Federal Court of Australia Sai v GEA Lawyers Pty Ltd [2020] FCA 1896 File numbers: NSD 2171 of 2019 NSD 244 of 2020 NSD 245 of 2020 Judgment of: LEE J Date of judgment: 13 May 2020 Catchwords: REPRESENTATIVE PROCEEDINGS – settlement approval – s 33V(1) of Federal Court of Australia Act 1976 (Cth) – settlement distribution scheme – where confidentiality order sought as to terms of settlement – application allowed Legislation: Federal Court of Australia Act 1976 (Cth) Pt IVA; ss 33V, 37AG, 37AG(1) Cases cited: Adams v Navra Group Pty Ltd [2019] FCA 1157 Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 17 Date of hearing: 14 May 2020 Counsel for the Applicants: Ms B Tronson with Ms A Cameron Solicitor for the Applicants: William Roberts Lawyers Counsel for the Respondents: Mr J Hutton Solicitor for the Respondents: Gilchrist Connell ORDERS NSD 2171 of 2019 BETWEEN: MIZUKI SAI Applicant AND: GEA LAWYERS PTY LTD (ACN 169 919 724) First Respondent MS JIA HONG ZOU Second Respondent NSD 244 of 2020 BETWEEN: XIA ZHAO Applicant AND: DLZ LAWYERS PTY LTD (ACN 159 300 017) First Respondent LIN ZHANG Second Respondent NSD 245 of 2020 BETWEEN: JIANYU HUANG Applicant AND: DILIGENCE LAWYERS & MIGRATION AGENTS PTY LTD (ACN 602 310 592) First Respondent REN HAI JIANG Second Respondent order made by: LEE J DATE OF ORDER: 14 MAY 2020 THE COURT ORDERS THAT: 1. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act), order that the settlement of the proceeding on the terms set out in the Deed of Settlement signed by or on behalf of all parties to the proceeding and dated 7 May 2020 (Deed) and the Settlement Distribution Scheme referred to in clause 5 the Deed be approved. 2. Pursuant to s 33ZF of the Act, the applicant is authorised nunc pro tunc, on behalf of the group members, to enter into and give effect to the Deed and conduct the transactions and take the steps contemplated by the Deed for and on behalf of the group members. 3. Pursuant to s 33ZB(a) of the Act, order that the persons affected and bound by these orders are the Parties to the Deed and group members. 4. Pursuant to s 33ZF of the Act, order that William Roberts Lawyers be appointed the administrator of the settlement distribution scheme referred to in clause 5 the Deed. 5. Until further order, pursuant to s 37AF and 37AG(1) of the Act, on the ground that it is necessary to prevent prejudice to the proper administration of justice, order that the publication or other disclosure (other than to the parties or group members) of the following information be prohibited: (a) the numerical figure in clause 1.3 of the Heads of Agreement entered into on 21 April 2020; and (b) the definition of "Settlement Sum" in the Deed. 6. Until further order, pursuant to s 37AF and 37AG(1) of the Act, on the ground that it is necessary to prevent prejudice to the proper administration of justice, order that the publication or other disclosure (other than to the applicant or group members) of the following information be prohibited: (a) the confidential opinion dated 12 May 2020; and (b) in respect of the Settlement Distribution Scheme referred to in clause 5 of the Deed: (i) the definition of "Loss Assessment Formula" on page 3, except the words "Loss Assessment Formula means" and the words "This proportion is shown in the table at Schedule A"; and (ii) the information in the column entitled "Proportion of Claim Amount over Total Claim Amount" in Schedule A on pages 7 and 8. 7. Order that the proceeding be dismissed with no order as to costs and with all costs orders made in the proceeding vacated with effect from the date on which William Roberts Lawyers notifies the Court by email to the Associate to Lee J of the completion of the distribution of the settlement sum to the applicant and group members. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Delivered ex tempore, revised from the transcript) LEE J: 1 Before the Court is an application seeking the approval of a settlement distribution scheme pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act) relating to three class actions proceedings, being: (1) Sai v GEA Lawyers Pty Ltd & Anor NSD 2171 of 2019 (GEA Proceeding); (2) Zhao v DLZ Lawyers Pty Ltd & Anor NSD 244 of 2020 (DLZ Proceeding); and (3) Huang v Diligence Lawyers & Migration Agents Proprietary Limited & Anor NSD 245 of 2020 (Diligence Proceeding). 2 The settlement approval application is unusual. Each proceeding is a small, closed-group class action. Each of the applicants and group members in each of the proceedings participated in the decision-making that led to the settlement reached at the mediation held on 21 April 2020, either: participating directly in the mediation itself; or engaging in pre-mediation discussions, receiving advice about their prospects, strategies and acceptable outcomes, and then providing decision-making authority to those directly participating in the mediation. 