Federal Court of Australia

Harrold v Exactech Australia Pty Ltd (No 2) [2025] FCA 1412

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to sections 33ZB and 33ZF of the Federal Court of Australia Act (the Act), the Court declares that the persons affected and bound by these orders are the Applicant, the Respondents and all the Class Members other than those who have opted out of the proceeding.

2.    Pursuant to section 33ZF of the Act, the Court authorises the Applicant, nunc pro tunc, to enter into and give effect to the deed of settlement executed by the parties and dated 29 May 2025 on behalf of the Class Members, and the transactions thereby contemplated for and on behalf of the Class Members (Deed of Settlement).

3.    Pursuant to section 33V(1) of the Act, the Court approves the settlement expressed in the Deed of Settlement.

4.    Pursuant to section 33V(2) of the Act, the Court approves of the following:

(a)    the terms of the Amended Settlement Distribution Scheme which is Exhibit A in these proceedings (Settlement Distribution Scheme); and

(b)    the appointment of GMP Law, as the administrator of the Settlement Distribution Scheme (Administrator).

5.    Pursuant to section 33V(2) of the Act, the Court approves the following distributions to be made from the fund constituted by and under the Deed of Settlement (Aggregate Settlement Sum):

(a)    the Applicant’s reasonable legal costs and expenses in the sum of $2,185,491.25.

(b)    $100,000.00 compensating the Applicant for the time he expended in propounding this proceeding on behalf of the Class Members.

(c)    The costs of the Administrator to administer the Settlement Distribution Scheme in the fixed sum of $800,000.00.

(d)    the balance of the Aggregate Settlement Sum ($5,614,508.35), together with any accrued interest, to the Administrator for the benefit of the participating and eligible Class Members in accordance with the Settlement Distribution Scheme.

6.    Pursuant to section 37AF(1)(b) and section 37AG of the Act, and until further order, on the ground that this order is necessary to prevent prejudice to the proper administration of justice, access to and disclosure (by publication or otherwise) of Exhibit NKB-5 to the Third Affidavit of Narinder Kaur Bhullar dated 28 October 2025 is to be restricted to the following:

(a)    the Parties, and the Parties’ Legal Representatives; and

(b)    the Court and necessary Court staff.

7.    Pursuant to section 37AF(1)(b) and section 37AG of the Act, and until further order, on the ground that this order is necessary to prevent prejudice to the proper administration of justice, access to and disclosure (by publication or otherwise) of the documents immediately below is to be restricted to the Applicant, the Applicant’s Legal Representatives, the Court and necessary Court staff:

(a)    Exhibit DJC-2 referred to in the First Affidavit of David John Cossalter dated 27 October 2025.

(b)    The Second Affidavit of David John Cossalter dated 30 October 2025 and:

(i)    Exhibit DCJ-3 (Opinion of Dr Duncan Graham SC and Llewellyn Judd on Prospects)

(ii)    Exhibit DCJ-4 (Opinion of Duncan Graham, Llewellyn Judd and Matthew Robinson concerning the proposed Settlement and Settlement Distribution Scheme).

8.    The parties (including the Administrator) have liberty to relist the proceeding for the purpose of seeking orders consequential to the Deed of Settlement and/or the Settlement Distribution Scheme.

9.    The proceedings otherwise be dismissed against the Respondents, with no order as to costs.

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

REASONS FOR JUDGMENT

Delivered ex tempore, Revised from transcript

JACKMAN J:

1    By application dated 29 May 2025, pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth), the applicant seeks approval of a settlement of these proceedings in the aggregate sum of $8.7 million. The proposed settlement is funded by a combination of insurance proceeds in US dollars, a contribution from the first respondent, a funding amount sourced from consenting lenders, and a foreign exchange top-up if required (capped at $400,000).

2    From the sum of $8.7 million, the following deductions are proposed:

(a)    $1,350,183 in professional costs and disbursements, representing more than a 50% reduction in the professional costs and disbursements otherwise incurred;

(b)    $620,708.76, in professional fees paid to counsel or otherwise anticipated to be invoiced by counsel;

(c)    $214,599.49 in disbursements;

(d)    $800,000 for costs of administration of the settlement distribution scheme; and

(e)    $100,000 for payment to the applicant.

