FEDERAL COURT OF AUSTRALIA Weimann v Allphones Retail Pty Limited [2011] FCA 537 Citation: Weimann v Allphones Retail Pty Limited [2011] FCA 537 Parties: NORBERT CHRISTIAN WEIMANN AS TRUSTEE FOR THE WEIMANN FAMILY TRUST NO. 3 v ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090); ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090) v NORBERT CHRISTIAN WEIMANN AS TRUSTEE FOR THE WEIMANN FAMILY TRUST NO. 3, CREAM OF THE CROP RECRUITMENT PTY LTD (ACN 103 596 881) AS TRUSTEE OF THE SUZANNE AND SIMON JONES TRUST, RUTH BLACKET, CLEMCOM PTY LTD (ACN 095 964 079) AS TRUSTEE FOR THE JENKINSON FAMILY TRUST, TONY PEARCE SLANN AND GLENDA LEAH SLANN (NEE BURNETT) (JOINTLY AND SEVERALLY), KPMF PTY LTD (ACN 110 846 510), MADCOMM PTY LTD (ACN 108 117 835), JUST US AUSTRALIA (QLD) PTY LTD (ACN 105 873 390), SNEBS PTY LTD (ACN 112 151 532) AS TRUSTEE OF THE SHANAHAN FAMILY TRUST, COMMNET PTY LTD (ACN 112 009 417) AS TRUSTEE OF THE COMMNET UNIT TRUST and HI-COMM PTY LTD (ACN 092 601 806) File number: WAD 45 of 2009 Judge: FOSTER J Date of judgment: 20 May 2011 Catchwords: PRACTICE AND PROCEDURE – whether the Court should approve a settlement of representative proceedings brought pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) – considerations of confidentiality discussed – settlement approved Legislation: Federal Court of Australia Act 1976 (Cth), Pt IVA Trade Practices Act 1974 (Cth), s 51AC Cases cited: Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd [2009] FCAFC 85 referred to Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 followed Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19 followed Taylor v Telstra Corporation Ltd [2007] FCA 2008 followed Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 followed Date of hearing: 30 April 2010 Date of orders: 10 May 2010 Date of publication of reasons: 20 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 34 Counsel for the Applicant: Mr TJ Brennan Solicitor for the Applicant: Chew + Matthews Counsel for the Respondent: Mr DR Pritchard SC Solicitor for the Respondent: DLA Piper Australia IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 45 of 2009 BETWEEN: NORBERT CHRISTIAN WEIMANN AS TRUSTEE FOR THE WEIMANN FAMILY TRUST NO. 3 Applicant AND: ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090) Respondent AND BETWEEN: ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090) Cross-Claimant AND: NORBERT CHRISTIAN WEIMANN AS TRUSTEE FOR THE WEIMANN FAMILY TRUST NO. 3 First Cross-Respondent CREAM OF THE CROP RECRUITMENT PTY LTD (ACN 103 596 881) AS TRUSTEE OF THE SUZANNE AND SIMON JONES TRUST Second Cross-Respondent RUTH BLACKET Third Cross-Respondent CLEMCOM PTY LTD (ACN 095 964 079) AS TRUSTEE FOR THE JENKINSON FAMILY TRUST Fourth Cross-Respondent TONY PEARCE SLANN AND GLENDA LEAH SLANN (NEE BURNETT) (JOINTLY AND SEVERALLY) Fifth Cross-Respondents KPMF PTY LTD (ACN 110 846 510) Sixth Cross-Respondent MADCOMM PTY LTD (ACN 108 117 835) Seventh Cross-Respondent JUST US AUSTRALIA (QLD) PTY LTD (ACN 105 873 390) Eighth Cross-Respondent SNEBS PTY LTD (ACN 112 151 532) AS TRUSTEE OF THE SHANAHAN FAMILY TRUST Ninth Cross-Respondent COMMNET PTY LTD (ACN 112 009 417) AS TRUSTEE OF THE COMMNET UNIT TRUST Tenth Cross-Respondent HI-COMM PTY LTD (ACN 092 601 806) Eleventh Cross-Respondent JUDGE: FOSTER J DATE OF ORDER: 10 May 2010 WHERE MADE: SYDNEY BY CONSENT, THE COURT ORDERS THAT: 1. Pursuant to s 33V and s 33ZF of the Federal Court of Australia Act 1976 (Cth), settlement of this proceeding (including the Cross-Claim) be approved on the terms set out in Deed of Settlement dated 22 April 2010 executed by or on behalf of the applicant and all group members and by the respondent, a true copy of which is exhibited to the affidavit of Michael James Sims affirmed on 28 April 2010 and filed herein and marked with the marking "Confidential Exhibit MJS2" (pages 30–131 of the said affidavit) (Deed of Settlement). 2. All costs orders previously made in this proceeding be vacated. 3. The respondent be released from the undertakings given by it to the Court on 6 April 2009, 22 July 2009 and 4 February 2010. 4. The applicant and the second to eleventh cross-respondents be released from the undertakings as to damages given by each of them to the Court. 5. The respondent's Notice of Motion dated 8 March 2010, the applicant's application to amend his Statement of Claim, the respondent's objections to certain evidence intended to be led by the applicant on the basis of s 131 of the Evidence Act 1995 (Cth), the applicant's foreshadowed application for leave to further amend his Statement of Claim and the applicant's foreshadowed application to strike out certain paragraphs of the Defence all be dismissed. 6. The whole of this proceeding (including the Cross-Claim) be dismissed. 