FEDERAL COURT OF AUSTRALIA Lenthall v Westpac Banking Corporation (No 2) [2020] FCA 423 File number(s): NSD 1812 of 2017 Judge(s): LEE J Date of judgment: 2 April 2020 Catchwords: REPRESENTATIVE PROCEEDINGS - where common fund order made beyond power and no longer operative – whether Court has power to approve notice informing group members of applicant's intention to seek an order at conclusion of proceeding to distribute the burden of costs, fees and all other expenses equitably among all persons who have benefitted from the class action – whether BMW Australia Ltd v Brewster [2019] HCA 45; (2019) 94 ALJR 51 precludes the Court approving the issue of such a notice – whether the Court ought to refuse to issue notice in exercise of discretion - whether group members should be informed about the basis upon which the class action is now being funded – whether content of notice ought be approved – considerations of complexity in conveying information contained in notices – discussion of need to consider simpler and more accessible ways of communicating complex messages to large and varied classes Legislation: Federal Court of Australia Act 1976 (Cth) Pt IVA, ss 5, 33E, 33J, 33N, 33V, 33X, 33Y, 33ZF, 53A Civil Procedure Act 2005 (NSW) s 183 Class Actions Practice Note (GPN-CA) Evidence Act 1995 (Cth) s 144 Cases cited: BMW Australia Ltd v Brewster [2019] HCA 45; (2019) 94 ALJR 51 Dickenson's Arcade Pty Ltd v Tasmania (1974) 130 CLR 177 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Federation Insurance Ltd v Wasson (1987) 163 CLR 303 Femcare Ltd v Bright [2000] FCA 512; (2000) 100 FCR 331 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 Great Western Railway Co v Owners of SS Mostyn [1928] AC 57 Johnstone v HIH Ltd [2004] FCA 190 Lenthall v Westpac Banking Corporation (No 1) [2018] FCA 1422; (2018) 363 ALR 698 Migration Agents Registration Authority v Frugtniet [2018] FCAFC 5; (2018) 259 FCR 219 Muswellbrook Shire Council v Royal Bank of Scotland NV [2013] FCA 616 Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 4) [2010] FCA 749 Richard West and Partners (Inverness) Ltd v Dick [1969] 2 Ch 424 Westpac Banking Corporation v Lenthall [2019] FCAFC 34; (2019) 265 FCR 21 Zotti v Australian Associated Motor Insurers Limited [2009] NSWCA 323; (2009) 54 MVR 111 Australian Bureau of Statistics, 4228.0 - Programme for the International Assessment of Adult Competencies, Australia, 2011-12 Australian Law Reform Commission, Report No 46, Grouped Proceedings in the Federal Court Commonwealth, Debates, Senate, 12 September 1991 Explanatory Memorandum, Federal Court of Australia Amendment Bill 1991 (Cth) Harding, Matthew and Malkin, Ian, "The High Court of Australia's Obiter Dicta and Decision-Making in Lower Courts" (2012) 34(2) Sydney Law Review 239 Horning, Alice, "Reading, Writing and Digitizing: A Meta-Analysis of Reading Research", (2010) 10(2) Reading Matrix 243 Law Council of Australia, The Justice Project Final Report – Part 1: Rural, Regional and Remote Australians (August 2018) Organisation for Economic Cooperation and Development, Australia - Country Note: Survey of Adult Skills First Results (OECD, 2012) Richardson, Grant and Smith, David "The Readability of Australia's Goods and Services Tax Legislation: An Empirical Investigation", (2002) 30(3) Federal Law Review 475 Date of hearing: 21 February 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 52 Counsel for the Applicants: Mr W A D Edwards Solicitor for the Applicants: Shine Lawyers Counsel for the Respondents: Mr A Leopold SC with Ms A Lyons Solicitor for the Respondents: Allens ORDERS NSD 1812 of 2017 BETWEEN: GREGORY JOHN LENTHALL First Applicant SHARMILA LENTHALL Second Applicant SHANE THOMAS LYE (and another named in the Schedule) Third Applicant AND: WESTPAC BANKING CORPORATION ABN 33 007 457 141 First Respondent WESTPAC LIFE INSURANCE SERVICES LTD ABN 31 003 149 157 Second Respondent JUDGE: LEE J DATE OF ORDER: 2 April 2020 THE COURT ORDERS THAT: 1. The matter be listed for a further case management hearing on a date to be fixed for the purposes of hearing any further submissions concerning the form of the notice, which comprises the annexure to the reasons of judgment dated 2 April 2020 and related matters. 2. The solicitors for the parties are directed to contact the Associate to Justice Lee by 5pm on 3 April 2020, with proposed agreed dates for the further case management hearing referred to in order 1, to be conducted by way of video-link. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT LEE J: A INTRODUCTION & THE NATURE OF THE DISPUTE 1 The present dispute, the resolution of which is the subject of this judgment, arises as a consequence of the recent decision of the High Court of Australia in BMW Australia Ltd v Brewster [2019] HCA 45; (2019) 94 ALJR 51. 2 There is no need for me to recount the background to the current proceeding as it is set out in sufficient detail in an earlier decision, being Lenthall v Westpac Banking Corporation (No 1) [2018] FCA 1422; (2018) 363 ALR 698 at 700 [6]–[7]. 3 The applicants contend that a notice ought now be sent to group members informing them that the common fund order (CFO) made in this proceeding was set aside by the High Court in Brewster. It is also suggested that the group members be informed of the present intention of the applicants to seek an order at the conclusion of the proceeding to distribute the burden of costs, fees and all other expenses equitably among all persons who have benefitted from the class action (as foreshadowed in the Class Actions Practice Note (GPN-CA) at [15.4]). In the balance of these reasons, I will describe this type of order, foreshadowed by the applicants to be made at the conclusion of the proceeding, as an "Expense Sharing Order". 4 The fact that some form of notice needs to be sent out is now uncontroversial. At the very least, it is necessary that a mandatory s 33X(1)(a) notice be given, apprising group members of their right to opt out (pursuant to s 33J(1) of the Federal Court of Australia Act 1976 (Cth) (Act)). It is an appropriate time for such notice to be given: a hearing date is set for May next year, and the Court has notified the parties that an order under s 53A(1)(b) of the Act will be made, which provides for a mediation to take place, commencing as soon as the current health crisis allows; and it was not in dispute that there would be utility in having some certainty as to the volume of group members who have opted out (and hence would not be bound by any approved settlement that emerged from the mediation). 5 In resisting the form of the draft notice proposed by the applicants (draft notice), the respondent (Westpac) advanced arguments which tended to overlap but, in broad summary could be placed into two categories: the first being the question as to whether the Court has power to give a notice containing all the content proposed and, in particular, the content in the draft notice, which goes to the issue of informing group members that one option the group members can take is to sign a funding agreement with the funder of the proceeding (JKL) and foreshadows an Expense Sharing Order; the second relates to whether, as a matter of discretion, the Court should approve the content of the draft notice. Westpac submitted that each question should be answered in the negative. B THE QUESTION OF POWER 6 It is convenient to deal with the question of power initially. Emphasis was placed by Westpac on various passages in Brewster. To explain why the decision in Brewster is not material to the issue of power to approve the draft notice (although no doubt relevant to the exercise of the Court's discretion as to the content of any notice and any argument as to whether an Expense Sharing Order can and should ultimately be made), it is necessary to examine that case in some detail. 