5 Boroughs NY Pty Ltd v State of Victoria (No 5)
[2023] VSC 682
•23 November 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
GROUP PROCEEDINGS LIST
S ECI 2020 03402
| 5 BOROUGHS NY PTY LTD (ACN 632 508 304) | Plaintiff |
| v | |
| STATE OF VICTORIA & ORS | Defendants |
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JUDGE: | KEOGH J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 October 2023 |
DATE OF RULING: | 23 November 2023 |
CASE MAY BE CITED AS: | 5 Boroughs NY Pty Ltd v State of Victoria (No 5) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 682 |
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GROUP PROCEEDINGS — Costs — Application for a group costs order — Whether order sought appropriate or necessary — Principles to be applied — Supreme Court Act 1986, s 33ZDA — Fox v Westpac; Crawford v ANZ [2021] VSC 573 — Allen v G8 Education Ltd [2022] VSC 32 — Application granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | A Hochroth with H Whitwell | Quinn Emanuel Urquhart & Sullivan |
| For the Defendants | R Doyle SC, K Loxley & R Amamoo | MinterEllison & Herbert Smith Freehills |
HIS HONOUR:
The plaintiff, 5 Boroughs NY Pty Ltd (‘5 Boroughs’) brings this group proceeding on behalf of retail businesses that suffered economic loss because for some months in late 2020 they were prohibited or restricted by directions under s 200 of the Public Health and Wellbeing Act 2008 (Vic) (‘PHW Act’) from supplying goods and services to members of the public from premises physically located within Victoria from which they operated. 5 Boroughs alleges that the PHWAct directions were the result of COVID-19 transmission events at two hotel quarantine sites that were caused by the negligent failure of the second to fifth defendants to implement effective infection prevention and control measures at the sites.
5 Boroughs seeks a group costs order (‘GCO’) under s 33ZDA of the Supreme Court Act 1986 (‘Act’) that:
1.The legal costs payable to the solicitors representing the plaintiff and group members, Quinn Emanuel Urquhart and Sullivan LLP (Quinn Emanuel), be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceeding, that percentage being 30% (inclusive of GST).
2.Liability for payment of the legal costs pursuant to paragraph 1 be shared among the plaintiff and all group members.
The defendants neither consented to nor opposed 5 Boroughs’ GCO application. However, the defendants did make helpful submissions on a number of matters.
For the reasons that follow I have concluded 5 Boroughs’ application should be granted. I have reached that conclusion in part on the basis of an undertaking by the plaintiff that, if a GCO at 30% is ordered, it would not apply under s 33ZDA of the Act to amend the GCO to any greater percentage. That undertaking gives greater assurance for group members that any future amendment of the GCO will not result in a higher percentage being fixed for legal costs.
Evidence
5 Boroughs relies on the following evidence:
(a) Affidavits of Anthony Ferrara, sole director of 5 Boroughs, sworn 27 September 2023 and 2 November 2023.
(b) Affidavits of Damien John Scattini, solicitor for 5 Boroughs, affirmed 29 September and 3 November 2023. Scattini said he has practised as a solicitor in Australia for over 30 years, and has been a partner of law firms continuously since 1993. Throughout his career he has specialised in litigation and dispute resolution, and has conducted representative and group actions on behalf of individuals and businesses since the 1990s. He serves on the Class Actions Committee of the Federal Litigation Section of the Law Council of Australia, and was previously Chair of that organisation’s Consumer Law Committee and Legal Practice Section. Over the past five years he has had carriage of numerous representative proceedings in Australian courts.
(c) Affidavit of Kirk Wolden, director of Regency V Funding Pty Ltd (‘Regency’), affirmed 29 September 2023. Wolden said he is a lawyer with over 30 years’ practice experience as an attorney in the United States of America and as a solicitor in Australia. During his time in practice as a lawyer he worked principally in class actions, product liability cases and mass tort litigation in the United States. Wolden now works for Regency and its owner Dilpa Holdings LLC (‘Dilpa’) in relation to the funding of class actions. Wolden has considerable experience assessing the merits and risks of class actions and deciding whether to provide funding.
(d) Affidavit of Gregory John Houston, economist, affirmed 12 October 2023.
(e) Documents exhibited to the above affidavits.
I made orders preserving the confidentiality of some of the evidence relied on by 5 Boroughs and submissions addressing that evidence. Because of the nature of this material and the risk of prejudice to the plaintiff were it to be made available to the defendants, the parts of my reasoning which reference it are set out in a confidential schedule (‘confidential schedule’). The confidential schedule has only been provided to the plaintiff and has not been published.
Procedural history
5 Boroughs served the writ in this proceeding in August 2020, and a statement of claim in February 2021.
In April 2021 the defendants applied for summary dismissal of the proceeding or to strikeout the statement of claim (‘summary dismissal application’). After a contested hearing, John Dixon J delivered a ruling on 2 December 2021 refusing summary dismissal, striking out the statement of claim and giving 5 Boroughs leave to replead (‘Summary Dismissal Ruling’).[1]
[1]5 Boroughs NY Pty Ltd v State of Victoria; Roberts v State of Victoria [2021] VSC 785 (‘Summary Dismissal Ruling’).
5 Boroughs filed and served a second statement of claim (‘2SOC’) in March 2022 and an amended writ in April 2022. The defendants applied to strike out certain paragraphs of the 2SOC (‘strike out application’). On 26 August 2022, John Dixon J ruled in favour of the defendants on one of three grounds, and otherwise dismissed their application.[2] 5 Boroughs filed and served an amended statement of claim in September 2022, in accordance with the ruling and orders made by John Dixon J.
