Federal Court of Australia Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 5) [2020] FCA 1405 File number: VID 508 of 2017 Judgment of: MURPHY J Date of judgment: 29 September 2020 Catchwords: PRACTICE AND PROCEDURE – representative proceedings – settlement approval orders made pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) – whether appropriate to revisit the legal costs and litigation funding charges earlier approved by the Court Legislation: Federal Court of Australia Act 1976 (Cth) ss 33V, 54A Legal Profession Uniform Law Application Act 2014 (Vic) Cases cited: Australian Securities and Investments Commission v Richards [2013] FCAFC 89 Bolitho v Banksia Securities Ltd (No 6) [2019] VSC 653 John Fairfax Publications Pty Ltd v District Court of NSW (2004) 61 NSWLR 344; [2004] NSWCA 324 Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 4) [2020] FCA 1053 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 24 Date of last submissions: 31 August 2020 Date of hearing: Determined on the papers Solicitor for the Plaintiff: Elliot Legal Pty Ltd Solicitor for the First to Third and Fifth to Thirteenth Defendants: Herbert Smith Freehills Solicitor for the Fourth Defendant: Corrs Chambers Westgarth Counsel for the Contradictor: Mr J Slattery and Mr E Gisonda Solicitor for the Funder: Johnson Winter & Slattery REASONS FOR JUDGMENT VID 508 of 2017 BETWEEN: JOHN WILLIAM CRUSE WEBSTER AS TRUSTEE FOR THE ELCAR PTY LTD SUPER FUND TRUST Plaintiff AND: MURRAY GOULBURN CO-OPERATIVE CO. LIMITED (ACN 004 277 089) First Defendant MG RESPONSIBLE ENTITY LIMITED (ACN 601 538 970) AS RESPONSIBLE ENTITY OF THE MG UNIT TRUST Second Defendant PHILIP W TRACY (and others named in the Schedule) Third Defendant MURPHY J: 1 On 7 April 2020 I heard an interlocutory application pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act) for Court approval of the settlement of this securities class action. On 9 April 2020 I made orders to approve the settlement pursuant to which the respondents agreed to pay the plaintiff and class members a sum of $37.5 million inclusive of costs in settlement of their claims. The orders included approval of the settlement distribution scheme which provided for various deductions to be made from the settlement amount prior to distribution to class members, including Court-approved amounts for the plaintiff's legal costs and the litigation funding commission charged by the litigation funder in the proceeding. On 22 July 2020 I published reasons for that decision: see Webster (Trustee) v Murray Goulburn Co-Operative Co. Limited (No 4) [2020] FCA 1053 (Webster No 4). 2 Following delivery of the judgment in Webster No 4 there were some public developments in the hearing, on remitter, of the settlement approval application in another class action, Bolitho & Anor v Banksia Securities Limited & Ors (S CI 2012 07185) (the Banksia remitter) before Dixon J in the Supreme Court of Victoria. As a result of those developments I became concerned about the possibility that the Court may have been misled when approving the legal costs and litigation funding charges in the present case. 3 Consequently, and on the Court's own motion, my chambers wrote to the parties, including the Court-appointed contradictor (the Contradictor) and the litigation funder, to ascertain whether any of them wished to apply to the Court, including to revisit the approval of legal costs and litigation funding charges. None of the parties expressed a wish to apply to the Court, and the Contradictor informed the Court that it did not intend to make any application at this stage. In the circumstances I have decided that, at present, there is no requirement to make any orders or to take any further step in the proceedings. Although no party made an application and I have concluded that there is nothing further to be done at present, having regard to the principle of open justice it is appropriate to explain why I reached that decision: see John Fairfax Publications Pty Ltd v District Court of NSW (2004) 61 NSWLR 344; [2004] NSWCA 324 at [18] (Spigelman CJ). The background 4 When the settlement approval application first came before the Court on 26 November 2019 I was aware that in the Banksia remitter the Court-appointed contradictor, Peter Jopling QC had made serious allegations of impropriety in relation to legal costs and litigation funding charges against the litigation funder in that proceeding, Australian Funding Partners Limited (AFPL), of which Mark Elliott was managing director, and against Norman O'Bryan SC and Michael Symons who were counsel in the case: see Bolitho v Banksia Securities Ltd (No 6) [2019] VSC 653 at [124]-[147] (Dixon J). 