7 Relevantly for present purposes, at issue in Brewster was the capacity of this Court under s 33ZF(1) of the Act, and the Supreme Court of New South Wales under a cognate section (s 183) of the class action provisions in the Civil Procedure Act 2005 (NSW), to make, at an early stage in a class action, a CFO. The appellants made a number of arguments, including submitting that s 33ZF (and s 183) was not intended to authorise the Court being involved in promoting the prosecution of the proceeding. The respondents had submitted that, in open class actions, a CFO avoided inefficient and costly "book building", encouraged the commencement of open class proceedings as envisaged by the legislation, and that s 33ZF of the Act, which allowed orders to be made "to ensure that justice is done in the proceeding", should be interpreted broadly and authorised the making of CFOs at an early stage in the class action: Brewster at 63 [40]–[41] (Kiefel CJ, Bell and Keane JJ); at 99 [231] (Edelman J). Submissions were also made as to the utility of CFOs, including that they had allowed the Court to control funding charges sought to be imposed by private commercial enterprises using the public resources of the Court, and that they offered protection to group members against excessive funding costs (and had been demonstrated to have resulted in reduced funding costs). 8 The majority held that s 33ZF did not provide a sufficient basis for the Court to make a CFO: at 58 [3] (Kiefel CJ, Bell and Keane JJ); at 78 [125] (Nettle J); at 80 [135] (Gordon J) (Gageler J and Edelman J dissenting). More particularly, Kiefel CJ, Bell and Keane JJ, focussing on the statutory words, held that "it is not appropriate or necessary to ensure that justice is done in a representative proceeding for a Court to promote the prosecution of the proceeding in order to enable it to be heard", and an order which is directed to ensuring the class action is able to be pursued is not an order that makes certain that justice is done in the proceeding: at 58 [3], 65 [49]. Their Honours further held that the making of an order at the outset of a class action, in order to assure a funder a sufficient level of return upon its investment to secure funding, is beyond the purpose of the legislation: at 58 [3], 65 [49], [51]. Further, their Honours held that Pt IVA of the Act recognises and contemplates that a class action may not "stack up" on a cost/benefit analysis, in which case the solution contemplated by s 33N of the Act is to declass the proceeding, not to make a CFO because the process of book building is proving too expensive or difficult, and any order distributing any proceeds of a class action (s 33V) is made at the conclusion of the proceeding when the value of the funder's support to the class will be capable of assessment and due recognition: at 67 [63]–[65], [68], 68 [70], 69 [75]. 9 Nettle J (at 78 [124]–[125]) and Gordon J (at 80 [135], 82 [145], 83 [153]) observed that s 33ZF is a "supplementary" or "gap-filling provision" that operates within a broader statutory scheme which did not extend to making an order to put the proceeding on a "known and stable foundation" in terms of funding or to make the class action a more profitable venture for a funder. 10 Importantly, Kiefel CJ, Bell and Keane JJ emphasised (at 58 [3]–[4]) that the determinative issue in the case was whether, properly construed, s 33ZF empowered a CFO at the time it was made, and that this determinative issue was resolved by concluding that while "the power conferred by [s 33ZF and the cognate state section] is wide, it does not extend to the making of a CFO". As a result, a number of "further issues determined by the courts below and agitated again by the parties in this Court do not arise for determination". Some of the further issues considered (and rejected) by the Full Court of this Court (and by the Court of Appeal of New South Wales) below included contentions that a CFO amounted to an acquisition of property on other than just terms, and that the making of such an order was not part of, or incidental to, the proper exercise of judicial power. Additionally, there was discussion by the Full Court that this Court, as a court of equity (s 5(2) of the Act), is "clothed with power … to make any appropriate order in a matter within its jurisdiction that a court of equity could make in similar or like circumstances": Westpac Banking Corporation v Lenthall [2019] FCAFC 34; (2019) 265 FCR 21 at 29 [15]; see also at 29 [16]. As the Full Court noted, a court of equity, in appropriate circumstances, may take cognisance of, and apply, fundamental equitable doctrines in making an order in its equitable jurisdiction that equitably and fairly distributes the burden of a proper and legitimate funding cost at the end of a proceeding, when a common fund has been realised: see 46 [94]. In this regard, it is notable that a submission was then made by Westpac as to the scope of s 33ZF, as recorded by the Full Court (at 37 [46]–[47]), that its location in Pt IVA under the heading "Miscellaneous" indicated: … that the provision [that is, s 33ZF] was not intended to encompass such a major aspect of the distribution of moneys. Section 33ZF was to be seen as a "gap filler" and there was no gap to fill here. Westpac submitted that the express powers in Pt IVA deal with the universe of possibilities in distributing the funds available from settlement, judgment and payment into court, as can only be dealt with when the fund comes into existence and not pre-emptively. If s 33ZF can support a common fund order it would go to the heart of the subject matter of distribution and deductions. It was a matter of some emphasis in the submissions that when the final consideration of the matter is given and the order confirmed or varied it would be made under s 33V or s 33ZA, being the true home of the source of power for these kinds of orders. (emphasis added) 11 It is fair to say that things have moved on somewhat from how Westpac justified its construction argument in the Full Court. 12 In any event, the construction arguments as to s 33ZF made by Westpac in the High Court were ultimately vindicated, but it would be to misidentify the ratio decidendi in Brewster (that is, the essential areas of agreement found within the reasons of the judges in the majority) to assert, as Westpac now does, that the decision stands for broader or expanded propositions: see Great Western Railway Co v Owners of SS Mostyn [1928] AC 57 at 73–4 (Viscount Dunedin); Federation Insurance Ltd v Wasson (1987) 163 CLR 303 at 314 (Mason CJ, Wilson, Dawson and Toohey JJ); Dickenson's Arcade Pty Ltd v Tasmania (1974) 130 CLR 177 at 188 (Barwick CJ); Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 417–18 [56] (Kirby J). More particularly, contrary to Westpac's present submissions, the holding in Brewster does not stand for the proposition that this Court is bereft of power to make an order (at the conclusion of a proceeding in equity, or upon finalisation of a Court approved settlement, under s 33V of the Act) to distribute rateably funding costs including commission from a sum obtained on settlement or upon judgment; nor, obviously enough, does it prevent the Court approving a notice which foreshadows an intention of an applicant to seek some form of Expense Sharing Order at the stage of settlement or upon judgment. 