3 Further, following advice received from their solicitors, all group members have expressly agreed to be bound by the terms of the proposed deed of settlement. As such, this is an unusual case more akin to the resolution of inter partes proceeding. In any event, it is not a case where there is any prospect of there being any absent group members who have not given specific instructions after being informed of the nature of the settlement. 4 Despite this singular set of circumstances, it remains a class action and its settlement still requires approval. Section 33V of the Act provides: 33V Settlement and discontinuance—representative proceeding (1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court. 5 The world does not need yet another judgment setting out the principles that inform applications under s 33V of the Act. The principles are very well established: see, e.g., Adams v Navra Group Pty Ltd [2019] FCA 1157 (at [19] per Murphy J). 6 After having reviewed the joint opinion on settlement provided by the parties on 12 May 2022, I have no doubt that the settlement falls within the range of settlements that could be described as fair and reasonable and in the interests of group members as a whole. 7 Although minds may differ about what would be an optimal figure within that range, to engage in such an exercise would be a distraction from the reality of the task in which I am engaged; that is, assessing whether the settlement is fair and reasonable. Even if the applicants and ground members were successful on their primary liability allegations, there are, for the reasons explained in the joint opinion on settlement, not insubstantial complications involved in quantifying the amount that would be payable pursuant to any judgment in their favour. 8 The only matter that remains controversial on the settlement is whether an order should be made in the following terms: Until further order, pursuant to s 37AF and 37AG(1) of the Act, on the ground that it is necessary to prevent prejudice to the proper administration of justice, order that the publication or other disclosure (other than to the applicant or group members) of the following information be prohibited: a. the confidential opinion dated 12 May 2020; and b. the terms of the Settlement Distribution Scheme referred to in clause 5 the Deed. 9 I am not satisfied that such an order should be made in those terms, but, contrary to my preliminary view, I do think this is a special case where some form of confidentiality order is appropriate. 10 Section 3AG of the Act provides: 37AG Grounds for making an order (1) The Court may make a suppression order or non-publication order on one or more of the following grounds: (a) the order is necessary to prevent prejudice to the proper administration of justice; (b) the order is necessary to prevent prejudice to the interests of the Commonwealth or a State or Territory in relation to national or international security; (c) the order is necessary to protect the safety of any person; (d) the order is necessary to avoid causing undue distress or embarrassment to a party to or witness in a criminal proceeding involving an offence of a sexual nature (including an act of indecency). (2) A suppression order or non-publication order must specify the ground or grounds on which the order is made. 11 My view is that confidentiality orders have been made far too readily in representative proceedings with insufficient attention being given to the primary objective of the administration of justice, which is to safeguard the public interest in open justice, and the requirement to give full effect to the word "necessary": s 37AG(1)(a) of the Act. 12 In Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 (at [102]–[120]), I said: 102 The Court has recently observed a trend in Part IVA approval hearings for wide-ranging confidentiality orders to be sought. That trend should be discouraged. In Caason Investments v Cao (No 2) at [8], Murphy J noted that the applicants before him had made "blanket claims of confidentiality and sought blanket confidentiality or non-publication orders". His Honour went on to note at [8]-[9]: It is wrong to assume that confidentiality or non-publication orders will be routinely or automatically made. Part VAA of the Act provides that the starting point for consideration of such orders, and it is mandatory under s 37AE for the Court to take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice. The Court must be satisfied that the order is necessary "to prevent prejudice to the proper administration of justice" (s 37AG(1)(a)), and "necessary" is a "strong word": Hogan v Australian Crime Commission (2010) 240 CLR 651; [2010] HCA 21 at [30]. There is a basis for treating some of the applicants' material as confidential (at least until settlement approval orders made) but the application for confidentiality orders was far too broad and wasted the time of the parties and the Court. There is a public interest in not making overly broad confidentiality orders in approving settlements in class actions, particularly the interests of class members in having a proper understanding of a settlement which affects their interests. 