5 The same persons were involved in this proceeding. Mr Elliott's legal firm, Elliott Legal was the solicitor for the applicant, Mr O'Bryan and Mr Symons were senior and junior counsel for the applicant, and William Crothers, the litigation funder of the proceeding (the Funder) was a 20% shareholder and a non-executive director of AFPL. Although at that point the allegations made in the Banksia remitter were just that, and they were denied, partly because of those allegations I considered it appropriate to appoint a costs referee and a contradictor. On 26 November 2019 I made orders to appoint: (a) John White, an experienced and reputable independent costs consultant as a referee under s 54A of the Act to conduct an inquiry as to the reasonableness of the costs charged or proposed to be charged for the proceeding and settlement administration, and to provide a report to the Court (the Costs Referee); and (b) Jeremy Slattery SC and Edward Gisonda of counsel as Contradictor to represent class members' interests and to assist the Court to discharge its function under s 33V in relation to assessing the reasonableness of the legal costs and litigation funding commission proposed to be charged. The legal costs 6 By the time the settlement approval application was heard, there was no dispute in relation to the legal costs proposed to be charged. The Costs Referee had conducted the inquiry as ordered, and had concluded that legal costs should only be approved in a substantially reduced amount. Initially Mr Elliott had said that the plaintiff's legal costs totalled $7.4 million but he would seek reimbursement of legal costs capped at $7 million. Ultimately, Elliott Legal sought approval of legal costs in the amount of $6.4 million. Following his inquiry the Costs Referee reported that costs should be allowed in a total of $5.21 million, which included a reduction in Mr O'Bryan's fees of $438,200 and in Mr Symons fees of $70,155. 7 The Costs Referee's report showed a thorough, analytical and scientific approach, used a reasonable methodology and did not reveal any error of principle, patent misapprehension of the evidence or manifest unreasonableness. The parties, including most importantly the Contradictor, submitted that the report should be adopted. I had some concerns about various matters identified by the Costs Referee, including the failure of Elliott Legal and counsel to comply with professional obligations required of them under the Legal Profession Uniform Law Application Act 2014 (Vic), the lack of contemporaneous time records, and the manner in which counsel sent the vast majority of their invoices late in the case rather than periodically as might be expected. But having regard to the Costs Referee's detailed report, the Contradictor's recommendation, the substantial reduction and the total overall I concluded it was appropriate to adopt the report and to approve the plaintiff's legal costs in a total sum of $5,207,675: see Webster No 4 at [91]-[106]. The litigation funding charges 8 However, there remained a dispute as to reasonableness of the proposed litigation funding charges. Mr Crothers sought Court approval of a funding commission of $10.5 million representing a funding rate of 28% of the gross settlement. The Contradictor opposed that application on various grounds, and instead proposed a lower funding rate. 9 In an affidavit made 9 January 2020 Mr Crothers deposed that he is a businessman and professional investor with almost 40 years' experience as an executive and that he has been a director of dairy processing factories in the Victorian dairy industry. He said that for many years he had been involved in companies which were competitors of Murray Goulburn and thus had a close familiarity with Murray Goulburn's activities. Consequently he was aware of the impact of what he considered to be misleading and deceptive conduct by Murray Goulburn in 2015 and 2016. 10 Mr Crothers also deposed that he was a close friend of Mr O'Bryan and a friend and colleague of Mr Elliott, and a 20% shareholder and non-executive director of AFPL, Mr Elliott's litigation funding vehicle. He said that in April 2016 he asked Mr O'Bryan's advice as to whether any claim existed in respect of the actions of Murray Goulburn by dairy farmers and others who had suffered losses by reason of alleged misleading and deceptive conduct. He said that Mr O'Bryan suggested that he consider funding a class action against Murray Goulburn. He accordingly asked Mr Elliott whether AFPL would fund the proposed class action. He deposed that Mr Elliott declined to fund the case as AFPL was already fully committed on other funding projects but said that his legal firm, Elliott Legal, was prepared to act as the solicitor for the plaintiff in the proposed proceeding on a "no win, no fee" basis. 11 After conducting further investigations, including obtaining further advice from Mr O'Bryan, Mr Crothers said that he decided to personally fund a class action on that basis, with Elliott Legal as the solicitors for the plaintiff. He said that although Elliott Legal were acting on a no win, no fee arrangement for the firm's work, he was obliged under the funding arrangements to meet any disbursements, including what were likely to be substantial counsel's fees. He denied that counsel were engaged on a no-win, no fee basis, and when cross-examined in relation to that his evidence did not shift. 