7. There be no orders as to the costs of this proceeding (including the Cross-Claim). 8. Pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), the Deed of Settlement and the terms thereof not be disclosed to any person and be kept in the Court file in a sealed envelope marked "Not to be opened except by leave of a Judge". 9. Pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), the document styled "Applicant's Submissions in Support of His Notice of Motion Dated 28 April 2010" filed in Court on 30 April 2010 and marked "MFI 1" on 30 April 2010 not be disclosed to any person and be kept in the Court file in a sealed envelope marked "Not to be opened except by leave of a Judge". 10. Pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth), the documents exhibited to the affidavit of Andrew James Sharpe sworn on 5 May 2010 and styled "Confidential Exhibit AJS1" and "Confidential Exhibit AJS2" not be disclosed to any person and be kept in the Court file in a sealed envelope marked "Not to be opened except by leave of a Judge". 11. The Court notes that as part of the settlement approved this day: (a) The respondent must provide to the applicant and to each group member in a form suitable for execution by the applicant or group member, as the case may be, two copies of a franchise agreement in the form: (i) Set out at Schedule B to the Deed of Settlement, in the case of those group members listed in the schedule set out in Confidential Exhibit AJS1 to the affidavit of Andrew James Sharpe sworn on 5 May 2010 as a "Licensee"; or (ii) Set out in Confidential Exhibit AJS2 to the affidavit of Andrew James Sharpe sworn on 5 May 2010 and filed herein, in the case of the applicant and those group members listed in the schedule set out in Confidential Exhibit AJS1 as a "Lessee". (New Agreement); (b) The execution copies of the New Agreement provided by the respondent to the applicant and each group member are to contain: (i) at Item 11 in Schedule 1 the corresponding "Term" listed in Confidential Exhibit AJS1; and (ii) at Item 13 in Schedule 1 the corresponding "Special Conditions" listed in Confidential Exhibit AJS1. (c) The applicant is to deliver to the respondent a copy of the New Agreement executed by the applicant not less than 14 days and not more than 21 days after receipt by the applicant of the execution copies of the New Agreement from the respondent. (d) Each group member is to deliver to the respondent a copy of the New Agreement executed by the group member not less than 14 days and not more than 21 days after receipt by the group member of the execution copies of the New Agreement from the respondent; and (e) As provided in cl 9 of the Deed of Settlement, the form of the New Agreement referred to in par 11(a) above may be amended by agreement between the respondent and each of the applicant and group members. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 45 of 2009 BETWEEN: NORBERT CHRISTIAN WEIMANN AS TRUSTEE FOR THE WEIMANN FAMILY TRUST NO. 3 Applicant AND: ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090) Respondent AND BETWEEN: ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090) Cross-Claimant AND: NORBERT CHRISTIAN WEIMANN AS TRUSTEE FOR THE WEIMANN FAMILY TRUST NO. 3 First Cross-Respondent CREAM OF THE CROP RECRUITMENT PTY LTD (ACN 103 596 881) AS TRUSTEE OF THE SUZANNE AND SIMON JONES TRUST Second Cross-Respondent RUTH BLACKET Third Cross-Respondent CLEMCOM PTY LTD (ACN 095 964 079) AS TRUSTEE FOR THE JENKINSON FAMILY TRUST Fourth Cross-Respondent TONY PEARCE SLANN AND GLENDA LEAH SLANN (NEE BURNETT) (JOINTLY AND SEVERALLY) Fifth Cross-Respondents KPMF PTY LTD (ACN 110 846 510) Sixth Cross-Respondent MADCOMM PTY LTD (ACN 108 117 835) Seventh Cross-Respondent JUST US AUSTRALIA (QLD) PTY LTD (ACN 105 873 390) Eighth Cross-Respondent SNEBS PTY LTD (ACN 112 151 532) AS TRUSTEE OF THE SHANAHAN FAMILY TRUST Ninth Cross-Respondent COMMNET PTY LTD (ACN 112 009 417) AS TRUSTEE OF THE COMMNET UNIT TRUST Tenth Cross-Respondent HI-COMM PTY LTD (ACN 092 601 806) Eleventh Cross-Respondent JUDGE: FOSTER J DATE: 20 MAY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 10 May 2010, by consent, I made orders approving the settlement of these proceedings and dismissing the proceedings (including the Cross-Claim) upon terms that there be no orders as to costs. The principal proceeding had been instituted and maintained by the applicant as a representative proceeding pursuant to Pt IVA—Representative proceedings in the Federal Court of Australia Act 1976 (Cth). 2 These Reasons which I now publish constitute my reasons for making the orders which I made on 10 May 2010. Background 3 These proceedings were one of four sets of proceedings which I fixed for final hearing commencing on 23 March 2010. The hearing of these proceedings was, at that time, programmed to take place in the latter part of that fixture which was expected to be of six to eight weeks' duration. 