[2]5 Boroughs NY Pty Ltd v State of Victoria (No 2) [2022] VSC 494 (‘5 Boroughs (No 2)’).
In September 2022, the first defendant applied to stay the proceeding until the criminal prosecution by the Victorian WorkCover Authority (‘VWA prosecution’), concerning the same factual circumstances as this case, is finally determined, withdrawn or discontinued. On 3 February 2023, John Dixon J delivered reasons dismissing the first defendant’s stay application.[3] On 2 May 2023, leave to appeal that ruling was refused by the Court of Appeal.[4]
[3]5 Boroughs NY Pty Ltd v State of Victoria (No 3) [2023] VSC 22.
[4]State of Victoria v 5 Boroughs NY Pty Ltd [2023] VSCA 101.
The fact of the VWA prosecution has impeded the parties from taking some steps in the preparation of this proceeding. The VWA prosecution has been set down for trial in the County Court commencing 6 May 2024, with a trial estimate of six to eight weeks.
5 Boroughs’ application for a GCO was made on 23 June 2023. The procedural history explains why there was some delay in making the GCO application.
Provisions and authorities
The GCO application is made pursuant to s 33ZDA of the Act:
(1)On application by the plaintiff in any group proceeding, the Court, if satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding, may make an order—
(a)that the legal costs payable to the law practice representing the plaintiff and group members be calculated as a percentage of the amount of any award or settlement that may be recovered in the proceeding, being the percentage set out in the order; and
(b)that liability for payment of the legal costs must be shared among the plaintiff and all group members.
(2)If a group costs order is made—
(a)the law practice representing the plaintiff and group members is liable to pay any costs payable to the defendant in the proceeding; and
(b)the law practice representing the plaintiff and group members must give any security for the costs of the defendant in the proceeding that the Court may order the plaintiff to give.
(3)The Court, by order during the course of the proceeding, may amend a group costs order, including, but not limited to, amendment of any percentage ordered under subsection (1)(a).
(4)This section has effect despite anything to the contrary in the Legal Profession Uniform Law (Victoria).
(5) In this section—
group costs order means an order made under subsection (1);
legal costs has the same meaning as in the Legal Profession Uniform Law (Victoria).
The principles relevant to determining a GCO application have been set out by Nichols J in Fox v Westpac; Crawford v ANZ (‘Fox/Crawford’)[5] and Allen v G8 Education Ltd (‘Allen’).[6] I adopt on this application the following summary of principles by Nichols J in Allen:
[5][2021] VSC 573 (‘Fox/Crawford’).
[6][2022] VSC 32 (‘Allen’).
17First, s 33ZDA is a law regulating the calculation of and liability to pay legal costs; more specifically, it is concerned with the liability of the plaintiff and group members to pay the law practice representing them. It addresses and links three things, namely, how legal costs may be calculated when a proceeding is funded as contemplated by s 33ZDA (as a percentage of the award or settlement recovered in the proceeding, as specified in the Court’s order); who shares in the liability for the costs of having brought the proceeding, when a recovery is made (the plaintiff and all group members); and who bears the financial risks of bringing a group proceeding (the law practice representing the plaintiff and group members).
18Second, specifying as it does the criterion for the exercise of power as that the Court may make an order if satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding, s 33ZDA is an example of an open textured legislative provision that ‘leave[s] courts with a large measure of significant unguided discretion in making orders considered to be appropriate to do justice in all the circumstances of a given case’. The provision reflects a legislative intention to confer on the Court the widest possible power to do what is appropriate to achieve justice in the circumstances and is not to be read down by making implications or imposing limitations which are not found in the express words of the provision.
19Third, as a matter of textual analysis, the words necessary and appropriate have separate work to do, although in a given case the result may or may not turn on any differentiation between those expressions. The word ‘necessary’ identifies a connection between the proposed order and an identified purpose as to which the Court must be satisfied before making an order. The exercise of the discretion requires that the Court be satisfied that making an order would be a suitable, fitting or proper way to ensure that justice is done in the proceeding, specifically in relation to the calculation of legal costs payable by the group to the law practice representing it on the conditions set by the statute.
20Fourth, what is required in determining whether to make a GCO is a broad evaluative assessment. In that assessment, the question whether to make an order, and the question what is the rate that ought be set by the order, will be intertwined.
21Fifth, because of its subject matter and its place within Part 4A of the Act, s 33ZDA requires that in exercising the power to grant a Group Costs Order, the Court must be astute to protect the interests of group members. The effect on group members of a proposed order must be a primary consideration in forming the evaluation required by the section.
22Sixth, an order that is appropriate to ensure that justice is done in the proceeding will require fairness and equity, and must not unjustly affect the interests of any party to the proceeding.
23Seventh, the purpose of s 33ZDA may be broadly described in the terms expressed in the second reading of the Bill introducing the provision, namely, to enhance justice by reducing potential barriers to commencing class actions in the Supreme Court of Victoria. Section 33ZDA sits within Part 4A of the Act, which permits and governs the conduct of group proceedings in this Court. The principal object of that Part is enhancing group members’ access to justice.
24Eighth, in the context of the broad evaluative assessment of the relevant facts in evidence before the court, the question of price, or the costs that group members are likely to pay under a proposed GCO, is a relevant consideration, but not the only consideration. Its significance will depend on the facts and evidence relevant on the particular case in question.