103 I made similar observations in Dillon v RBS Group (Australia) Pty Limited (No 2) [2018] FCA 395 at [79] and [Lifeplan Australia Friendly Society Limited v S&P Global Inc (Formerly McGraw-Hill Financial, Inc) (A Company Incorporated in New York) [2018] FCA 379] at [68]. 104 This practice has also not gone unremarked outside the Court. The ALRC in DP 85 (at 127) asked the following question: Question 7-2 In the interests of transparency and open justice, should the terms of class action settlements be made public? If so, what, if any, limits on the disclosure should be permitted to protect the interests of the parties? 105 In answering this question, the ALRC made reference to the fact that in civil litigation, protecting the terms of settlement under the veil of confidentiality often has some value to one or more parties and can "incentivise settlements". The ALRC recognised, however, that class action settlements are different from other settlements, principally because the law requires the Court to approve any settlement. That approval is designed to protect the interests of class members who have not been active participants. Moreover, court orders and judgments are ordinarily public, reflecting the fundamental notion that the Court is an arm of government and that "the primary objective of the administration of justice is to safeguard the public interest in open justice": see s 37AE of the FCAA. 106 In the article to which I have made reference above, (Legg, M, Class Action Settlements in Australia) Professor Legg observes as follows (at 619): Class actions also frequently perform a public function by being employed to vindicate broader statutory policies such as disclosure to the securities market, prohibiting cartels or fostering safe pharmaceuticals. Class actions are not simply disputes between private parties about private rights. A reasoned judgment is necessary to protect absent group members and to provide the community with confidence as to the operation of class actions and the underlying laws that are the subject of the proceedings. (Footnotes omitted) 107 I agree with these observations. These are not just private bargains between parties resolving the disputes between them. The settlement of a class action has an important public dimension. Not only is it appropriate that the community have access to relevant information about the operation of class actions and how public resources are being used by private commercial enterprises but also, as Professor Legg explains, there is a legitimate interest in the community having access to information as to the operation of the "underlying laws" relevant to the present cases, being the statutory norms prohibiting misleading and deceptive conduct which constituted the primary basis upon which relief was sought in these proceedings. 108 Similarly, the VLRC referred specifically to the issue of the transparency of funding fees. It noted that (at [7.84]-[7.86]): As part of settlement approval, orders may be sought requesting that the legal costs and/or the amount received by the litigation funder remain confidential. Accordingly, most settlement approval judgments do not reveal the funding fee. It is therefore difficult for the court, or any other party, to assess the fees typically charged by litigation funders. As noted by Justice Murphy in Earglow: It is difficult to see why the funding commission rate and quantum should be treated as confidential when the funding commission is a standard cost and in funded class proceedings it is usually the single largest deduction from the settlement. Justice Murphy observed that while class members may be aware of the different funding fee rates in a proceeding, they will have limited insight into the aggregate amount charged. He expressed the view that disclosure would assist the Court in deciding whether the funding fee is fair and reasonable, including by allowing comparison with rates charged in other cases. 109 It should be unnecessary to remark that a confidentiality order is not necessary simply because it may be "convenient, reasonable or sensible"; nor is it sufficient that a confidentiality order may be viewed as serving "some notion of public interest": see Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 at 664 [31]. Mere embarrassment is also not enough: see Australian Competition and Consumer Commission v Air New Zealand Limited (No 12) [2013] FCA 533 at [7]. The regime in Part VAA does not permit some "balancing exercise" pursuant to which the Court weighs competing considerations: see Hogan at 664 [31]. 110 Before the Court makes the confidentiality order pursuant to s 37AF, there must be some material before the court upon which it can reasonably reach the conclusion that it is necessary to make an order prohibiting publication. Mere belief that the order is necessary is insufficient: see John Fairfax & Sons Limited v Police Tribunal (NSW) (1986) 5 NSWLR 465 at 477, applied in Rinehart v Welker [2011] NSWCA 403; (2011) 93 NSWLR 311 at 320 [29]. 