4 The parties opened their cases on 23, 24 and 25 March 2010. Although various documents were referred to in those openings, no documents, affidavits or witness' statements were tendered or admitted into evidence during those openings. On 29 March 2010, I was informed that the parties in proceeding NSD 408 of 2008 and in proceeding NSD 869 of 2009 (the Australian Competition and Consumer Commission (the ACCC), Allphones Retail Pty Limited (Allphones), Matthew Donnellan, Ian Harkin and Anthony Baker) had settled those proceedings and that the parties in proceeding NSD 1567 of 2008 (the ACCC and Allphones) were hopeful of resolving that proceeding save for a Notice of Motion filed by the ACCC against Allphones in which it claimed that Allphones had committed a contempt of Court. That contempt Motion was in the docket of another judge of the Court. 5 As at 29 March 2010, these proceedings had not been resolved. 6 I had previously fixed for hearing on 29 March 2010 the respondent's Notice of Motion in which they sought a raft of interlocutory orders and the applicant's application to amend further their Application and Statement of Claim. By consent, I adjourned the further hearing of these proceedings to 6 April 2010 when I intended to reprogram the hearing of the matter in light of the settlement of the other matters. 7 On 6 April 2010, I made further interlocutory orders designed to deal with all outstanding matters. I refixed the matter for final hearing commencing on 17 May 2010. I also ordered that the matter be referred to mediation. 8 The matter was then settled. 9 On 30 April 2010, I made interim confidentiality orders in respect of the Deed of Settlement dated 22 April 2010 and in respect of the applicant's Written Submissions filed in support of the approval orders then sought by the parties. On that day, I also heard the parties' application for Court approval of their settlement and indicated to the parties that I would approve the settlement subject to reframing the orders which they sought. 10 As I mentioned at [1] above, on 10 May 2010, I made orders approving the settlement and orders finally disposing of the proceeding. 11 It is the practice of the Court to deliver brief reasons when approving the settlement of representative proceedings. These Reasons are published in conformity with that practice. Outline of the Proceedings 12 In 2008, the ACCC commenced two sets of proceedings against Allphones and certain individuals who had been involved in the conduct about which the ACCC complained in their capacity as executives of Allphones. These proceedings were NSD 408 of 2008 and NSD 1567 of 2008. Subsequently, in 2009, the ACCC commenced a further proceeding against Allphones and against the same individual respondents as had been sued in proceeding NSD 408 of 2008. 13 The genesis of these proceedings was a series of disputes that had arisen between Allphones and several of its franchisees, most of whom were based in South Australia and Western Australia. 14 On 30 March 2009, the applicant commenced the present proceedings in the Western Australia District Registry of the Court. The applicant was a South Australian franchisee of Allphones at the time when he commenced these proceedings. The applicant purported to prosecute the present proceeding for himself and as representative of the group which was ultimately defined as follows: 2. The group members to whom this proceeding relates are those persons who in respect of a territory, (a) are or, prior to expiry of their most recent franchise agreement, were franchisees to whom the respondent had granted a franchise to operate a business under a name comprising or including the word "Allphones"; and (b) have or, prior to its expiry, had a franchise agreement in the same or substantially the same terms as the applicant's franchise agreement dated 1 April, 2004 (the applicant's franchise agreement dated 1 April 2004, the "Old Agreement" and each such group member's corresponding franchise agreement, a "Group Member's Old Agreement") containing a right to renew in the same or substantially the same terms as the Old Agreement; and (c) for whom the time permitted by that provision for exercise of their right to renew has not expired or has not expired without him, her or it giving to the respondent notice of intention to renew under that provision; and (d) have not yet signed a renewed franchise agreement; and (e) have entered into a costs agreement with the Applicant's solicitors prior to the date of filing this amended application in respect of these proceeding. 15 By the time that the present proceedings were ready to be heard, there were 21 members in that group. 