FEDERAL COURT OF AUSTRALIA Crawford v Bank of Western Australia Ltd [2005] FCA 949 PRACTICE & PROCEDURE – representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) – approval of settlement – factors to be taken into account in granting approval. Federal Court of Australia Act 1976 (Cth), ss 33J, 33T, 33V, 33X, 33Y Australian Securities and Investments Commission Act 2001 (Cth), ss 12GF, 12GM Trade Practices Act 1974 (Cth), ss 82 and 87 Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 cited Courtney v Medtel Pty Ltd (No 5) [2004] FCA 1406 cited Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 cited Jarrama Pty Ltd v Caltex Australia Petroleum Pty Ltd [2004] FCA 1114 cited Lopez v Star World Enterprises Pty Ltd (1999) ATPR 41-678 followed Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 cited R. Mulheron "The Class Action in Common Law Legal Systems" (Hart Publishing) Cheshire & Fifoot, "Law of Contract", (8th Australian Ed, Butterworths) J O'Donovan and J Phillips, "Modern Contract of Guarantee" (3rd Ed, Law Book Company) GREGORY DAVID CRAWFORD v BANK OF WESTERN AUSTRALIA LTD & ORS WAG1 of 2004 LEE J 11 JULY 2005 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG1 OF 2004 BETWEEN: GREGORY DAVID CRAWFORD APPLICANT AND: BANK OF WESTERN AUSTRALIA LTD (ACN 050 494 454) RESPONDENT BANK OF WESTERN AUSTRALIA LTD (ACN 050 494 454) CROSS CLAIMANT GREGORY DAVID CRAWFORD KIM MARIE CRAWFORD KALPHARM PTY LTD (ACN 074 206 143) 1ST CROSS RESPONDENTS KERRY LARDEN BROMFIELD ANGELA MARGARET BROMFIELD WHITTLE HOLDINGS PTY LTD (ACN 009 038 635) 2ND CROSS RESPONDENTS GLYN GREGORY HORNE DENISON DIANNE MARY DENISON 3RD CROSS RESPONDENTS KENNETH LAURIE ESSEX MINTON PTY LTD (ACN 008 825 205) 4TH CROSS RESPONDENTS ERIC REGINALD KENT MALLET HOLDINGS PTY LTD (ACN 009 027 776) 5TH CROSS RESPONDENTS MARIA BERNADETTE LARGE MBL INVESTMENTS PTY LTD (ACN 060 081 405) 6TH CROSS RESPONDENTS IAN ANDERSON MAITLAND CORRIE MAITLAND 7TH CROSS RESPONDENTS FARM FINANCE PTY LTD (ACN 082 220 808) SUCCESSION PLANNERS PTY LTD (ACN 062 562 850) CLAUDE JOHN MANCINI 8TH CROSS RESPONDENTS LIAM GERARD HAYES LIAM HAYES BRICKLAYING PTY LTD (ACN 079 780 911) 9TH CROSS RESPONDENTS AVON JOHN WARR WENDY JANE WARR ERINGA PTY LTD (ACN 070 693 524) 10TH CROSS RESPONDENTS ROBERT WILLIAM MAXWELL HELEN LESLEY MAXWELL AREM PTY LTD (ACN 008 806 380) 11TH CROSS RESPONDENTS HELEN LORRAINE MORGAN ALLSTAR RIDGE PTY LTD (ACN 069 534 890) 12TH CROSS RESPONDENTS WALTER JOHN PHILIPPE FAYE IRENE PHILIPPE 13TH CROSS RESPONDENTS GEOFFREY MICHAEL STEVENS JAN MARION STEVENS THORNBURY NOMINEES PTY LTD (ACN 008 970 483) 14TH CROSS RESPONDENTS KEVIN THOMAS TAPPER MAXINE TAPPER ROCKY REEF PTY LTD (ACN 084 845 403) 15TH CROSS RESPONDENTS ENNIO TAVANI 16TH CROSS RESPONDENT RAYMOND RUSSELL THOMAS LORRAINE EVELYN BEATRICE THOMAS 17TH CROSS RESPONDENTS MAXWELL STANTON WOOD GAIL ROBERTA WOOD SANDHURST NOMINEES PTY LTD (ACN 008 845 403) 18TH CROSS RESPONDENTS PETER YATES JOAN ELIZABETH YATES 19TH CROSS RESPONDENTS JUDGE: LEE J DATE OF ORDER: 11 JULY 2005 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Notice to group members pursuant to section 33X(4) of the Federal Court of Australia Act 1976 (Cth)of the proposed settlement of this proceeding be dispensed with. 2. Settlement of this proceeding in the terms set out in the affidavit of John Gaetano Mario Fiocco sworn 4 July 2005 be approved. 3. The Applicant and the Respondent each have leave to file a Notice of Discontinuance in the proceeding with each party to bear its own costs of and in connection with the proceeding, any costs orders previously made to be vacated. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG1 OF 2004 BETWEEN: GREGORY DAVID CRAWFORD APPLICANT AND: BANK OF WESTERN AUSTRALIA LTD (ACN 050 494 454) RESPONDENT BANK OF WESTERN AUSTRALIA LTD (ACN 050 494 454) CROSS CLAIMANT GREGORY DAVID CRAWFORD KIM MARIE CRAWFORD KALPHARM PTY LTD (ACN 074 206 143) 1ST CROSS RESPONDENTS KERRY LARDEN BROMFIELD ANGELA MARGARET BROMFIELD WHITTLE HOLDINGS PTY LTD (ACN 009 038 635) 2ND CROSS RESPONDENTS GLYN GREGORY HORNE DENISON DIANNE MARY DENISON 3RD CROSS RESPONDENTS KENNETH LAURIE ESSEX MINTON PTY LTD (ACN 008 825 205) 4TH CROSS RESPONDENTS ERIC REGINALD KENT MALLET HOLDINGS PTY LTD (ACN 009 027 776) 5TH CROSS RESPONDENTS MARIA BERNADETTE LARGE MBL INVESTMENTS PTY LTD (ACN 060 081 405) 6TH CROSS RESPONDENTS IAN ANDERSON MAITLAND CORRIE MAITLAND 7TH CROSS RESPONDENTS FARM FINANCE PTY LTD (ACN 082 220 808) SUCCESSION PLANNERS PTY LTD (ACN 062 562 850) CLAUDE JOHN MANCINI 8TH CROSS RESPONDENTS LIAM GERARD HAYES LIAM HAYES BRICKLAYING PTY LTD (ACN 079 780 911) 9TH CROSS RESPONDENTS AVON JOHN WARR WENDY JANE WARR ERINGA PTY LTD (ACN 070 693 524) 10TH CROSS RESPONDENTS ROBERT WILLIAM MAXWELL HELEN LESLEY MAXWELL AREM PTY LTD (ACN 008 806 380) 11TH CROSS RESPONDENTS HELEN LORRAINE MORGAN ALLSTAR RIDGE PTY LTD (ACN 069 534 890) 12TH CROSS RESPONDENTS WALTER JOHN PHILIPPE FAYE IRENE PHILIPPE 13TH CROSS RESPONDENTS GEOFFREY MICHAEL STEVENS JAN MARION STEVENS THORNBURY NOMINEES PTY LTD (ACN 008 970 483) 14TH CROSS RESPONDENTS KEVIN THOMAS TAPPER MAXINE TAPPER ROCKY REEF PTY LTD (ACN 084 845 403) 15TH CROSS RESPONDENTS ENNIO TAVANI 16TH CROSS RESPONDENT RAYMOND RUSSELL THOMAS LORRAINE EVELYN BEATRICE THOMAS 17TH CROSS RESPONDENTS MAXWELL STANTON WOOD GAIL ROBERTA WOOD SANDHURST NOMINEES PTY LTD (ACN 008 845 403) 18TH CROSS RESPONDENTS PETER YATES JOAN ELIZABETH YATES 19TH CROSS RESPONDENTS JUDGE: LEE J DATE: 11 JULY 2005 PLACE: PERTH REASONS FOR JUDGMENT 1 This is an application under s 33Y of the Federal Court of Australia Act 1976 (Cth) ("the Act") for approval by the Court of the proposed settlement of a proceeding commenced by the applicant as a representative proceeding under Part IVA of the Act in January 2004. 2 In that proceeding the applicant, on his own behalf and as representative for the "group members" described in the statement of claim, sought orders under ss 12GF, 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") and ss 82, 87 of the Trade Practices Act 1974 (Cth) that the respondent pay damages to the applicant and to the group members and that surety documents executed by the applicant and the group members in favour of the respondent be set aside. 3 The solicitors instructed by the applicant were also instructed to act for each group member. 4 Shortly stated the applicant's statement of claim contended that agents of the respondent had engaged in misleading or deceptive conduct contrary to the provisions of the ASIC Act and that the applicant and group members were entitled to remedial and compensatory orders against the respondent pursuant to the ASIC Act. 5 The statement of claim filed by the applicant also included issues that related only to individual claims brought by four group members, namely, claims for relief under the ASIC Act arising out of unconscionable conduct said to have been engaged by the respondent contrary to the provisions of the ASIC Act. 6 In relation to two of those four group members it was pleaded that they were under a special disadvantage or disability as persons who lacked commercial experience and were financially and emotionally dependent on, and signed surety documents at the direction of, their husbands. 7 In respect of the two other group members it was pleaded that they were under a special disadvantage or disability in that the surety documents had been executed by a person of infirm mind due to dementia. Instructions with regard the claims of those group members were provided to their solicitors by a duly appointed attorney. 8 The respondent commenced a cross-claim against all group members seeking an order that they pay all monies due to the respondent under the surety documents executed by them. As sureties the group members undertook to pay to the respondent various amounts, the sum of which was $5 million, and to pay interest on those amounts. 9 On 26 March 2004 the Court ordered that compliance with the requirements of s 33X(1)(a) of the Act be effected by the applicant giving notice to group members by 2 April 2004 of their right to "opt out" of the proceeding and that pursuant to s 33J(2) of the Act 7 May 2004 be fixed as the date before which a group member may opt out of the proceeding. 