13 Westpac submitted that even if it was wrong about Brewster standing for propositions broader than the ratio identified above, 'the intention' of the High Court in Brewster was to prohibit any form of CFO and, in a post-Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 world, this intention should be respected and the "seriously considered dicta" reflecting this intention should be followed. 14 This submission misapprehends the approach mandated by Farah. As Campbell JA explained in Zotti v Australian Associated Motor Insurers Limited [2009] NSWCA 323; (2009) 54 MVR 111 at 130 [112], there are three possible ways of reading the statements made in Farah at 150–1 [134], 159 [158] and 164 [178]: One reading is to treat it as saying that it is wrong for an intermediate Court of Appeal to depart from "seriously considered dicta" of a majority of the High Court (simpliciter). Another is to treat it as saying that it is wrong for an intermediate Court of Appeal to depart from seriously considered dicta of a majority of the High Court concerning a topic on which there is a long-established line of authority. Another is that the clear finding that this Court had been wrong to depart from views about the first limb of Barnes v Addy (1874) LR 9 Ch App 244 that had been expressed in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 is based on particular facts of the case. 15 His Honour made a similar observation in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at 679–80 [311]. What is evident, however, from a survey of the cases usefully collected in an article by Matthew Harding and Ian Malkin, "The High Court of Australia's Obiter Dicta and Decision-Making in Lower Courts" (2012) 34(2) Sydney Law Review 239 and in later cases, is that the pre-dominant (but not universal) view is the first of the readings identified by Campbell JA, and that an intermediate court of appeal, and a fortiori a judge sitting in the original jurisdiction of the Court, is required to follow "seriously considered dicta" of a majority of the High Court. In this regard, I do not consider what the Full Court (Siopis, Robertson and Bromwich JJ) observed in Migration Agents Registration Authority v Frugtniet [2018] FCAFC 5; (2018) 259 FCR 219 at 223 [9], that "seriously considered dicta" should be followed "at least when uttered by a majority of the High Court" (emphasis added), was meant to suggest any expansion to, or departure from, this pre-dominant approach. It is unnecessary for the purposes of this judgment to enter upon any debate about whether the proper approach is the second and narrower view identified by Campbell JA, that is, that seriously considered dicta by a majority on their own is not binding, but becomes binding because it comes against a backdrop of long-established authority (for what it is worth – and it is probably not worth very much – uninstructed by any intermediate court of appeal authority to the contrary – I would have thought this second view was the better one). It is also unnecessary to explore any uncertainty as to the scope of what is meant by the expression "seriously considered" which reflects the notion, described by Megarry J (as his Lordship then was) in Richard West and Partners (Inverness) Ltd v Dick [1969] 2 Ch 424 at 431–2 that "there are dicta and dicta" and drawing a contrast between "mere passing remarks", "considered enunciations of the judge's opinion", and a "third type of dictum" in which a judge invokes cases supporting his opinion: see Harding and Malkin (2012) 34(2) Sydney Law Review 239 at 254. 16 These more controversial aspects as to the metes and bounds of the Farah duty of obedience can be put to one side, because no dicta of a majority of judges can be identified in Brewster, which impose a duty of obedience foreclosing any argument that some form of Expense Sharing Order can be made at settlement or judgment to prevent unjust enrichment in an appropriate case (as foreshadowed in the Class Actions Practice Note (GPN-CA) at [15.4]). 17 Despite this, parts of the reasoning in the various judgments in Brewster deserve particular and close attention. First, Kiefel CJ, Bell and Keane JJ observed that the "making of an order at the outset of a representative proceeding, in order to assure a potential funder … of a sufficient level of return upon its investment to secure its support …, is beyond the purpose of the legislation" (at 58 [3]) (emphasis added); that it was no part of the purpose of the enactment of Pt IVA to remedy any perceived "absence of sufficient incentive for litigation funders" (at 71 [83]); and that this was not "thought to be a defect in the law requiring a remedy" (at 71 [84]). Further, their Honours observed (at 72 [87]) that a funder "has no right to that money under contract [with an unfunded group member] or under equitable principles", and noted (at 71 [87]): … there is no reason why the amount taken from unfunded group members' awards should be directed to the litigation funder, much less that an order to that effect should be made at the outset of the proceeding rather than on the occasion contemplated by s 33ZJ(2) of the FCA. 18 Secondly, Kiefel CJ, Bell and Keane JJ observed (at 72 [91]) that "[w]hether a litigation funder should not be required to incur expenditure (e.g. advertising) to seek to build its enterprise is not a concern that any provision of Pt IVA … invites the court to address", and Nettle J noted (at 78 [126]) that it is not correct to say that "the commercial interests of … funders formed part of the mischief that the introduction of Pt IVA was intended to confront". 19 Thirdly, Gordon J noted (at 81 [140]) that Pt IVA "did not provide any alternative means [to ss 33M(c), (d) and 33N] of ensuring viability of the matter" and suggested (at 82 [147]) that none of a number of provisions within Pt IVA, including s 33V, "envisages a Court being engaged in making a common fund order" and (at 83 [152]) that the "Court does not have the power to make such orders under the existing legislative scheme". 20 Fourthly, Edelman J identified (at 90 [192]–[193]), what his Honour considered to be three potential obstacles to characterising a CFO as being justified in equity based on notions of unjust enrichment: (a) the absence of "an unjust factor" vitiating the basis for retention of the enrichment; (b) restitution of the value of work done is not usually ordered if the work has not been requested by the party who obtains the benefit (when in CFO cases, some members might be unaware of the class action); and (c) what was described as a "personal restitutionary award" is usually the reasonable value of the work done at the time it was performed, not a partial share of future profit or future recovery. 21 All of these somewhat differently directed observations, some of which went beyond a textual and contextual construction of the scope of s 33ZF, are, of course, entitled to great respect and no doubt will be the subject of submissions if an Expense Sharing Order is the subject of an application made at the conclusion of this class action. But whether the Court can and should make a form of Expense Sharing Order (in equity or under s 33V(2), which in contrast to s 33ZF is an express power to "make such orders as are just" with respect to the distribution of settlement monies), will be determined when and if the precise form of Expense Sharing Order is identified in an application, and on the basis of the evidence and submissions then advanced. But, contrary to the argument of Westpac, such an application is open to be made. 22 For present purposes, this argument as to "power" is a distraction. What is presently of importance is Div 3 of Pt IVA of the Act, which deals with notices. It relevantly provides: Division 3 – Notices 33X Notice to be given of certain matters (1) Notice must be given to group members of the following matters in relation to a representative proceeding: (a) the commencement of the proceeding and the right of the group members to opt out of the proceeding before a specified date, being the date fixed under subsection 33J(1); (b) an application by the respondent in the proceeding for the dismissal of the proceeding on the ground of want of prosecution; (c) an application by a representative party seeking leave to withdraw under section 33W as representative party. … (5) The Court may, at any stage, order that notice of any matter be given to a group member or group members. (6) Notice under this section must be given as soon as practicable after the happening of the event to which the notice relates. 