12 The question as to whether or not Mr O'Bryan and Mr Symons were engaged in the proceeding on a no win, no fee basis was directly relevant to the quantum of any funding commission that the Court might approve. If, in reality, the Funder was not required to pay counsels' fees as they were incurred, or at all unless the case was successful, the risk the Funder took on by funding the proceeding was substantially lower and the funding commission to which it may be entitled would be commensurately less. 13 The evidence showed that Mr O'Bryan invoiced the Funder the entirety of his fees for the case ($1.37 million), and Mr Symons invoiced the great bulk of his fees ($425,911), after they knew the case had settled or would settle imminently: Webster No 4 at [129]. Notwithstanding that he did not render any invoices for his fees until after he knew the case had or would settle, Mr O'Bryan told the Court that he was not engaged on a no win, no fee basis, and provided an explanation in that regard: Webster No 4 at [133]-[136]. There was evidence pointing both ways on the question as to whether Mr O'Bryan and Mr Symons were engaged on a no win, no fee basis but as I explained (at [137]-[138]) the Contradictor did not contend that the Court should not accept Mr O'Bryan's explanation nor that the Court should find that the Funder was not telling the truth. 14 Instead, the Contradictor submitted that because, in fact, the costs and risks that the Funder had taken on in funding the proceeding were much lower than Mr Crothers said the Court should only approve a funding commission at a rate which reflected that. I accepted that submission and concluded that a funding commission of $10.5 million at funding rate of 28% of the gross settlement would be excessive. In accordance with the Contradictor's submissions I approved a funding commission of $8,625,000 representing a funding rate of 23% of the gross settlement, being $1,875,000 less than the funding commission sought. Developments in the Banksia Remitter 15 The settlement approval application in the present case was heard and decided in on 7 April 2020. In July 2020 I became aware that in the Banksia remitter the Contradictor had filed a document particularising the allegations made against AFPL and Mr Elliott, Mr O'Bryan and Mr Symons, titled Contradictor's Revised List of Issues, which was updated on 21 July 2020 (Revised List of Issues). The Revised List of Issues dated 21 July 2020 is publicly available. The allegations were denied. 16 Then, on 3 August 2020, Mr Batt QC, senior counsel for Mr O'Bryan in the Banksia remitter, informed the Supreme Court of a significant change in Mr O'Bryan's position in relation to the allegations made against him. Later that day Mr O'Bryan's solicitors, Minter Ellison, sent a letter to the parties and to the Court which said as follows: We confirm that, as stated by Mr Batt QC this afternoon, we are instructed as follows: 1. Mr O'Bryan will not maintain any further defence of the allegations that have been made against him in this proceeding by the Contradictor in the Revised List of Issues dated 21 July 2020 and its particulars. In those circumstances, Mr O'Bryan would not be entitled to, and he will not, contend against the Court making findings in respect of him in accordance with those allegations. 2. Mr O'Bryan consents to the entry of judgment against him: (a) for monetary liability under s 29 of the Civil Procedure Act in such amount as the Court determines on the evidence before it; and (b) otherwise on the terms the Court sees fit. 3. Mr O'Bryan will not oppose the Court removing his name from the Supreme Court Roll. He accepts that that should occur. 4. Mr O'Bryan will not seek payment of any of his unpaid fees in this matter; he abandons any right to such payment. As Mr Batt stated to his Honour, we are instructed to record that, in taking this course, Mr O'Bryan seeks to convey and give some measure of effect to his contrition and his very deep regret at his actions, and to do what is now able to do to assist in these proceedings being brought to conclusion. 17 On 6 August 2020 Mr Symons' legal representatives advised the Supreme Court of a similar change in position by Mr Symons. On 13 August 2020, Robert Craig SC, senior counsel for Mr Symons, said the following in open court: Mr Symons deeply regrets the circumstances that have given rise to the remitter and the allegations in the revised list of issues. He conveys that he no longer contests the allegations contained in the revised list of issues dated 21 July 2020, and the making of findings and granting of compensation the Court considers available to it in accordance with those allegations. For clarity, Mr Symons consents to the entry of judgment against him for monetary liability under s 29 of the Civil Procedure Act in such amount as the court determines is appropriate having regard to the evidence and/or otherwise on the terms the court sees fit. Further, Mr Symons consents to his name being removed from the Supreme Court roll, and he asked the Court to act on its own motion in doing so. Finally, Mr Symons abandons any claim for his unpaid fees in the matter. Concerns regarding the COSTS AND LITIGATION FUNDING CHARGES APPROVED 18 The fact that Mr O'Bryan and Mr Symons, had decided not to argue against the Court making findings against them in respect to the serious allegations of impropriety made in the Revised List of Issues, that they consented to the entry of judgment for monetary liability in an amount assessed by the Court, and their acceptance that it was appropriate that their names be removed from the Supreme Court Roll, was seriously disquieting for this Court and, one would expect, the legal profession more broadly. But the hearing in the Banksia remitter is ongoing, and any findings in respect of their conduct are matters for the Supreme Court. In the circumstances it would be inappropriate to comment further. 