16 The applicant amended his Application and Statement of Claim on several occasions. It is not necessary for present purposes to traverse the history of those amendments. Nor is it necessary to discuss in any detail the allegations made in those pleadings. 17 As is apparent from the definition of the group members which I have extracted at [14] above, all of the group members either were, or had been, franchisees of Allphones operating their businesses under the Old Agreement (as defined). Those franchisees alleged that, in breach of the Old Agreement (as properly construed or as rectified), Allphones had insisted that it was entitled to offer a renewal of the franchise agreement upon the basis that the renewing franchisees were obliged to enter into the new form of franchise agreement then being deployed by Allphones (the new agreement). As an alternative basis for relief, the group members contended that, by reason of unfair pressure, unfair tactics and bullying, Allphones was guilty of unconscionable conduct within the meaning of s 51AC of the Trade Practices Act 1974 (Cth) (the TPA). The group members wished to avail themselves of the cases which the ACCC was advancing in proceeding NSD 408 of 2008 and in proceeding NSD 869 of 2009 in support of their allegation that Allphones was guilty of unconscionable conduct. 18 As at 23 March 2010, none of the group members had entered into the new agreement. All had resisted the pressure being applied by Allphones to do so. 19 It was the contention of the group members that the new agreement was far less favourable to the franchisees than the Old Agreement and that the new agreement had been fashioned in order to circumvent the findings of this Court in Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd [2009] FCAFC 85. 20 The applicant sought declaratory and injunctive relief designed to compel Allphones to offer to the group members a renewal of their franchise upon terms no less favourable than those which obtained in the Old Agreement pursuant to which they had conducted their franchises for many years. 21 No pecuniary relief was sought by the applicant or the group members in these proceedings. However, it should be noted that, in proceeding NSD 869 of 2009, pecuniary relief was sought on behalf of a large number of Allphones franchisees. That group included all of the group members in the present proceeding. The Context of the Settlement 22 On 28 April 2010, I made final orders by consent in proceeding NSD 408 of 2008. There were 61 paragraphs in those orders. Many of those paragraphs contained subparagraphs. The orders generally comprised declarations and injunctions directed at the infringing conduct about which the ACCC had complained in that proceeding. On the same day, also by consent, I made final orders in proceeding NSD 869 of 2009. Those orders provided for a payment of $3,000,000 by way of compensation to be made by Allphones to the ACCC on behalf of those Allphones franchisees represented by the ACCC in that proceeding. Allphones and the other respondents also agreed to pay the ACCC's costs of that proceeding. 23 On 22 April 2010, the present proceedings were mediated before the Hon Ian Callinan AC QC in Perth. The applicant and several of the group members attended the mediation. Allphones was represented at the mediation. Those group members who did not attend the mediation personally, did so by means of an authorised attorney. Each attorney was so authorised by means of a deed poll. 24 The mediation was successful. From time to time during the course of the mediation, legal advice was provided to the group members and their attorneys present at the mediation by the lawyers representing the applicant. 25 On 22 April 2010, the group members who had attended the mediation executed a Deed of Settlement which was designed to resolve the entire proceeding, subject to the approval of the Court. 26 On 27 April 2010, each group member was notified that the applicant and Allphones would seek the Court's approval of the settlement which had resulted from the mediation. No-one attended at Court to oppose the making of orders approving that settlement. The Relevant Principles (Representative Proceedings) 27 The Court must be satisfied that the settlement of representative proceedings has been undertaken in the interests of group members as a whole (Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258 per Branson J). 