33Y Notices--ancillary provisions (1) This section is concerned with notices under section 33X. (2) The form and content of a notice must be as approved by the Court. The Court must, by order, specify: (a) who is to give the notice; and (b) the way in which the notice is to be given; and the order may include provision: (c) directing a party to provide information relevant to the giving of the notice; and (d) relating to the costs of notice. (3) An order under subsection (3) may require that notice be given by means of press advertisement, radio or television broadcast, or by any other means. … 23 As can be seen, ss 33X(1)(a) and 33Y(2) provide express power for the Court to approve the content of a notice including by providing to group members information relevant to their decision to opt out. That grant of power may, in appropriate cases, be supplemented by s 33X(5), which authorises notice to be given of "any matter" at any stage. GPN-CA provides at [15.4] that notice should be provided to group members apprising them of an intention of an applicant to make an application for an Expense Sharing Order, and (consistently with s 33X(6)) that this fact should be brought to the attention of group members as soon as practicable. I am satisfied that a notice should be sent which not only provides for opt out, but also includes the important information that the CFO is no longer operative, and the real world consequences that flow from this reality. The real issue is what precise content should be conveyed in the notice as a matter of discretion, and it is to this issue that I now turn. C DISCRETION 24 When the issue of the draft notice was first debated at a case management hearing on 12 February 2020, senior counsel for Westpac made the point that if notice was to be given to group members then the draft notice proposed was deficient. In particular, it was submitted on behalf of Westpac that: (1) given the present funding arrangements are "heavily contingent", there is "nothing in the wording of the [draft] notice which conveys that [contingency] to group members and yet there's – there are indications in it which are categoric" (at T66.22–24); (2) "[a]ll the references to funding are categoric and one concern about the [draft] notice is that it doesn't convey in an accurate way the true tenor of the funding … which now is resuscitated with the undertaking having been dissolved after the High Court decision" (at T66.25–29); (3) "… it invites people to do things in a way which encourages them to sign up or even to become one of the funded group members without telling people what the conditions are on funding … [including] that whether we continue with this funding depends on how many people we can book build with and unless we achieve a certain threshold on that, we're out of here. And yet they're inviting people to sign up without conveying that. The message coming through the notice to group members who would get this notice is that this funder is funding it. And it doesn't say the word 'unconditionally', but that's the impression" (at T66.46–47; T67.1–7). (emphasis added) 25 The following exchanges then occurred (at T67–71) with senior counsel for Westpac (Mr Leopold SC) and counsel for the applicants (Mr Edwards), which included the following: HIS HONOUR: Is there anything here which effectively says … "It's in your interests to sign up, because if you don't sign up, there's a real prospect the case won't proceed"? MR LEOPOLD: No, there isn't. No, there isn't that. That's what we were looking for … [then, after some discussion about some words on the fourth page of the draft notice and different versions of the draft notice] HIS HONOUR: [directed to Mr Edwards] … a good copywriter might say you have buried the lead in that … isn't the whole point to say to these people at the moment you have got a case on, you might be entitled to compensation and unless enough of you decide to sign up, then it might be gone? MR EDWARDS: Yes. HIS HONOUR: So it's – you – the book build process is very important - - - MR EDWARDS: Yes. HIS HONOUR: - - - given the conditions of the funding. MR EDWARDS: I mean, I suppose we may have been guilty of perhaps presenting it a bit too – well, we were conscious of the need to present their options neutrally, if I can put it that way. But I hear what your Honour says and my friend has raised a complaint about this not being in there and in the version that has been sent up to your Honour – albeit not marked up - - - HIS HONOUR: Well, I think – his point, because of [a letter then marked for identification but later tendered, explaining the funding arrangements], the funding of this case is hanging by a thread unless people do this - - - MR EDWARDS: Yes. HIS HONOUR: - - - and it's probably a good idea, in those circumstances, to say, "Funding of this case and the vindication … of your rights potentially is hanging by a thread so you better get off your backside and do something," isn't it? MR LEOPOLD: Yes. And that is the effect of the paragraph which is in the version I handed up to your Honour today … … HIS HONOUR: … So Mr Leopold's first complaint, which I think has a little substance, is the fact that it doesn't bring home to the group members with sufficient clarity the fact that if something at the moment is conditional and they should be aware in making their choices that there is a risk that the funding doesn't go ahead unless certain things happen. MR LEOPOLD: Yes. And may I make good that point with one other point by tendering a printout from the Shine website yesterday. There's an 11 February 2020 headed Westpac Life Insurance Class Action Update January 2020 … So I emphasise - - - HIS HONOUR: No. I think you're pushing at an open door, Mr Leopold. MR LEOPOLD: Yes. All right. HIS HONOUR: I do think it should be made pellucid to the group members that unless they register in sufficient numbers - - - MR LEOPOLD: Yes. HIS HONOUR: - - - then there's a prospect of this case not going ahead. MR LEOPOLD: Yes. I just wanted the open door to reflect the wording of [a draft proposed by Westpac], because they set it out as of yesterday what the position is … if the applicants are unable to secure enough group members, etcetera. So we're asking you to sign up, because if we don't get enough, we're not going to get funding. … HIS HONOUR: … I think it should, because, I mean, these people, if they don't – if they opt out and they don't sign up, then at the moment, on any view of it, they have a right which may be able to be agitated, and unless they register in sufficient numbers then that right may be lost. So it is in their interests if they wish this matter to proceed that they register and sign a funding agreement. That's what they need to be told, don't