25Ninth, and relatedly, whether group members are likely better off under a proposed GCO than under another funding arrangement is not a general proxy for the statutory test. In Fox/Crawford, I rejected the proposition that a court must approach s 33ZDA by first identifying the relevant counterfactual funding scenario and then by determining whether the proposed GCO was proved to be more advantageous to group members than the counterfactual funding. As I said in Fox/Crawford:
To read the statutory test in that way is to read it down by implying into it conditions not present in the text. The statute requires that a Group Costs Order be appropriate or necessary to ensure that justice is done in the proceeding, but the statutory text, read in its context, does not require or suggest that a GCO is intended to be available only as a funding model of last resort. It does not require or suggest that a Group Costs Order may be awarded only if it can be positively proved that it would deliver a better financial outcome to group members than some other funding model. Whether or not that comparative assessment is a relevant consideration will vary from case to case. A comparative analysis may be relevant on the facts of a particular case. … construing the statute in that way is not a purposive reading. Reading into s 33ZDA a general threshold requirement to construct hypothetical counterfactual funding scenarios that the plaintiffs do not intend to take up, against which plaintiffs must positively prove that their proposed Group Costs Order compares favourably, would read into the statute conditions that do not sit comfortably with its overarching purpose of facilitating access to justice by securing the funding of group proceedings.
26Tenth (and also relatedly) outcomes-focused analysis which employs predictive modelling to demonstrate that a Group Costs Order can be expected to provide a better financial outcome to group members than another funding model may not be a particularly apposite touchstone for the question whether a Group Costs Order is appropriate or necessary to ensure that justice is done in the proceeding, particularly when the question is asked at an early stage in the proceeding. It is significant in this context that s 33ZDA is intended to be capable of operation at an early stage in the proceeding. That is not to say that an outcomes based analysis may not inform the statutory question.
27Eleventh, s 33ZDA should not be construed as embodying threshold requirements not present in its legislative text, especially when those requirements would make it harder, not easier, for plaintiffs and group members to conduct representative proceedings.
28Twelfth, by incorporating the elements it does, s 33ZDA implicitly permits the linking of risk and reward in the calculation of fees. It follows from the text that the calculation of legal costs in the manner permitted by s 33ZDA may properly take into account not only the value of legal services performed but the assumption of financial risk by the law practice.
29Thirteenth, considerations of proportionality and reasonableness are not substitutes for the statutory test, but will assist in answering the statutory question when it comes to setting a percentage rate.
30Fourteenth, it is significant that s 33ZDA contains a power to amend a Group Costs Order. That power, in s 33ZDA(3), is generally expressed. The time at which a Court might amend an order and the basis for doing so are not constrained by the statute, but an obvious use of the provision would be the adjustment of the percentage specified in an order, at the time of the settlement of the proceeding, having regard to the recovery achieved by the plaintiff, among other relevant considerations.[7]
[7]Ibid (citations omitted) (emphasis added).
5 Boroughs’ pleaded case
This proceeding concerns the COVID-19 pandemic, and measures taken in Victoria responding to the pandemic and in particular the ‘second wave’ of community infections and the responding lockdown that occurred in Victoria between July and October 2020. 5 Boroughs alleges:
(a) Establishment of a body or forum called ‘National Cabinet’ in March 2020, and a requirement agreed by National Cabinet that returned travellers to Australia isolate for 14 days in designated facilities determined by each State or Territory government.
(b) Implementation of that agreement in Victoria by the exercise of powers conferred in ss 199 and 200 of the PHW Act so that returned travellers were detained in quarantine hotels for the specified period.
(c) Returned travellers quarantining at two hotels carried the SARS-CoV-2 virus that resulted in the second wave of infections in the Victorian community commencing in about June 2020.
(d) The second wave of infection resulted in the Stage 3 and Stage 4 restrictions being imposed in Victoria between July and October 2020 (‘Stage 3 and 4 restrictions’).
Group members are persons who were carrying on retail businesses in Victoria who suffered economic loss because they were prohibited from or restricted in operating those businesses by directions given pursuant to s 200 of the PHW Act that imposed the Stage 3 and 4 restrictions.
5 Boroughs brings a case in negligence against the second to fifth defendants, being the persons who formerly held the titles of Minister for Health, Minister for Jobs, Secretary of the Department of Health and Human Services, and Secretary of the Department of Jobs, Precincts and Regions (‘natural person defendants’).
5 Boroughs alleges, in summary, that:
(a) Each of the natural person defendants owed it and group members a common law duty to take reasonable care in the implementation of infection prevention and control measures at quarantine hotels to avoid foreseeable economic loss to them;
(b) That duty required each of the natural person defendants to:
(i) ask their department whether it had obtained advice from an expert in infection prevention and control on the risk of transmission of the SARS-CoV-2 virus from returned travellers to workers at quarantine hotels and on measures required to minimise the risk;
(ii) if the department had obtained the advice, to ask whether it had been implemented; and
(iii) to the extent that their department had not taken those steps, procure that it did.
(c) Each of the natural person defendants breached the duty of care by failing to take the steps in sub-paragraph (b) in relation to the hotels from which the second wave infections originated;
(d) The negligence of each of the natural person defendants:
(i) was a necessary condition of the economic loss suffered by group members resulting from the Stage 3 and 4 restrictions within the meaning of s 51(1)(a) of the Wrongs Act 1958 (Vic) (‘Wrongs Act’);
(ii) alternatively, should be taken to have caused that loss pursuant to s 51(2) of the Wrongs Act in accordance with the principles identified in Fairchild v Glenhaven Funeral Services Ltd[8] or Bonnington Castings Ltd v Wardlaw.[9]
[8](2003) 1 AC 32.
[9](1956) AC 613.
5 Boroughs alleges the first defendant is vicariously liable for the negligence of the natural person defendants pursuant to s 23(1)(b) of the Crown Proceedings Act 1958 (Vic).
