise the returns achievable out of the litigation. Each of CHC and Bannister Law, acting in its own interests, came to the same view.

27    The law has long recognised that the distribution of a loss or expense to be borne by persons who, albeit having different interests, have incurred that loss or paid the expense in a common endeavour generally should be met by all those persons equally. The law of general average when, for example, cargo is sacrificed to save the ship from sinking, is an example: see Birkley v Presgrave (1801) 1 East 220 at 227–228, where Lord Kenyon CJ said:

Such a proceeding does not change the nature of the jurisdiction over the original matter. The objection therefore arising from multiplicity of actions is of no weight in a case like the present. The same inconvenience would exist if there were many persons owners of different parts of a cargo, and an injury were to happen to the whole from the misconduct of the captain; they must all bring their several actions for their respective losses, and no objection could be made to their recovery. Upon the whole, this action, the grounds and nature of which are fully set out in the special count, is founded in the common principles of justice. A loss is incurred, which the law directs shall be borne by certain persons in their several proportions: where a loss is to be repaired in damages, where else can they be recovered but in the courts of common law; and wherever the law gives a right generally to demand payment of another, it raises an implied promise in that person to pay. With respect to the other question, all ordinary losses and damage sustained by the ship happening immediately from the storm or perils of the sea must be borne by the ship-owners. But all those articles which were made use of by the master and crew upon the particular emergency, and out of the usual course, for the benefit of the whole concern, and the other expences incurred, must be paid proportionably by the defendant as general average.

(emphasis added)

28    Here, because of the revisions due to the concerns I expressed on 19 May 2023, the revised scheme will not exclude the vast bulk of group members who now will receive $100 each in a differential distribution of the net proceeds (now about 48%) of the settlement after payment of the funding fees and legal costs. The balance will be paid equally to the 331 registrants who were able to put forward some evidence of loss and some remaining group members whom I allowed to submit evidence to the scheme administrator. Those persons will recover in the order of about $3,000 each.

29    As I discussed with counsel for each of Bannister Law and CHC, it is very difficult in cases like this to exclude hindsight, yet necessary to do so. Nonetheless, it was not practical here to appoint a contradictor, particularly because the amount available in the settlement is small, to investigate whether concerns I raised with counsel had any substance or whether the originally proposed distribution should have been allowed to proceed. Because of the inability of any independent third party to lead evidence and make submissions to contradict or confirm what the parties had put or address more fully the concerns I had raised, it is necessary to approach the task under s 33V(2) in a practical, but just, way. As Murphy J said in Petersen 132 ACSR at 301 [184]:

It is unnecessary for the Court to embark on an item by item reduction on proportionality grounds. The Court’s task in a settlement approval application is not a taxation and it is allowable to take a broad brush approach. The reduction on proportionality grounds could be made to either fees or disbursements but it will be simpler to apply the reduction to [the lawyers’] unpaid fees.

Conclusion

30    I am satisfied that, in light of all of the evidence, including the joint opinion, Mr Sharpe’s report and the significant and, no doubt, very difficult decisions that both Bannister Law and CHC made to reduce their claims for reimbursement of significant outlays or anticipated fees that they ordinarily may have felt entitled to receive out of the settlement (they having already negotiated significant reductions in what they would otherwise have been claiming in order to leave a minimum of $2 million available for distribution as originally proposed), the revised scheme should be approved. That provides for Bannister Law to be paid a further $450,000 for its past expenses, other than in seeking this approval, and CHC to be paid a 20% commission equating to $1 million and $1,095,000 (being its reduced claim for reimbursement of outlays already made). In all the circumstances, this will enable a just distribution of the $5 million settlement to occur, having regard to the proposed content of the revised scheme.

31    I am satisfied that what is now proposed will be a just result, proportionate in all the circumstances to the roles and entitlements which each of Spozac, Bannister Law, CHC and group members ought be paid. I will make orders consistent with a settlement distribution scheme revised in the manner proposed today. I will direct the parties to the hearing today to draft orders, including a revised scheme, to give effect to these reasons.

Associate:

Dated:    14 June 2023