they? MR LEOPOLD: Yes. Pardon me just for a moment. HIS HONOUR: In 14 point type, sign up or you may lose your rights. MR LEOPOLD: Pardon me just a moment. The alternative is to just say nothing about the nature of the funding to people. We just don't have the words "is funding", etcetera, but it probably is pretty hard to write a notice. HIS HONOUR: But I think as you correctly said, that's the most important information I think they need to be told. MR LEOPOLD: Yes, yes. HIS HONOUR: They're either going to have to sign up or they may lose their rights forever. MR LEOPOLD: Yes … 26 In later oral and written submissions advanced by Westpac, emphasis was placed on the assertion that s 33X of the Act "does not empower the Court to issue a notice for the purpose of facilitating book-building" and (although not put directly in this way), even leaving aside the question of power, it would be inappropriate, as a matter discretion, to allow a Court-approved notice to be used in this way. 27 Why these above extracts are important, is that when it comes to the issue of discretion, the submissions made by Westpac demonstrate an apparent tension between its recognition of the necessity to apprise group members of accurate and complete information as to the present funding arrangements and their conditionality, and the notion that anything smacking of "book building" would amount to a use of the notice provisions for a purpose for which the provisions were not designed. 28 But properly analysed, there is no real tension. As the applicants correctly submit, Westpac mischaracterises what is proposed as constituting a mere exercise in book building, when in truth what is occurring is a notice is proposed to be sent directed to apprising group members of relevant facts about the proceeding, including facts which may be relevant to their decision to opt out. 29 What is necessary to convey to group members may have some degree of commonality across similar types of Pt IVA proceedings, but what needs to be conveyed to group members must be assessed on a case-by-case basis. The bespoke circumstances of this case include that the funding arrangements had been predicated on a CFO being made; that such an order was erroneously made; and given it has now been set aside, there is an appreciable risk the funding will cease and, as a consequence, the proceeding will not continue (and the group member claims will be unable to be advanced). The material before the Court establishes the unremarkable fact that absent JKL forming the view that it will obtain a commercial return, it is unlikely to have an appetite to maintain funding. 30 Put more graphically, absent the subjective assessment that JKL makes as to the worth of the prospect of a Expense Sharing Order being able to be made (and being made), the evidence is, as Westpac correctly identified: "whether [JKL] continues with this funding depends on how many people [JKL] can book build with and unless [JKL] achieve[s] a certain threshold on that, [JKL is] out of here". It seems to me that given what group members have previously been told about the CFO is no longer operative, they should be told something about the basis upon which the class action is now being funded. To tell them about the current funding arrangements, and yet omit what Westpac in submissions recognised correctly as the most important aspect of the message (that is, that the funding is conditional, or may be conditional, on certain things happening), would be at best, decidedly odd and at worst, misleading to group members. 31 As the applicants correctly submit, the Court has always regarded its task of approving the content of notices to group members as part of its protective and supervisory jurisdiction in respect of their interests: see Muswellbrook Shire Council v Royal Bank of Scotland NV [2013] FCA 616 at [24]–[25], and [39] (Bennett J). Hence the Court is solicitous to ensure that group members are given full information in a non-misleading way. The statutory purpose underlying s 33X extends to notifying group members of events which may affect their rights or interests, including matters which may affect the continuation of the proceeding. This is plain from the extrinsic materials: see Explanatory Memorandum, Federal Court of Australia Amendment Bill 1991 (Cth) at 10 [33]; Australian Law Reform Commission, Report No 46, Grouped Proceedings in the Federal Court at 80 [188] ff; and the text and statutory context are plain. Two of the matters for which notice is mandatory are an application by a respondent for dismissal for want of prosecution (s 33X(1)(b)), and an application by the applicant to withdraw as a representative (s 33X(1)(c)). The fact that the proceeding may not continue for another reason, that is, if insufficient group members do not sign with a funder that this could prevent the continuation of the class action, is a not dissimilar circumstance. It is difficult to see how the Court could fulfil adequately its protective role, if it was to fail to apprise the class of the fact that the funding of the litigation may be imperilled and advise them of the objective fact that the class action may not proceed unless JKL is satisfied that it is in its interests to do so. As is evident from the materials to which I make reference below, the whole point of the notification regime is to ensure that the group members are informed of information relevant to their rights and which may affect their claim, which is the subject of the class action absent opt out. 32 It follows that the content of a notice which apprises group members of the reality of the current position as to funding in a neutral, balanced and dispassionate way is not only appropriate, but also desirable. It is a matter which should be notified to group members pursuant to the power conferred by s 33X(5). 33 In reaching this conclusion, I am conscious of the observations of various members of the High Court (to which I have referred at [17]–[19] above), that a CFO is beyond the purpose of the legislation because it is not the role of the Court to secure a sufficient return for a funder. But the situation here is being looked at from a different perspective. The group members have been told one thing (that funding was on a particular basis); but the reality is another. As Westpac correctly stressed, the present arrangements have a degree of conditionality about them. I am satisfied, as I was at an earlier stage of this proceeding, that the claims of group members only have real worth if pursued in a class action. Although I accept it is no part of my role to be solicitous of the commercial interests of the funder; it is my role to inform group members of the realities of the circumstances in which they find themselves in the wake of my error in making a CFO. 34 I now turn to the form of the notification. D THE FORM OF THE NOTICE 35 During the course of oral argument, I indicated to the parties that I had some real misgivings as to the complexity of the draft notice. This reflects a broader concern as to the intelligibility and utility of notices commonly approved for distribution to group members. 36 The scheme enacted by Pt IVA eschewed a class action procedure where the consent of a group member is needed to commence a representative proceeding in favour of an opt out model. In an opt out model, where the identity of group members is necessarily unknown at the time a proceeding is commenced, the role of notices is central and critical – a Court-sanctioned notice is the means by which group members are to be informed about the proceeding and about the way in which it can impact upon their rights. Hence s 33E (which relevantly provides that consent is not required to commence a class action) and s 33X of the Act are closely allied. 