The rulings in the summary dismissal application[10] and strikeout application[11] demonstrate that the claim brought by 5 Boroughs is complex and difficult, and will be strongly defended. The focus of that defence will include duty, breach and causation.
[10]Summary Dismissal Ruling (n 1).
[11]5 Boroughs (No 2) (n 2).
The duty of care alleged by 5 Boroughs against the natural person defendants is novel. On the strike out application the defendants contested the existence of the duty contended for by 5 Boroughs on grounds including that decisions made by them establishing the hotel quarantine program were part of the policy-making functions of government and are not justiciable in negligence; incoherence between the alleged duty and other obligations or responsibilities of the defendants; and indeterminacy in the context of a claim for pure economic loss.
Factual contests at trial in relation to the alleged breach of duty will likely include whether infection prevention and control measures at the quarantine hotels were inadequate, and the role and responsibility of the natural person defendants to the extent any measures are found to be inadequate. Breach is viewed prospectively, and it may be relevant that the events which are the subject of the proceeding occurred early in the period of the pandemic when, it might be concluded, knowledge of and responses to risk were evolving.
5 Boroughs alleges that transmission of the SARS-CoV-2 virus from returned travellers at the two quarantine hotels led to an increase in daily COVID-19 cases in the community and the reintroduction of restrictions under the PHW Act from 1 July 2020. The defendants argued on the summary dismissal application that the exercise of statutory power under s 200 of the PHW Act broke the chain of causation between any transmission of infection that occurred at the quarantine hotels and the impact on group members. The defendants challenged causation on the basis that 5 Boroughs would not be able to establish that but for the alleged breaches:
(a) there would not have been an outbreak of COVID-19 from the quarantine hotels;
(b) there would not have been a second wave of infections in the community; and
(c) that the Stage 3 and 4 restrictions would not have been imposed.
Further, the defendants argued this is not an appropriate case for extending the scope of liability in accordance with ss 51(1)(b) and (2) of the Wrongs Act.
John Dixon J determined on the summary dismissal application that the defendants had not established that 5 Borough’s case on duty or causation was fanciful. His Honour concluded, in relation to the first and second causation grounds:
Just as I considered that the policy/operational dichotomy would be best evaluated by reference to evidence, I have come to a like conclusion on the question of coherence. The defendants presented powerful arguments that the posited duty if imposed would produce incoherence in the law. However, the assumptions underlying the implications of imposing the posited duty on the conduct of decision makers, in the counterfactual of prudent discharge of that duty, cannot presently be satisfactorily resolved absent a factual inquiry. There is a level at which these two salient features interact.[12]
[12]Summary Dismissal Ruling (n 1) [121].
John Dixon J said, in relation to factual causation:
Taking the plaintiff’s pleadings at their highest, its case involves the following links in a causal chain:
(a)The impugned conduct: failure to meet a certain standard of supervision, training, auditing and use of PPE (infection control measures);
(b)This conduct caused a ‘transmission event’, whereby returning travellers at two hotels transmitted COVID-19 to staff at the hotels;
(c)Family/close contacts of infected staff became infected through contact and spread the virus further causing an outbreak in the community – the ‘second wave’;
(d)The second wave caused authorised officers to exercise statutory Public Health Act powers to quell the spread of the virus;
(e)Those authorised officers imposed stage 3 and 4 restrictions;
(f)The restrictions caused the plaintiff and group members economic loss.
…
It is not presently to the point that one or more of the links in the causation pleading, for example, the link between the negligent conduct (a) and the transmission event (b) is contestable. I have not been persuaded that the causation chain is fanciful, with no real prospect of being proved. While lockdown could have been imposed for various reasons, it was actually imposed because of the second wave, which the plaintiff pleads was comprised of strains of COVID-19 that originated only from outbreaks at the Stamford and Rydges hotels. It is a question for evidence at trial whether link (e) would still have occurred absent the pleaded negligent conduct, in which case it would not be a necessary condition.[13]
[13]Ibid [173], [176].
As to the scope of liability, his Honour said:
In the present case, assuming negligent conduct causing an outbreak from hotel quarantine, it cannot be that such conduct must be merely an antecedent condition and not a cause of the plaintiff’s loss. The stage 3 and 4 restrictions and hotel quarantine are closely connected, and not just as a matter of common sense. They form part of a comprehensive public health strategy to prevent the spread of COVID-19. If quarantine is breached, contact tracing and social isolation measures form the next barriers. Lockdown is a policy response to assist the containment strategy at many different levels of that public health strategy. To what extent the two are connected remains to be established on the evidence. The court, in all the circumstances, may ultimately make a value judgment that it would be unfair or inappropriate to hold the defendants ‘legally responsible for an injury which, though it could be traced back to the defendant’s wrongful conduct, was the immediate result of’ the exercise of an independent statutory discretion.
…
Whether it would be incongruous to recognise a duty to prevent economic loss to the plaintiff and group members, and not to recognise a like duty owed to members of the public generally to prevent them from suffering physical injury in contracting the virus, or whether in fact there could also be a duty in both cases, and the implications for causation issues, are not issues I need now decide. It is not part of the alleged causal chain.[14]
[14]Ibid [185], [188].
Finally, John Dixon J said, in relation to s 51(2) of the Wrongs Act:
Assessing whether this is an ‘appropriate case’ in terms of s 51(2) is not something that can be done in a vacuum. It will be a value judgment in the light of the relevant evidence and all the circumstances of the case. It is not a basis to summarily dismiss the plaintiff’s action, but it lends further weight to the defendants’ contention that the statement of claim must be more comprehensively pleaded.[15]
[15]Ibid [211].