111 Importantly, in the circumstances of this case, the mere fact that the parties to the proceeding have agreed between themselves that certain documents are to be kept confidential is not determinative. The dispute transcends those parties as does the binding nature of the settlement. In any event, it is when both sides agree that information should be kept from the public that the Court will be "most vigilant": see R v Legal Aid Board; ex parte Kaim Todner (a firm) [1999] QB 966 at 977. The need for vigilance also arises "from the natural tendency for the general principle to be eroded and for exceptions to grow by accretion as the exceptions are applied by analogy to existing cases". This accretion can be seen by the common sight of class action applicants agreeing to broad confidentiality clauses and then seeking to have the Court give them curial sanction. 112 The first category of documents over which confidentiality was sought was the heads of agreement, deeds and the settlement distribution scheme. There are three reasons suggested as to why the Court should make such confidentiality orders in broad terms. The first is that the parties have agreed between themselves to keep the documents confidential. The second is that the applicants "understand" that the respondent seeks such an order because they are concerned about the precedent which may be set if the settlement sum is publicly disclosed. The third is that other Judges in previous s 33V hearings have ordered that the terms of settlement, including the settlement sum, be kept confidential. None of these reasons have substance. 113 The agreement between the parties, as I have explained, may be relevant but not determinative. The concern of S&P about the precedent which may be set if the settlement sum is publicly disclosed, does not establish necessity. The third reason is based, in my view, on a false premise. The practice said to exist is far from uniform, and there are a number of cases where the total value of the settlement sum has been referred to in judgments approving settlements pursuant to s 33V: see, for example, Clarke v Sandhurst Trustees Limited (No 2) [2018] FCA 511 at [2]; Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030 at [9]; Earglow at [2]; Caason at [3]; HFPS Pty Limited (Trustee) v Tamaya Resources Limited (in liq) (No 3) [2017] FCA 650 at [50]; Mitic v OZ Minerals Limited (No 2) [2017] FCA 409 at [21]; Modtech Engineering Ply Ltd v GPT Management Holdings Limited [2013] FCA 626 at [5]. 114 Moreover, it appears that in those cases where very broad confidentiality orders have been made, there have not been contradictors, with the Court only receiving submissions from persons who have an interest in the confidentiality orders being made and apparently without any assistance being given to the Court as to the requirement to demonstrate necessity for the purpose of a confidentiality order pursuant to s 37AF. 115 The second category of documents over which confidentiality is sought consists of a series of affidavits concerning costs and the calculation of the settlement sum. Some of these orders, at least as initially sought, were wholly excessive. For example, confidentiality orders were sought over funding agreements and engagement letters, the approach adopted to incurring legal costs, and also to the total legal costs incurred. 116 The submissions by the applicants, at least initially, rested upon the premise that this material is "private" or "not normally disclosed in litigation". There are two things to say about this. First, current practice in this regard is sufficiently uneven so that to describe any approach as normal is an over-generalisation. Secondly, and more importantly, the argument is insufficient to engage the operation of s 37AG(1)(a) of the FCAA. Indeed, a number of the applicants' submissions effectively reverse the onus by asserting that public disclosure of the information "is not necessary in order to enable the group members to assess the reasonableness of the settlement". Many submissions proceeded on the misconceived basis that the burden rested on the party resisting the confidentiality order, as demonstrating that non-disclosure is necessary for the proper administration of justice. 117 The only substantive points advanced in defence of a confidentiality order being made over the total sum of the settlement were made, with some force, by Mr Hewitt on behalf of S&P. He contended that there was an important public interest in encouraging the settlement of litigation (although he made it clear that S&P understood that irrespective of the terms of the contractual obligations of confidentiality, it was ultimately for the Court to be satisfied of the statutory test). Mr Hewitt submitted that settlement of Part IVA cases is more likely to occur when the parties have confidence the Court will protect the confidentiality of any settlement deal. Mr Hewitt also pointed to the fact that, at least on one view, it could be argued that limitation periods for the deceit claims advanced in the Trial Proceedings may not yet have expired and it would be contrary to the administration of justice for the sum paid to resolve these proceedings to be disclosed in circumstances where there was at least a possibility (however remote) of further litigation. 