37 The Australian Law Reform Commission explicitly tied these two concepts together when it noted in ALRC Report No 46 at 55 [126]: A fair balance will be struck between the interests of group members and respondents if proceedings can be commenced without the consent of group members as long as notice is given to group members and they have an opportunity to withdraw from the proceedings or litigate individually. 38 The Explanatory Memorandum to the Federal Court of Australia Amendment Bill 1991 (Cth) at 10 [33], which introduced Pt IVA, said of s 33X (and s 33Y) that its purpose was to: set out the requirements for giving notice, in the most efficient and effective way, to group members of the commencement of the representative proceeding and of other events during the course of the proceeding which may affect their rights. (emphasis added) 39 It went on to say (at 10–11 [36]) that the reason that personal notice need not be given (s 33Y(5)) was due to the likely high cost of that form of notice. On the Second Reading speech in the Senate (Commonwealth, Debates, Senate, 12 September 1991 at 1448), Senator Tate said, after noting that business groups had concerns about the opt out model: The Government believes that an opt out procedure is preferable on grounds both of equity and efficiency. It ensures that people, particularly those who are poor or less educated, can obtain redress where they may be unable to take the positive step of having themselves included in the proceedings. It also achieves the goals of obtaining a common binding decision while leaving a person, who wishes to do so, free to leave the group and pursue his or her claim separately. 40 The purpose of the Bill was, as the Senator said (at 1449), to alleviate "community concern about the cost of, and access to, justice" by removing "at least some of the barriers for persons who seek redress before the Courts". 41 Parliament was clearly proceeding on the basis that group members who do not opt out are bound by some orders made in the class action, and that Pt IVA was directed to removing the practical barrier to access to justice inherent in requiring people to take positive steps in relation to their rights. Underpinning Pt IVA was the notion that passivity on the part of group members was a legitimate way for them to have their rights determined, and further that persons ignorant of their rights were to be treated in the same way as persons who were passive. The contractual paradigm that there be a genuine meeting of minds as manifested in positive acts of assent did not drive Pt IVA, and a notice approved by the Court, published by a means approved by the Court, was an adequate way of ensuring group members were told of what they needed to know sufficient to exercise the most fundamental right in relation to the proceeding – whether to opt out of it or remain in and so be bound. As the Full Court (Black CJ, Sackville and Emmett JJ) said in Femcare Ltd v Bright [2000] FCA 512; (2000) 100 FCR 331 at 349 [74], the objective in giving notice is "to find the most economical means of ensuring that the group members are informed of the proceeding and their rights". 42 But implicit in the regime is the notion that complex material can be conveyed to group members by notification, which allows those group members to make informed decisions which may affect their legal rights. For anyone experienced in class actions, one commonly comes across empirical evidence strongly suggesting that the process of written notification must have miscarried. It is far from uncommon to see examples where people opt out, even when a decision to opt out is counterintuitive (and indeed plainly contrary to a group member's interests). Recent examples include circumstances where group members, who are never going to pursue an individual claim, opt out, notwithstanding it deprives them of the possibility of participating in a settlement. 43 This accumulated experience gives reason for pause in considering whether this assumption that the Court is communicating complex information efficiently to classes is one that is well founded. 44 The importance of such efficiency was adverted to by Flick J in Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 4) [2010] FCA 749, a decision in which his Honour amended the form of notice submitted to the Court for approval under s 33Y(2). His Honour observed (at [20]–[21]): When approving the form and content of an opt-out notice it is also of importance for the Court to ensure that the notice is written in "plain English": Courtney v Medtel Pty Ltd [2001] FCA 1037 ("Courtney"). Sackville J there relevantly observed: [10] It is also important to bear in mind that, as was said by Wilcox J in McMullin v ICI Australia Operations Pty Ltd (1998) 156 ALR 257, at 260: "Any notice that is to be issued to members of the public in connection with a representative proceeding must be readily comprehensible by non-lawyers. It should be written in plain English." [11] I would add a further observation. Any opt-out notice should be framed so as not to cause unnecessary alarm or distress to intended recipients. Practising lawyers, and for that matter judges, may tend to underestimate the impact that publication or service of a Court ordered notice may have on members of the represented group. The recipients of a notice under s33X of the Federal Court Act may become anxious when they learn for the first time of legal proceedings which may affect their legal rights and in respect of which they must decide whether or not to participate. They may be concerned by technical language that is difficult to understand. The notice may also alert them, particularly in personal injury cases, to the possibility that they are at risk of future harm. People who are at risk of harm or who are otherwise vulnerable, such as elderly persons, may be particularly susceptible to anxiety or distress. Notices must be accurate but should be drafted with sensitivity to these considerations. It is, accordingly, of importance to ensure that a notice does not contain unnecessary information which may simply have the potential to either confuse or intimidate the persons to whom it is addressed. The nature of the information being communicated may well depend upon the issues being advanced for resolution in the representative proceeding itself – the more complex a proceeding may be, the greater may be the need to include more rather than less information. Inevitably a balance may have to be struck when approval is sought in respect to each individual proceeding. As was also observed by Sackville J in Courtney, when approving the form and content of an opt-out notice, consideration should also be given to the category of persons who are group members. What may be an appropriate manner in which to convey information to group members better qualified to understand that information may be inappropriate (and may have to be differently expressed) where it may be expected that group members are less able to understand the information sought to be conveyed. There would be little point in expressing an opt-out notice in terms which a lawyer may well understand but in terms totally confusing to the intended recipient. (emphasis added) 45 As his Honour there identified, there are, of course, different types of group membership. Some include highly sophisticated classes where all or the majority of the group members have access to legal representation. Others, such as this case, involve