10 Notices were duly given to group members pursuant to the foregoing order and no group member gave notice of withdrawal from the proceeding. At all times the class represented by the applicant in the proceeding was finite and all members of the class, being the group members, were identified in the statement of claim. Whether it may be said that the group members have "the same interest" in the proceeding thereby permitting the proceeding to be conducted as a representative proceeding under O 6 r 13(1) of the Federal Court Rules is unnecessary to consider (See: Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 per Mason CJ, Deane, Dawson JJ at 404; R. Mulheron "The Class Action in Common Law Legal Systems" (Hart Publishing) at 77-90). 11 By March 2005 pleadings had closed, discovery of documents had been completed and documents held by a third party had been inspected by the applicant pursuant to subpoena. 12 In April 2005 the parties and several group members conducted a mediation proceeding out of which arose the settlement proposal that is the subject of this application. 13 The terms of the proposed settlement have been recorded in a written agreement executed by the applicant and all other group members. It is a condition precedent to the performance of the agreement that an order be made by this Court pursuant to s 33V of the Act that the proposed settlement be approved. 14 It is unnecessary to set out the details of the proposed settlement it being a term of the agreement that the terms not be disclosed by the parties. It is sufficient to state that the proposed settlement involves both parties foregoing part of the claims and cross-claim and payment of a sum to the respondent, subject to which the application and the cross-claim are to be discontinued with no order as to costs. 15 The proposed settlement does not include a release by the applicant or group members of any claims they may have against the persons described in the statement of claim as agents of the respondent. 16 The requirement set out in s 33V that a representative proceeding not be settled or discontinued without the approval of the Court is a necessary caveat to ensure that the power created in Part IVA of the Act to bind persons not parties to the litigation is not abused. It follows that an application for such approval must provide sufficient particularity of the circumstances of the settlement or of the decision to discontinue to allow the Court to determine whether the settlement or discontinuance is a satisfactory outcome for all interests represented or whether some other group member should be appointed under s 33T of the Act to replace the representative party (See: Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250). The interests of an applicant may diverge from those of other group members, in particular group members who have individual claims against the respondent in addition to claims in common with the applicant. 17 The Court should be informed of the substance of advice provided to an applicant by counsel or solicitors in order that the Court may ascertain whether the proposed settlement or discontinuance has due regard for the interests of all group members. The following remarks by Finkelstein J in Lopez v Star World Enterprises Pty Ltd (1999) ATPR 41-678 at 42,670 are pertinent. '15. With regard to the application under s 33V, my principal task is to assess whether the compromise is a fair and reasonable compromise of the claims made on behalf of the group members. I am not so much concerned with the position of Mr Lopez who, after all, has solicitors and counsel to advise him as to how his interests will best be served in the litigation. The group members are not protected in this way. It is true that any group member may opt out of the proceeding to avoid his or her rights being affected in any way (whether adversely or beneficially) by the outcome of this litigation. But, I have no doubt that many members of this group (and no doubt members of other large groups who are represented in proceedings in the court) will remain as represented parties (that is not opt out of the proceeding) without a real appreciation of what that entails. In particular, it is likely that many group members will not understand that any judgment given in a