The above paragraphs of the Summary Dismissal Ruling are included here to give some indication of the novel, complex and difficult issues that remain to be determined at trial. The complexity of the claim advanced by 5 Boroughs is amply demonstrated by the reasons of John Dixon J.[16]
[16]Ibid.
I also rely on Scattini’s high level assessment of the risks and prospects of the claim brought by 5 Boroughs as set out in the confidential schedule.
Current funding arrangements
5 Boroughs entered a costs agreement with Quinn Emanuel Urquhart & Sullivan (‘Quinn Emanuel’) on 21 August 2020 (‘costs agreement’).
A litigation budget estimating Quinn Emanuel’s legal and disbursement costs for the proceeding is annexed to the agreement. In the budget legal costs were calculated at an hourly rate for work performed.
The costs agreement provides that 5 Boroughs will not be liable for costs incurred in the conduct of the claim in the event the proceeding is ultimately unsuccessful.
The agreement provides, in relation to a GCO:
5.1On your instructions, we will apply to the Court (as soon as practicable after filing), to seek a “Group Costs Order”. In making a Group Costs Order, we will be asking the Court make an order in the following terms:
a.Quinn Emanuel’s Legal & Disbursement Costs be a percentage of the amount recovered in the Proceeding;
b.liability for those Legal & Disbursement Costs be shared by you, as the Plaintiff and Group Members.
5.2In the event of a successful settlement, or judgment award, the Court will ultimately determine whether a Group Costs Order is appropriate in the circumstances, and if so, whether the percentage sought by Quinn Emanuel is reasonable.
5.3In the event the Court does not make a Group Costs Order, our ordinary rates will apply (see above at paragraph 4.3). This means that if there is a successful settlement, or judgment award, Quinn Emanuel will be entitled to recover its incurred Legal and Disbursement Costs from any settlement amount.
5.4At no stage will you, as the Claimant be subject to any out of pocket costs in respect of your Engagement with us, or the conduct of the Proceeding.
The costs agreement contemplates that if a GCO is unsuccessful Quinn Emanuel will continue to act on a no win no fee basis.
In August 2020 Wolden proposed to Quinn Emanuel on behalf of Dilpa that Regency would:
(a)fund all disbursements incurred in the course of prosecuting the claim;
(b)provide funding for, or procure the provision of, any required Security for Costs ordered in the proceeding; and
(c)undertake to Quinn Emanuel to indemnify the plaintiff against any adverse costs orders.
(collectively, Claim Costs).
The offer contemplated that Quinn Emanuel, instructed by the plaintiff, would seek a GCO for legal costs to be calculated as a percentage of any award or settlement in the proceeding. The remuneration to Quinn Emanuel and Regency from the GCO was intended to be commensurate with the actual capital invested and the respective exposure to risk. In the same month Quinn Emanuel entered a litigation collaboration agreement and a financing commitment agreement with Regency (together, ‘financing agreements’).
The financing commitment agreement, in which Regency is the financier and Quinn Emanuel the lawyers, directly concerns this proceeding. The introduction to the agreement includes:
E.Upon the Court’s approval of any proposed Scheme of Distribution, it is the intended that the Financier will first recover all Claim Costs, and that the Lawyers and the Financier will then share the percentage of the Proceeds of the Claim payable to the Lawyers by way of the approved Group Costs Order, as provided for in this Agreement.
Relevant terms are defined in the financing commitment agreement:
Adverse Costs Orders means any costs order made in favour of a Defendant against the Claimants in the Proceedings in respect of any costs of the Defendant incurred during the term of this Agreement, such costs having been incurred not in breach of this Agreement or the Litigation Portfolio Collaboration Agreement.
Claim Costs means the Disbursement Costs, Security for Costs and Adverse Costs Orders.
Disbursement Costs means the costs reasonably incurred by the Lawyers with third parties for the sole purpose of preparing for (including the Investigation Work), prosecuting and/or resolving the Claims and/or the Proceedings (including applicable GST), including:
a.the fees and expenses of barristers retained by the Lawyers relevant to the Claims and the Proceedings (including the Investigation Work);
b.Court filing fees and all other Court fees relevant to the Claims and the Proceedings;
c.the fees and expenses of experts retained by the Lawyers relevant to the Claims and the Proceedings;
d.witnesses’ fees and expenses relevant to the Claims and the Proceedings;
e.the costs of data management, hosting and technical support providers contracted by the Lawyers relevant to the Claims and the Proceedings; and
f.other fees and expenses incurred by the Lawyers relevant to the Claims and the Proceedings (including the Investigation Work) (and including insurance costs),
and, for the avoidance of doubt, includes amounts described in Paragraphs (a) to (f) above which have been incurred prior to the Agreement Date.
Group Costs Order means any order made by the Court before or at the time of settlement, judgment or other disposition of the Proceedings, pursuant to Section 33ZDA of the Supreme Court Act, which provides:
a.that the amount payable to the Lawyers in respect of their professional services in representing the Plaintiff and other Group Members in the Proceedings will be calculated as a percentage of any award or settlement that may be recovered in the Proceedings; and
b.that liability for payment of that amount to the Lawyers be shared among the Plaintiff and all Group Members.
Legal Costs means the professional fees (including all internal costs and expenses (such as photocopying, etc.)) of the Lawyers incurred for the sole purpose of preparing for (including the Investigation Work), prosecuting and/or resolving the Claims and/or the Proceedings (including applicable GST) and, for the avoidance of doubt, includes such amounts which have been incurred prior to the Agreement Date but does not include any Claim Costs.
Security for Costs means any security for costs ordered against or agreed by the Claimants in the Proceedings and the incidental costs of providing that security.