very significant classes (in this case, 88,000), and it is inevitable there will be persons within the class who are unsophisticated in financial and legal matters, including those who may have either literacy problems, or at least have some difficulty in taking in complex information in written form. Given the protective role of the Court, it is important to bear in mind that those with low levels of literacy are more prone to disadvantage and are more vulnerable in their interactions with the legal system: for example, see the discussion of the impact of low levels of literacy on access to justice outcomes in rural, regional and remote communities in Law Council of Australia, The Justice Project Final Report – Part 1: Rural, Regional and Remote Australians (August 2018) p 23. Although not the subject of evidence on the application, it is not unduly stretching the bounds of s 144(1) of the Evidence Act 1995 (Cth) to remark that it is not reasonably open to question that advanced Western societies have reached a stage where significant parts of the community, and, in particular, younger members of the community, more readily digest information conveyed to them in an audio-visual rather than written form. 46 Connected to this phenomenon, a number of studies in the United States have suggested that both the quantity and quality of adult reading abilities are in decline: see, for example, Alice Horning, "Reading, Writing and Digitizing: A Meta-Analysis of Reading Research", (2010) 10(2) Reading Matrix 243. Further, although there is scant readily accessible recent data, according to a 2012 report of the OECD, some 12.6% of Australian adults attained only Level 1 (of 5) or below in literacy proficiency. At that level of literacy, adults can read brief texts on familiar topics and locate a single piece of specific information identical in form to information in the question or directive, but otherwise experience difficulty: Organisation for Economic Cooperation and Development, Australia - Country Note: Survey of Adult Skills First Results (OECD, 2012) at 3. An Australian Bureau of Statistics commentary of that OECD Survey noted that: [a]round 3.7% (620,000) of Australians aged 15 to 74 years had literacy skills at Below Level 1, a further 10% (1.7 million) at Level 1, 30% (5.0 million) at Level 2, 38% (6.3 million) at Level 3, 14% (2.4 million) at Level 4, and 1.2% (200,000) at Level 5. Australian Bureau of Statistics, 4228.0 - Programme for the International Assessment of Adult Competencies, Australia, 2011-12 (https://www.abs.gov.au/AUSSTATS/abs@.nsf/productsbyCatalogue/A7F52A484135C822CA257BFE00257DD5?OpenDocument). 47 It seems to me quite obvious that in large scale consumer class actions, the Court is communicating to a number of people who are within cohorts who have attained only basic levels of literacy. 48 The concept of "readability" has spawned various tests which have been used to measure the readability of certain texts, providing quantitative estimates of the style difficulty of different writing examples. "Readability" has been variously defined, but in essence consists of three aspects: "comprehension, fluency (reading speed), and interest": see Grant Richardson and David Smith, "The Readability of Australia's Goods and Services Tax Legislation: An Empirical Investigation", (2002) 30(3) Federal Law Review 475 at 478. If information must be conveyed in writing, there is a need to adopt a form of language, structure and design, which maximises the chance of all the intended audience readily understanding the information sought to be communicated. 49 Leaving aside the adoption of plain language, I consider the time has come for those proposing notices to consider new modes of communicating complex information. This need will only become more acute as we progress (if that is the right word) further into the age of social media. 50 Put more directly, it is simply complacent to continue to make the assumption that sending complex information in written form is the best way of communicating information to group members in some types of class actions, and consideration should be given as to whether supplementary or substitute modes of conveying information should be adopted. 51 These are large questions which transcend the circumstances of this case, but merit further examination and debate. For present purposes, attached as an annexure to these reasons, is my attempt to prepare a simple opt out notice which seeks to convey complex information in a form easier to understand than the draft notice. The parties have not had the opportunity to address on the precise form of the notice. In all the circumstances, it is appropriate that they have the opportunity to do so. I also wish to hear from the parties as to whether it would be appropriate to approve a supplementary notification in some audio-visual from to be sent by email to group members, if such a course is practicable. E ORDERS 52 The appropriate course is to stand the matter over for a case management hearing at a time convenient to the parties to receive any further submissions as to the form of the notice. At that time the necessary orders can be made facilitating notification and ordering the commencement of the mediation. I certify that the preceding fifty two numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 2 April 2020 SCHEDULE OF PARTIES NSD 1812 of 2017 Applicants Fourth Applicant: KYLIE LEE LYE Annexure OPT OUT NOTICE WESTPAC LIFE INSURANCE CLASS ACTION THIS IS AN IMPORTANT NOTICE ISSUED TO YOU BY THE FEDERAL COURT OF AUSTRALIA It is about the WESTPAC LIFE INSURANCE CLASS ACTION. It is sent to you because the Court considers it is likely you are a class member. As explained below, you may do one of three things in response to this notice: 1. opt out of the class action by [ May] 2020 (4.00PM (Sydney time)) and lose a right to getting any money compensation out of the class action (but keep your right to try to get some money compensation in an action you start yourself); 2. sign up to the class action; or 3. do nothing. A SOME THINGS YOU SHOULD KNOW ABOUT THE CLASS ACTION 1. The class action claims compensation (that is, money) because of amounts paid by you (and persons like you) in purchasing insurance issued by Westpac Life (including superannuation funds) on the recommendation of financial advisers at Westpac, St George Bank, Bank of Melbourne, BankSA or BT Advice (Westpac Advisers). 2. The solicitors running the case are Shine Lawyers, and a company called JustKapital Litigation Pty Limited (JKL) is currently funding the case. 3. As a likely class member, you should already have received a notice about a proposed order requiring class members to pay a share of legal and funding costs. This order was made, but it later turned out there was no power to make it. 4. Because of this, you may now choose to sign up with JKL and Shine Lawyers, by either: (a) entering into funding agreements (and becoming a Funded Group Member); or (b) not entering into funding agreements but submitting your claim details to Shine Lawyers (with the result you will be a Registered Unfunded Group Member). 5. An aspect of the funding of the class action is that it can be withdrawn by JKL. The Court has been told that if not enough group members sign litigation funding agreements with JKL and become Funded Group Members, there is a real risk that this class action may not be able to continue. 6. Class members are not, and will not be, liable for any "out of pocket" legal costs by remaining in this class action. The costs of running it are being picked up at present by JKL and Shine Lawyers. 