19 For present purposes it suffices to note that because of the concessions made by Mr O'Bryan and Mr Symons I became concerned about the possibility that in the settlement approval application in the present case the Court was misled in relation to legal costs and litigation funding charges. The role of the Court in a settlement approval application is important and onerous. The Court assumes a protective role akin to that of a guardian, not unlike the role a Court assumes when approving an infant's compromise, to protect the interests of absent class members: Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [7]-[8] (Jacobson, Middleton and Gordon JJ). In the circumstances I decided it was appropriate, on the Court's own motion, to ascertain whether any of the parties to the settlement approval application wished to revisit the approval of legal costs and litigation funding charges. 20 On 21 August 2020 my chambers sent an email to the parties reminding them that the settlement approval application involved questions as to reasonableness of the legal costs charged by Elliott Legal and the fees charged by Mr O'Bryan and Mr Symons; that the fee basis upon which counsel was engaged was one of the factors relevant to the approval of a reasonable litigation funding commission; and that Mr O'Bryan had informed the Court that he was not acting on a no-win, no-fee basis. The email advised that if any party wished to make any application to the Court they should inform chambers and the other parties within ten days, and chambers would then take steps to arrange a mention before the Court. 21 Chambers did not receive a response from Elliott Legal or from Mr O'Bryan. Howard Obst of Moray & Agnew, the solicitors for Mr Symons, responded by email on 22 August 2020, stating that Mr Symons had not made admissions in regard to any impropriety, and referring to the transcript of the hearing on 13 August 2020 as to the precise terms of his position. As a result the email to the parties was reworded on 22 August 2020. 22 On 31 August 2020 Herbert Smith Freehills, the solicitors for the first to third and the fifth to thirteenth defendants, stated that their clients did not wish to make any application to the Court in relation to the legal costs and litigation funding charges that had been approved, although reserving their rights to address the Court if any of the other parties wished to make an application. 23 The same day the Contradictor provided the following short submissions. I found the Contradictor's submissions persuasive and it is appropriate to set them out in full: We refer to your emails dated 21 and 22 August 2020. In the Banksia litigation, Mr O'Bryan SC and Mr Symons have stated that they will not maintain any defence to the allegations made against them in the revised list of issues dated 21 July 2020 and its particulars (Revised List of Issues) prepared by the contradictor in that case and that they will not contend against the court making findings against them in accordance with those allegations. The Revised List of Issues in the Banksia litigation contains a range of serious allegations against Mr O'Bryan SC and Mr Symons, and is publicly available here: https://www.supremecourt.vic.gov.au/news/banksia-securities-limited-trial. As well, Mr O'Bryan SC and Mr Symons have consented to the entry of judgment against them for monetary relief under s.29 of the Civil Procedure Act and agreed that their names should be removed from the roll of practitioners. Nevertheless, the Banksia litigation is still ongoing, and the Court in that case has not yet made any findings in relation to the allegations contained in the Revised List of Issues. In response to your emails of 21 and 22 August 2020, we have reviewed the admissions made by Mr O'Bryan SC and Mr Symons in the Banksia litigations and the Revised List of Issues and given consideration as to whether we consider it is in the interests of unrepresented group members that an application be brought in this proceeding in relation to the legal costs and litigation funding charges that were approved by the Court on 9 April 2020 pursuant to s.33V of the Federal Court of Australia Act 1976. We note, in particular, that there are allegations in the Revised List of Issues (which are no longer defended by Mr O'Bryan and Mr Symons) to the effect that they were on a "no win no fee arrangement" in respect of each case in which Australian Funding Partners Ltd (AFPL) was litigation funder, and that the deferred fee arrangements between Mr O'Bryan, Mr Symons and Mr Elliott/ AFPL in the Banksia litigation appear to be consistent with the basis upon which fees were invoiced in this proceeding (see paragraph 47 of Annexure A to the Revised List of Issues). While this may, depending upon the findings ultimately made by the court in the Banksia litigation, arguably be relevant to the statements of Mr O'Bryan SC as to whether he was on a "no win no fee" arrangement in this matter (as recorded in paragraphs [134] and [135] of the Court's judgment of 9 April 2020 (Judgment)), for the following reasons, we do not presently intend to make any application to the Court in relation to the legal costs and funding charges that were approved in this case for the following reasons. 