28 The task of the Court is to determine whether the settlement is "fair and reasonable". In Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459, at [19] (p 465–466), Goldberg J explained that task in the following way: 19 Ordinarily the task of a court upon an application such as this, is to determine whether the proposed settlement or compromise is fair and reasonable, having regard to the claims made on behalf of the group members who will be bound by the settlement. Ordinarily in such circumstances the court will take into account the amount offered to each group member, the prospects of success in the proceeding, the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer, the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding, the likely duration and cost of the proceeding if continued to judgment, and the attitude of the group members to the settlement. In Re General Motors Corp Pick-Up Truck Fuel Tank Products Liability Litigation 55 F 3d 768 at 785 (1995) the United States Court of Appeals for the Third Circuit referred to the nine-factor test it had adopted: … to help district courts structure their final decisions to approve settlements as fair, reasonable and adequate as required by Rule 23(e) [which requires court approval for settlement of class actions]. See Girsh v Jepson 521 F 2d 153 at 157 (1975) (3rd Cir). Those factors are: (1) the complexity and duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining a class action; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement in light of the best recovery; and (9) the range of reasonableness of the settlement in light of all the attendant risks of litigation. (See also County of Suffolk v Long Island Lighting Co 907 F 2d 1295 at 1323 (1990) (2nd Cir), 5 Moore's Federal Practice, 3rd ed, p 23–348.) This nine-factor test is equally helpful in the Australian jurisdiction and I find it a useful guide in considering the present proposed settlement. See also: Taylor v Telstra Corporation Ltd [2007] FCA 2008 at [56]–[66] per Jacobson J; and Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19 at [10] per Stone J. The Present Case 29 The settlement which I was asked to approve was a settlement between a franchisor and 21 of its franchisees. The subject matter of the settlement concerned the terms upon which those franchisees would be offered a renewal of their franchise. The group members in the present proceeding were individuals or corporations who were, at all relevant times in connection with the settlement, adequately and appropriately advised and who must be assumed by the Court to be commercial persons of reasonable intelligence. The essence of their complaints in the present proceeding was that Allphones was seeking to restructure its franchise arrangements with them upon terms and in a fashion which was designed to diminish their rights under the franchise arrangements between them and Allphones. Counsel for the group members had, in opening their case, spent considerable time in comparing the terms of the Old Agreement with the new agreement in order to demonstrate the diminution of rights being sought to be imposed by Allphones upon its franchisees in the context of the negotiations for renewal which had taken place with the group members. 30 The settlement reached was mediated by a former High Court Justice. The upshot of the settlement which he mediated was that the group members were to be offered a revised franchise agreement by way of renewal from which would be excised a large number of the detrimental terms and conditions about which the group members had complained and which contained terms and conditions which each of them regarded as constituting an acceptable basis upon which they were prepared to renew their franchise with Allphones. 31 In the orders which I made, I preserved the confidentiality of the settlement. I did so because the settlement involved sensitive commercial dealings of a confidential nature. There was and is no public interest in those terms being made public. In my view, only the group members and Allphones have a legitimate interest in ascertaining the details of the settlement and of the revised arrangements resulting from that settlement. 32 It is sufficient for present purposes for me to record that, having regard to the relief which the group members sought in the present proceeding, the likely costs of pursuing this proceeding to finality, the wisdom of the parties reaching a commercial settlement of their differences and the prima facie benefit achieved by the group members in the settlement, I was comfortably satisfied that the settlement should be approved. 33 I should add that it was extremely difficult for me to come to any assessment of the applicant's likely prospects in the present proceedings given that the proceedings were settled before any evidence was actually tendered at the final hearing. There was a very large number of affidavits filed in the matter and it would have served no useful purpose for me to attempt to evaluate the evidence sought to be advanced in those affidavits in circumstances where none of it had ever come into evidence at the hearing. 34 For the above reasons, I made the orders of 10 May 2010. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate: Dated: 20 May 2011