The evidence satisfies me that each of those amounts is appropriate.

3    As a result, the sum of $5,614,508.75 is anticipated to be available for distribution to group members through the proposed settlement distribution scheme. This sum is subject only to third-party recoveries and currency exchange movements, noting that a shortfall would arise in respect of the latter only if there was a substantial adverse shift in foreign exchange rates. The total for costs and disbursements up to the settlement approval is $2,185,491.25 which represents about 25% of the total settlement sum.

4    I note that the solicitors for the applicant have, commendably, excluded from the professional costs and disbursements which they seek any professional costs after 20 February 2025 concerning its negotiations and dispute over the claim for expenses relating to the subpoena which I dealt with in Harrold v Exactech Australia Pty Limited [2025] FCA 1058.

5    This is a representative proceeding brought by the applicant for damages in negligence and for contraventions of the Australian Consumer Law (ACL) and, to the extent applicable, the Trade Practices Act 1974 (Cth) (TPA). It concerns the design, manufacture, packaging, distribution and supply of joint-replacement devices (Joint Devices) for knees, hips and shoulders which included polyethylene liners (the Affected Devices).

6    There are two respondents:

(a)    Exactech Australia Pty Limited (Exactech Australia), the Australian subsidiary responsible for importing, advertising, distributing and sponsoring the Affected Devices in Australia; and

(b)    Exactech Incorporated (Exactech US), the US parent company responsible for the design, manufacture, and packaging of the Affected Devices and their export to Australia.

7    The applicant brings the proceedings on his own behalf and on behalf of group members who, in Australia during the relevant period (1 January 2003 to the filing date), were implanted with one or more Joint Devices containing an Affected Device.

8    The claim is that the Affected Devices were defective, carried an abnormal and/or superadded risk of premature degradation and revision surgery, and caused personal injuries and other losses to the applicant and group members. The defects relied on are:

(a)    a production defect, arising from the alleged use of moderately cross-linked ultra-high molecular weight polyethylene (MXPLE) and the absence of vitamin E dosing or post-production thermal processes, causing accelerated oxidation and wear; and

(b)    a packaging defect, arising from the alleged widespread use of out-of-specification vacuum bags which exposed some of the liners to oxygen, thereby increasing the risk of oxidative degradation prior to implementation.

9    The consequences of these defects allegedly include adverse biological responses (such as particle-debris-related tissue necrosis, pseudotumour formation and granulomas), premature device failure, pain, loss of function, the need for revision surgery, and psychological and economic harm.

10    It is alleged that:

(a)    Exactech US was negligent in the design, manufacture, evaluation and packaging of the Affected Devices, and Exactech Australia was negligent in their evaluation, distribution and sponsorship;

(b)    both respondents supplied goods in contravention of the consumer guarantees of acceptable quality (s 54 of the ACL) and fitness for purpose (s 55 of the ACL), and their equivalents under the TPA;

(c)    both respondents are liable for safety defects under s 138 of the ACL, and ss 75AC –75AD of the TPA; and

(d)    Exactech Australia engaged in misleading or deceptive conduct and false representations as to quality, safety and durability contrary to ss 18, 29 and 33 of the ACL.

11    The applicant and group members seek damages and compensation for personal injury, economic loss, non-economic loss, loss of value of the Affected Devices, and other reasonably foreseeable losses arising from the respondent’s contraventions and negligence.

12    The proceeding is at an early stage. It was commenced by originating application and statement of claim on 5 September 2024. Apart from pleadings and limited interlocutory steps, no lay or expert evidence has been filed. On 23 December 2024, the proceeding was stayed as against the second respondent following recognition of the Chapter 11 process as a foreign proceeding, further constraining progression on the merits.

13    In light of emerging insolvency risks and uncertainty regarding the availability of responsive insurance, the parties agreed to attempt mediation before the service of evidence. The matter was mediated by a highly experienced and able mediator, the Honourable Patricia Bergin AO SC, on 20 December 2024, and again on 3 March 2025.

14    Although the parties mediated in the absence of each other’s expert evidence, it had by then become clear (from the Chapter 11 filings, the Model Law recognition application, and the respondents’ correspondence of 27 November and 18 December 2024 concerning insurance exhaustion) that only limited funds were likely to be available. From the applicant’s perspective, the objective was to avoid incurring the significant and effectively unrecoverable cost of expert evidence in circumstances where recoverability appeared to be the dominant consideration.