1 There are a number of differences between the Banksia litigation and this proceeding. Most significantly: (a) In this case, the Court had the advantage of a report prepared by an independent court-appointed costs referee, Mr John White. Mr White conducted substantial investigations into the costs claimed by the legal practitioners in this case, identified and articulated a number of concerns with the legal costs claimed by Mr O'Bryan SC and Mr Symons (and Elliot Legal) and significant discounts were applied to the fees claimed by each of them. In Banksia, the parties relied on their own costs expert. He has since been joined as a party to that proceeding. (b) In this case, the funder was an individual, Mr Crothers. In Banksia, the funder was AFPL. While Mr Crothers gave evidence that he was a non-executive director and 20% shareholder of AFPL, no allegations are made against Mr Crothers in the Revised List of Issues. Instead, it is alleged that Mr Elliott was the "directing mind and will of AFPL" and that all references to the conduct and state of mind of AFPL in the Revised List of Issues are references to the conduct and state of mind of Mr Elliott, unless the context otherwise requires (paragraph 4 of Annexure A to the Revised List of Issues). (c) In Banksia, it is alleged that the work done by Mr Bolitho's legal team was minimal and that his legal team conducting their case by relying on the evidence and work done by other parties (being the Special Purpose Receiver). We have not seen evidence to suggest that was the case in this proceeding. 2 The issue of whether Mr O'Bryan, Mr Symons and Elliott Legal were on a "no win no fee" arrangement in this proceeding was not of any substantial consequence in terms of Mr White's assessment of the "reasonableness" of the plaintiff's costs in this proceeding. Mr White found that Mr Symons had never entered into a fee agreement with Elliott Legal and further found that none of the fee agreements of Mr O'Bryan and Elliott Legal in this proceeding were valid. Accordingly, Mr White undertook his assessment as to the reasonableness of the amounts claimed by Mr O'Bryan, Mr Symons and Elliott Legal without reliance on the fee agreements. Further, Mr White has informed us that the opinion contained in his report would not have changed had he known that Mr O'Bryan, Mr Symons and Elliott Legal were in fact operating on a "no win no fee" basis. Mr White has approved the content of this paragraph. 3 While the issue of whether Mr O'Bryan SC and Mr Symons were on a "no win no fee" arrangement in this case was relevant to the level of risk assumed by the funder in this case, and therefore the appropriate rate of funding commission, the question of whether counsel were on a "no win no fee" arrangement was ultimately not of any substantive consequence as the evidence showed (and the Court found) that due to the first costs agreement, up until 30 May 2019 (being "the great majority of the time that the litigation was on foot"), the Plaintiff – and therefore the Funder – had no legal obligation to pay counsel's fees unless there was a successful result in the proceeding regardless of what the terms of counsel's retainer by Elliott Legal may have been (Judgment at [139] and [140]). Further, the Court found that, by reason of the fact that the "great bulk" of counsel's fees were not invoiced until this proceeding had either settled, or settlement was imminent, the "Funder had no legal obligation to pay those disbursements until the case no longer carried any risk" (Judgment at 139(b)]. On that basis the Court assessed the funders risk as "lower than his submissions sought to portray" and accepted the Contradictors submissions as to the appropriate commission rate. 4 We have made contact with Mr Richard Earle, the Administrator of the Settlement Distribution Scheme, and he has informed us that all amounts payable to the funder for legal costs and funding commission were paid on 11 June 2020. We are informed that the Administrator still holds $23,659,109.58 in settlement proceeds to be distributed to group members. For these reasons, the Contradictor does not seek to make any further application at this time. 24 The Contradictor was appointed by the Court to represent class members' interests and to assist the Court to discharge its function under s 33V in relation to the reasonableness of the legal costs and proposed litigation funding charges. It is appropriate to give weight to the Contradictor's submissions and, as I have said, I found the submissions cogent. Essentially for the reasons articulated by the Contradictor I do not consider it to be necessary or appropriate, at present, to make any order or to take further any step on the Court's own motion. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy. Associate: Dated: 29 September 2020 SCHEDULE OF PARTIES VID 508 of 2017 Defendants Fourth Defendant: GARY HELOU Fifth Defendant: KENNETH W JONES Sixth Defendant: NATALIE AKERS Seventh Defendant: WILLIAM T BODMAN Eighth Defendant: PETER J O HAWKINS Ninth Defendant: MICHAEL F IHLEIN Tenth Defendant: EDWIN DUNCAN MORRIS Eleventh Defendant: GRAHAM N MUNZEL Twelfth Defendant: JOHN P PYE Thirteenth Defendant: MARTIN J VAN DE WOUW