The financing commitment agreement obliges Regency to provide finance to Quinn Emanuel to meet the claim costs.
The financing commitment agreement provides that Quinn Emanuel will not bill or seek payment of legal costs from Regency, 5 Boroughs or group members, except in accordance with a GCO. The agreement further provides that Quinn Emanuel will use its best endeavours to ensure 5 Boroughs obtains a GCO that is acceptable to Regency in form and substance. The agreement set out the following scheme of distribution of any settlement or judgment:
13.The Lawyers agree that the initial Group Costs Order to be sought by the Lawyers in the Proceedings, by interlocutory application at the earliest practicable time after filing the writ in the Proceedings, in accordance with the Practice Note, will seek a Scheme of Distribution as follows:
a.first, to the Lawyers, reimbursement of all Adverse Costs Orders paid by the Lawyers to the Defendants; and if there is any balance
b.second, to the Lawyers, reimbursement of all Security for Costs provided by the Lawyers; and if there is any balance
c.third, to the Lawyers, reimbursement of all Disbursement Costs paid by the Lawyers; and if there is any balance
d.fourth, to the Lawyers, a sum equal to [percentage] of the balance or such lesser amount as is approved by the Court; and if there is any balance
e.fifth, to the Plaintiff, a Plaintiff reimbursement payment in the amount of [amount] or such other amount as the Court determines is appropriate; and if there is any balance
f.sixth, to each Claimant or as each Claimant directs, that Claimant’s calculated share of that balance, or as otherwise approved by the Court.[17]
[17]The values in clauses 13(d) and (e) of the financing commitment agreement are set out in the confidential schedule.
14.The Parties agree that:
a.the sums payable to the Lawyers for the purposes of Clauses 13(a), 13(b) and 13(c), will be paid to the Financier; and
b.the sum payable to the Lawyers for the purposes of Clause 13(d), will be paid to the Financier and to the Lawyers, to pay the amounts determined in accordance with the Remuneration Formula.
Clauses 13(a), (b) and (c) do not limit legal costs payable by group members to a percentage of any award or settlement, and are therefore inconsistent with the terms of s 33ZDA of the Act and with the orders sought on the GCO application. The percentage in clause 13(d) of the agreement differs from that sought in the GCO application. It is unclear how a distribution in accordance with clause 13, if there were power to make a GCO in those terms, would compare to the distribution sought by the GCO application. What is clear is that there is no power under s 33ZDA to make orders consistent with the scheme of distribution described in clause 13.
The financing commitment agreement sets out a formula for distribution of the GCO amount between Quinn Emanuel and Regency that is based on the relative risk assumed by each party in the conduct of the proceeding. The proxy for Quinn Emanuel’s risk is a nominal calculation of legal costs based on hourly rates. For Regency, it is the amount paid for claim costs.
The litigation collaboration agreement concerns more general financing arrangements by Regency of group proceedings pursued by Quinn Emanuel in the Supreme Court of Victoria. The litigation collaboration agreement provides that Quinn Emanuel ‘must procure that each Plaintiff’ in proceedings governed by the agreement:
agrees that the Plaintiff will determine, in consultation with the Lawyers and the Financier, what Claims should be pursued at any stage in the Proceedings, and the manner in which those Claims shall be pursued (including the timing to seek, and the subject matter of, any Group Costs Order);
The litigation collaboration agreement relevantly provides, in relation to termination:
The Financier may terminate this Agreement and a Class Action Financing Commitment Agreement in respect of specific Proceedings and/or Claims:
…
(d)at any time, if a Group Costs Order in form and substance acceptable to the Financier is not made by the Court;
I rely on some further evidence of Scattini and Wolden in relation to the financing commitment agreement which is set out in the confidential schedule.
Ferrara said that before he instructed Quinn Emanuel to commence the proceeding on behalf of 5 Boroughs he had discussions with Scattini that included how the proceeding was to be funded. He said initially Quinn Emanuel would devote its time on a conditional basis, and Regency would pay for disbursements and satisfy any costs or security for costs orders made in the proceeding. He said Quinn Emanuel was to apply at the earliest practicable time for a GCO that would then determine funding arrangements for the life of the proceeding. Ferrara said Scattini explained the general concept of a GCO as providing a single fixed percentage of any resolution sum as payment for legal costs including disbursements, and that under the GCO Quinn Emanuel, via finance from Regency, would be directly responsible for any adverse costs orders. Ferrara said ‘Scattini explained that this was the basis upon which Quinn Emanuel and Regency had determined to accept the risk of conducting this class action’. Ferrara said he was further informed by Scattini that 5 Boroughs would not have any liability for costs incurred by Quinn Emanuel/Regency in the conduct of the proceeding other than as approved by the Court to be paid from any resolution sum, that costs would only be payable in the event of a successful outcome, and that 5 Boroughs would be protected from any liability to pay costs if the claim was unsuccessful. Ferrara said the protections provided to him and 5 Boroughs from liability for legal costs were important considerations in his decision that 5 Boroughs act as plaintiff in the proceeding.
Scattini said that when he provided the costs agreement in August 2020 he spoke to Ferrara on several occasions and confirmed, among other things, that:
(a)Quinn Emanuel would initially conduct the proceeding on a contingent basis at its hourly rates and that the Financier would pursuant to the Financing Agreements agree to:
(i)pay disbursements;
(ii)satisfy any adverse costs order; and
(iii)provide security in a form acceptable by the court (if security is required), which might include security in the form of an ATE insurance policy.
(b)Quinn Emanuel would apply to the Court for a GCO on the plaintiff’s behalf. If the Court granted this order, the liability for legal costs and disbursements would be shared between the plaintiff and all group members, regardless of whether or not those group members had entered into an agreement with Quinn Emanuel.