118 I was persuaded to accept a version of this latter submission in the Lifeplan proceeding. That was, however, a very different set of circumstances. At that time, I was persuaded to make confidentiality orders because pending in the Court and listed for determination were proceedings where the disclosure of information on an open basis may have occasioned a considerable disadvantage to S&P, particularly in the context of ongoing settlement discussions. In that sense, it seemed to me that it was necessary for confidentiality orders to be made in relation to that earlier settlement. The situation is qualitatively different in circumstances where there is now only a mere theoretical possibility of further proceedings. 119 More fundamentally, these matters, notwithstanding their relevance in assessing necessity, are outweighed by countervailing considerations. They are important considerations but, as I have explained, do not operate so as to outweigh the countervailing consideration, being the public nature of this type of litigation which transcends the rights of the parties. 120 Moreover, it seems to me necessary that I fully explain my decision to approve the settlement, notwithstanding the unusual size of the funder's fee. This is not only an important matter which was the subject of contention on the applications, but raises real issues of public policy including matters which are the subject of intense ongoing policy debate. The Court is a public resource, and the fact that very significant funds are being paid to a third party for funding litigation and using the Court's processes is a matter which, in my view, brings into sharp focus the need for me to give primacy to the objective of the administration of justice which is to safeguard the public interest in open justice. Accordingly, apart from the material which is properly the subject of claims for legal professional privilege, I am not persuaded within the meaning of s 37AG(1)(a), that any of the orders sought, other than those relating to the joint opinion given by counsel, are necessary to make in order to prevent prejudice to the proper administration of justice. The high standard for the section is not met, notwithstanding that it may not be convenient for one or other of the parties or the funder for the information to be disclosed. 13 Although the considerations that I referred to in Lifeplan, including the primary objective of the administration of justice, apply in full force in the present circumstances, there are two matters that tip the balance in favour of making some form of confidentiality order. While it is inappropriate to go into the details, it is necessary to outline these matters briefly. 14 With regards to the first matter, counsel for the respondent made the point that by reason of the substratum of facts out of which these proceedings emerge, there is a real prospect of further litigation; although, as counsel fairly indicated, no such litigation has yet been commenced. This was an issue that did arise in the Lifeplan proceeding, as outlined above (at [9]), however the issue was far more acute in that case because there was already an extant proceeding on foot. 15 The second matter is the fact that each of the group members and the respondents has, as part of their contractual bargain, agreed to keep the settlement sum confidential. This is not a case where there are any absent group members. Although I find it difficult to conceive of circumstances where it would be appropriate for there to be confidentiality orders made in an open class action under Pt IVA of the Act, these class actions are at the other end of the spectrum of representative proceedings being, as noted above, a very small class, each of whom has retained solicitors and obtained specific advice concerning the settlement. It would, for example, have been possible for an order to have been made declassing the proceedings and for these cases to have proceeded as individual cases and settled without Court approval. 16 For these reasons, and notwithstanding my instinctive reluctance to make such orders, I do think it is appropriate that a confidentiality order be made in the circumstances, although it should be made in a way that is calibrated to ensure that the minimum material is redacted. Accordingly, I will require the solicitors for the applicants to send through a revised form of orders amending order 6 of the proposed orders to take account of the fact that all aspects of the settlement distribution scheme, other than the percentage of distribution to individual group members and the sums, should not be the subject of the confidentiality order. 17 Otherwise, I am satisfied that orders should be made in the form proposed in the short minutes of order. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee. Associate: Dated: 13 May 2022