representative proceeding will be binding upon them: see s 33ZB. Even if the group members are provided with a summary of the law relating to matters such as issue estoppel and res judicata, it is unlikely to be instructive to most of them. 16. Accordingly, the task of the court in considering an application under s 33V is indeed an onerous one especially where the application is not opposed. It is a task in which the court inevitably must rely heavily on the solicitor retained by, and counsel who appears for, the applicant to put before it all matters relevant to the court's consideration of the matter. In this regard there would be few cases where the court can properly exercise its power under s 33V without evidence from the solicitor supported by counsel that the proposed compromise is in the interests of the group members. I appreciate that, on occasion, this will place the solicitor and counsel in a difficult position. The interests of their client will not always be coincident with the interests of the members of the group. But, in my view, that is no more than a necessary consequence of their client instituting a representative action.' 18 In the present matter, however, all group members have retained the solicitors acting for the applicant to act on their behalf and the Court may place some reliance on the separate duties owed by those solicitors to the several group members when considering whether the proposed settlement should be approved. 19 In respect of the four group members who have individual claims against the respondent it may be assumed that those parties have received separate advice with regard to those claims. Whether the success of those claims would depend upon establishing that the respondent had knowledge of the disadvantage or disability suffered by those group members, was, no doubt, a matter addressed in that advice (See: Cheshire & Fifoot, "Law of Contract", (8th Australian Edition, Butterworths) 17.53, 15.14 et seq 12.64-12.71; J O'Donovan and J Phillips, "Modern Contract of Guarantee" (3rd Edition, Law Book Company) 2.800). 20 In determining whether a proposed settlement will be a fair and reasonable outcome of the litigation for all group members the Court must form a judgment on the material presented and the advice provided by counsel as to the prospects of success and risk of loss considered to apply in the particular case (See: Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 per Goldberg J at [19]; Jarrama Pty Ltd v Caltex Australia Petroleum Pty Ltd [2004] FCA 1114; Courtney v Medtel Pty Ltd (No 5) [2004] FCA 1406). 21 Having read the supporting affidavits, the settlement agreement and the submissions of counsel I am satisfied that group members have been duly appraised of relevant matters in making their decision to settle the proceeding. It is unnecessary to recite here details of the advice provided by counsel as to the prospects of the litigation. Each group member has authorised the solicitors instructed to effect a compromise in the terms arrived at after a comprehensive process of mediation conducted by an independent mediator. I am satisfied that the proposed settlement represents a fair and reasonable result for the group members in all the circumstances. Accordingly the proposed settlement should be approved by the Court. 22 By reason of the fact that all group members are represented by the solicitors for the applicant and have instructed those solicitors to accept the compromise, the notice to group members required by s 33X(4) of the Act that an application has been made to the Court for an order approving settlement of the proceeding, is unnecessary and it is appropriate for the Court to determine the application without a notice in the terms set out in s 33Y being served on group members. Accordingly an order will be made dispensing with such service. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 11 July 2005 Counsel for the Applicants: Dr J O'Donovan Solicitor for the Applicants: Fiocco's Lawyers Counsel for the Respondent: D John Solicitor for the Respondent: Freehills Date of Hearing: 27 June 2005 Date of filing of submissions: 5 July 2005 Date of Judgment: 11 July 2005