Scattini said he told Ferrara that if a GCO was not made by the Court at a rate that provided Quinn Emanuel and Regency with a commercially reasonable remuneration for the risk they were carrying:
(a)[He] did not have approval from Quinn Emanuel’s Contingency Committee to continue to conduct the proceeding with Quinn Emanuel bearing the cost of its professional fees at its hourly rates.
(b)The Financier had a right to terminate the Financing Agreements with Quinn Emanuel. If the Financing Agreements were terminated, there was a possibility that Regency and Quinn Emanuel might enter into discussions about an alternative full third-party litigation funding arrangement but there was no guarantee of that.
(c)If a GCO was not granted, and alternative litigation funding was not able to be secured, either with Regency or another litigation funder, then the proceeding would no longer have viable financial standing to continue and, as a consequence, the Retainer would likely be terminated.
In mid-August 2020, at Scattini’s suggestion, Ferrara obtained independent legal advice in relation to the costs agreement and the financing agreements. Scattini said that at around this time he spoke to Luke Faba of Stenta Legal, who had been engaged by Ferrara to provide independent legal advice to 5 Boroughs about these matters.
Ferrara said when he executed the costs agreement in August 2020 and instructed Quinn Emanuel he understood that:
(a)Quinn Emanuel would initially conduct the proceeding on a contingent basis, with its time being recorded at its hourly rates, with Regency pursuant to the Financier Agreements:
(i)paying disbursements; and
(ii)satisfying any adverse costs order; and
(iii)providing any security in a form acceptable by the court;
(b)[He] would not have to pay any of the defendants’ costs;
(c)a GCO Application would be filed as soon as practicable;
(d)if the Court were to grant a GCO, the liability for payment of legal costs and disbursements would be shared between the plaintiff and all group members but only in the event of a successful outcome; and
(e)if a GCO was not granted by the Court, Quinn Emanuel would reconsider its funding arrangement and there was a prospect that the action may not proceed.
Scattini said that in the course of preparing the GCO application it became clear to him that the costs agreement executed in August 2020 did not accurately reflect the intentions of the parties because it contained:
(a) no express provision for Quinn Emanuel to seek third party litigation funding in an attempt to secure financial stability for the proceeding in the event a GCO was not made; (b) no right for Quinn Emanuel to withdraw if alternative funding could not in that scenario be obtained.
Scattini said he spoke to Ferrara about a proposed variation to the costs agreement and, given the potential conflict between the interests of Quinn Emanuel and 5 Boroughs, recommended that Ferrara obtain independent legal advice about the matter. Scattini provided the costs agreement, financing agreements and draft deed amending the costs agreement to Gina Faba, principal at Stenta Legal, who was engaged by Ferrara to provide advice to he and 5 Boroughs. Scattini had conferences with Ms Faba in July and August of this year, and agreed to incorporate a number of amendments in the deed at her suggestion. On 29 August 2023 Ferrara informed Ms Faba he was content with the terms of the variation deed, which he believed clarified ‘the respective positions of both 5 Boroughs and Quinn Emanuel in the unlikely event a GCO is not granted by the court’. Ferrara executed the deed of variation on that day.
The deed of variation amends the costs agreement by providing that if a GCO is not made on terms that are acceptable to Quinn Emanuel, the lawyers may seek to obtain third-party funding of the legal costs and disbursements of the proceeding, including adverse costs orders and orders for security for costs, and that:
if Quinn Emanuel cannot obtain such third-party funding on terms acceptable to Quinn Emanuel within one month of the determination of the Group Costs Order application, then Quinn Emanuel may terminate this Retainer and may cease to act for you in the Proceeding.
The deed of variation provides, in relation to the effect and consequences of termination:
(a)subject to subclauses (b), insofar as any Adverse Costs Order is made against the Plaintiff in the Proceeding, Quinn Emanuel is obliged to pay to the Defendants on the Plaintiff’s behalf the costs required to be paid pursuant to the Adverse Costs Order (whether taxed or agreed);
(b)if the Retainer is terminated, Quinn Emanuel continues to indemnify the Plaintiff for any Adverse Costs Order in accordance with clause 5.6(a), but only in respect of costs incurred by the Defendants in the proceedings up to the time the plaintiff retains new legal representation, or if no new legal representation is retained to the time that Quinn Emanuel has secured a discontinuance of the proceeding on behalf of the Plaintiff under clause 5.7.
Clause 5.7 provides:
In the event that Quinn Emanuel terminates this Retainer under clause 5.5, and you decide to seek the Court’s approval of discontinuance of the Proceeding under section 33V of the Supreme Court Act 1986 (Vic), Quinn Emanuel agrees that it will provide you with representation in negotiating, and obtaining the Court’s approval of, the discontinuance.
Relevant events since commencement of proceeding
Wolden said when he recommended that Dilpa and Regency fund the proceeding he estimated it would run for approximately two years. He did not anticipate that the proceeding would still be in only preliminary stages some three years after it was commenced.
Scattini said this delay in progress had resulted in increased litigation risk and exposure for both Regency and Quinn Emanuel. The work performed to date and the delay in the proceeding caused Scattini to redo the litigation budget he prepared in August 2020, resulting in a significantly increased estimate of legal costs and disbursement costs.
Since commencement of the proceeding Regency has paid disbursement costs incurred by Quinn Emanuel and $500,000 into Court as security for costs.
GCO application
Comparative outcome estimates
Scattini instructed Houston to prepare a report estimating the number of eligible group member businesses and the aggregate losses of those businesses. Scattini then adjusted the figures produced by Houston for various factors, and used the results to estimate a range of possible outcomes in the proceeding.