15    The parties reached agreement in principle on about 26 May 2025 on the terms now reflected in the Australian Settlement Deed, which is subject to approval (Settlement Deed).

16    On 15 September 2025, crystallising the parties’ obligations under the proposed settlement, the United States Bankruptcy Court for the District of Delaware made the Bankruptcy Court Order authorising the second respondent to give effect to the Settlement Deed, for use of insurance proceeds as contemplated by the deed, and the funding arrangement.

17    The applicant estimates at this stage that there are about 5,000 group members, of which:

(a)    by the end of 2025, it is projected that 610 will have undergone revision surgery;

(b)    439 are assumed to have suffered personal injury, but will not by that date undergo revision surgery; and

(c)    the balance (of about 4,000) are assumed to be physically uninjured and claim damages only for loss of value and distress and disappointment.

18    I have had the very considerable benefit of reading a confidential opinion by counsel for the applicant as to the reasonableness of the settlement. While the opinion addresses risks relating to the merits of the applicant’s claims, it is clear that the primary constraint on the value of the proceedings is the difficulty of recovering more from the respondents than is offered in the settlement. The second respondent, as I have said, is subject to Chapter 11 proceedings in the United States. The first respondent has limited assets and limited insurance. The proposed settlement provides a fixed sum which appears to be at least as favourable as the applicant could realistically achieve through litigation against the respondents (and probably more so), and does so in a relatively quick and cheap manner. There are thus compelling grounds in favour of the settlement which has been agreed.

19    I have also had the benefit of hearing from Mr Harrold and sixteen group members today, who have all supported the proposed settlement and who have spoken eloquently of their difficult personal circumstances as well as their well-justified desire for a quick resolution.

20    Turning to the key components of the Settlement Deed and proposed Settlement Distribution Scheme, the Assessed Compensation Amounts payable to Personal Injury Participating Group Members are limited to non-economic loss only, in the interests of simplifying assessment and minimising exposure to third-party repayment obligations. The releases are designed to preserve any claims by group members against surgeons (where surgery was performed privately) or public hospitals. Group members must register by the claim deadline (being a 60-day period from the settlement scheme’s commencement).

21    One source of risk in the orderly distribution of compensation under the settlement scheme arises from the prospect of third-party recoveries, particularly by Medicare and private health insurers. It is anticipated that, whether individually or in bulk, all required Medicare repayments will be resolved before distribution. As to private health insurers, the applicant’s solicitors intend to engage in negotiations with the insurers, but as a fallback, a Participating Group Member may elect to be reassessed as a Non-Personal Injury Participating Group Member claiming only for damages for distress and disappointment with a view to avoiding any obligation to reimburse private health insurers.

22    The settlement scheme includes a review mechanism for group members who wish to challenge their eligibility or characterisation. The payment of compensation will not occur until the Assessed Compensation Amounts have been determined for all Participating Group Members (including after review) and after all Third-Party Required Repayments have been determined and paid. If there is a shortfall or surplus in the settlement fund at the end of the process, there is a provision for a pro rata adjustment to the Assessed Compensation Amount of each group member.

23    The damages assessment protocol annexed to the settlement scheme sets out how each Participating Group Member’s Assessed Compensation Amount is to be calculated. Claims are categorised in five ways by reference to the number and nature of revision surgeries undergone, with fixed amounts assigned to each category, on an ascending scale according to the severity of injury, as measured by whether there have been revision surgeries and to what extent there have been such revision surgeries.

24    As I have said, I am satisfied that the amounts to be deducted for legal fees and disbursements, administration of the settlement distribution scheme and payment to the lead applicant are all fair and reasonable.

25    In my view, the proposed settlement is fair and reasonable and in the interests of group members as a whole, and should be approved. The relatively modest outcome for the applicant and group members reflects the very real difficulty which they face in terms of recoverability of damages in the event that their claims are successful.

26    I congratulate the parties on reaching this compromise, and I thank counsel and solicitors for their helpful submissions and the efficient way in which the matter, overall, has been conducted.

Associate:

Dated:    14 November 2025