7. If the class action is unsuccessful, class members will have no liability. 8. If the class action is successful (that is, if money compensation is recovered), the Court might be asked to distribute the legal and funding expenses among all persons who have benefitted from the class action (although Westpac disputes the power to make such an order). But the effect of any such order, if made, would be that all class members who benefit will contribute to the costs and pay reasonable litigation funding charges. That means even Registered Unfunded Group Members who do not sign up to a funding agreement might have to contribute out of their share. 9. But at the moment, JKL's continued involvement may depend upon a sufficient number of class members entering into funding agreements. It is therefore important that you take this matter into consideration when choosing between the three options set out below. B YOUR THREE OPTIONS OPTION 1 – OPT OUT AND CEASE TO BE A GROUP MEMBER 10. Class members who opt out will not be bound by the outcome of the class action and will not receive any money from the class action if it wins or settles. 11. Because some of the relevant conduct of Westpac occurred a long time ago, if this class action had not been brought, then some claims may have been lost from around October 2017 onwards. This class action "stopped the clock" on those claims being lost and if you are one of these class members, and you opt out, you may only have a very short period of time to take your own action before your claim is lost. Class members should seek legal advice before opting out. 12. Opt out forms must be sent directly to the New South Wales District Registry of the Federal Court of Australia before 4:00pm on [ May] 2020. OPTION 2 – SIGN UP TO THE CLASS ACTION 13. Class members who sign up provide their details to the solicitors, Shine Lawyers, and information about their claims. This means it is possible for their claims to be specifically considered if there are settlement talks. 14. Although you do not have to sign up, it is likely that at some point you will need to register your interest to participate – either to get money in any settlement, or to take further steps to bring your claim forward. 15. If you wish to sign up, it would assist the solicitors in being ready for any settlement talks for you to register by [ May] 2020. If you have already signed up, you do not need to sign up again. 16. But, as noted above, if you wish to sign up, you may choose whether to sign up as a Funded Group Member or a Registered Unfunded Group Member. 17. Becoming a Funded Group Member will mean you agree to pay JKL an amount for litigation funding costs and for commission out of any money you get, which Unfunded Group Members are not obliged to pay. However, if you remained an Unfunded Group Member, this may still involve you making some contribution out of any money you receive. If you want to become a Funded Group Member, what you need to do is to: • enter into the funding agreements online at www.shine.com.au/service/class-actions/westpac-class-action; or • telephone 1800 778 782 or email wpac@shine.com.au. 18. Of course, if you are considering becoming a Funded Group Member, you should read carefully the funding agreements including the retainer and, if you then do not understand everything, you should get legal advice from your own family solicitor or a solicitor you choose. 19. Becoming a Registered Unfunded Group Member will mean you will not enter into any contract with JKL and Shine Lawyers. It will be possible for your claim to be specifically considered to some extent if there are settlement talks, but if further steps are required to bring your claim, you will have to pay any legal costs yourself. Also, at the end of the class action, an order may be sought requiring Unfunded Group Members who benefit, to contribute to the costs and the funding. OPTION 3 – DO NOTHING 20. Class members who do not opt out by [ May] 2020, or sign up will remain as class members and await the outcome. You will be an Unregistered Unfunded Group Member but, as noted above, at some point Unregistered Unfunded Group Members will need to register to get any money out of any settlement (if that happens) or run their individual case (and because you are not a Funded Group Member you will have to pay any legal costs yourself). C THREE IMPORTANT THINGS TO NOTE 21. First, this is not a scam. You can check (and get any copies of relevant documents) by visiting Shine Lawyers' website https://www.shine.com.au/service/class-actions/westpac-class-action or by telephoning 1800 778 782. 22. Secondly, as explained above, if there are not enough Funded Group Members, there is a real risk that this class action may not be able to continue. 23. Thirdly, if there is anything of which you are unsure and you don't want to speak with Shine Lawyers (or you want to understand their involvement or the funding agreements or retainer better), you should get legal advice from your own family solicitor or a solicitor you choose. OPTION 1 – OPT OUT Form 21 Rule 9.34 OPT OUT NOTICE Federal Court of Australia No. NSD1812/2017 District Registry: New South Wales Division: General GREGORY JOHN LENTHALL and others named in the schedule Applicants WESTPAC BANKING CORPORATION ABN 33 007 457 141 and another named in the schedule Respondents To: The Registrar Federal Court of Australia New South Wales District Registry Level 17, Law Courts Building Queens Square Sydney NSW 2000 ................................................................... (print name), a group member in this representative proceeding, gives notice under section 33J of the Federal Court of Australia Act 1976, that he, she or it is opting out of the representative proceeding. Date:................................. . Signed by .............................................. (signature) ................................................... (print name) Group Member / Lawyer for the Group Member (please complete the next page) Address of group member: ................................................................................................................................................... ................................................................................................................................................... Telephone: ............................................................................................ Email: ............................................................................................ ACN/ABN: ............................................................................................(if a company or trustee) HIN/SRN: ............................................................................................ If the shares were acquired on behalf of another person/entity, name of that person/entity: .................................................................................................................... If you are signing as the solicitor or representative of the group member: Name: ............................................................................................. Capacity in which you are signing: .......................................................... Address: ................................................................................................................................................... ................................................................................................................................................... Telephone: ............................................................................................