Scattini then considered the range of cost outcomes at three different resolution times: early resolution before expert evidence; resolution after preparation of evidence but before trial; and resolution after trial but prior to judgment.
Scattini then estimated the outcomes for group members against the settlement range for the different resolution times assuming a GCO of 30%, or alternatively third-party funding with commission rates of 25%, 30% and 40%.
On the basis of Scattini’s modelling a GCO would result in a superior financial return to group members than a third-party funding in most instances. The third-party funding return improves with earlier resolution. On the estimate assuming a 25% commission, third-party funding achieves a slightly superior outcome for group members at the higher end of the range of outcomes estimated by Scattini for all three resolution times.
The figures produced by Houston and Scattini represent nothing more than the best guess that can be made of the potential value of this complex litigation at this early stage. However, the estimates are supported by the considerable experience of Houston and Scattini. Scattini’s modelling allows for reasonable consideration of the relative benefit to group members flowing from a GCO and third-party funding.
Scattini has applied the same rationale to estimate the profit that would be enjoyed by Quinn Emanuel if a 30% GCO is made, assessed on five possible outcomes within the range he estimated. Scattini used third-party funding as the relevant comparator, and assumed resolution after trial but before judgment.
The profit to Quinn Emanuel from any settlement will increase if the proceeding resolves at an earlier stage. My conclusion is based on the estimates made by Scattini of profit flowing from settlement after trial and before judgment. If earlier settlement occurs that may be relevant to later amendment of the GCO.
Scattini’s evidence focuses on the profit that would be derived by Quinn Emanuel. However, the gross amount of the GCO and the combined benefit enjoyed by Quinn Emanuel and Regency is relevant. Consideration of that combined benefit at or above the higher end of the settlement range estimated by Scattini may be relevant to reconsideration of the GCO rate, particularly if resolution occurs earlier in the life of the proceeding.
The timing of resolution is relevant to the capital cost of investment by Quinn Emanuel and Regency in the proceeding, and the time on risk actually faced. To a degree the assessment of risk by Quinn Emanuel and Regency must be prospective because they cannot know now if or when the proceeding will resolve, and at what figure. On the other hand an actual assessment of carrying costs and risk faced may be relevant to reassessment of the GCO rate at the time of settlement.
I do not limit by these comments the matters that may be relevant to any reconsideration of the GCO rate that may occur in future.
Attitudes to 30% GCO
After modelling the potential outcomes of the proceeding Scattini said:
I consider the increased ‘reward’ to Quinn Emanuel by reason of a GCO being ordered at a rate of 30% including GST to be proportionate to the risks taken on by Quinn Emanuel and Regency in running the proceeding, having regard to the expected settlement range, the challenges associated with the proceeding set out above and the capacity of the court to vary the GCO percentage if it thinks that appropriate.
Scattini said in relation to the proposed 30% rate:
129.Under the proposed GCO, Quinn Emanuel will receive a single payment, representing a maximum of 30% of any judgment or settlement for the legal costs and disbursements incurred by Quinn Emanuel and the Financier in its prosecution of group members’ claims. The “costs” that will be paid from this maximum 30% payment include:
(a)Quinn Emanuel’s professional fees;
(b)disbursements paid by the Financier;
(c)settlement administration and distribution costs; and
(d)any reimbursement payment awarded to the lead representative,
collectively, the “Total Costs”.
130.As such, irrespective of the Total Costs incurred by Quinn Emanuel and Regency, group members are guaranteed to receive at least 70% of any resolution sum.
Scattini said that having considered the revised cost estimate, the settlement range and return to group members from different funding arrangements, the prospects of obtaining third-party litigation funding, the risks of an unsuccessful outcome in the proceeding, the appropriate reward to Quinn Emanuel and Regency for taking that risk, and the certainty and simplicity of a GCO model for group members, he was of the view that a GCO rate of 30% (including GST) was appropriate and proportionate. He said he advised Ferrara he was satisfied the:
rate of 30% was appropriate and reasonable in the circumstances to balance the interests of the group members to receive a certain, fair and readily understandable portion of any settlement, while ensuring a properly resourced prosecution of the proceeding to its final determination.
Wolden said if a GCO is made at a rate acceptable to Regency then it will continue to fund the claim costs in the proceeding, but that if a GCO was not made it was likely he would recommend that Regency terminate the financing agreements.
Ferrara said he was provided with and reviewed the material filed in support of the GCO application including Scattini and Wolden’s September 2023 affidavits. Ferrara gave the following evidence in relation to the GCO application:
(a) He understood a GCO would result in legal costs and disbursements being calculated as a single percentage of any amount recovered in the proceeding. He said ‘this form of “funding” is attractive to me as the costs will be “capped” and there will be no other deductions for disbursements, legal or funding costs’.
(b) It was important to him that there was no further delay in the conduct of the proceeding, and that there was certainty regarding continuation of the proceeding and the terms in which it is funded.
(c) The GCO has the benefit of simplicity, transparency and certainty.
(d) The GCO protects group members in the event of an unexpectedly poor outcome in the proceeding.
(e) The GCO protects group members from the potential adverse consequences of any cost blow-outs, which he understood were not uncommon in class actions.
(f) He said:
a GCO creates an alignment of interests between Quinn Emanuel, on the one hand, and 5 Boroughs and group members on the other, because the better the outcome achieved for group members, the higher the remuneration presumptively payable to Quinn Emanuel/Regency for achieving that result.
Ferrara said he understood that:
(a)the 30% rate is subject to the discretion of the Court, meaning it may ultimately be reduced to a lower percentage if the Court determines that would be more appropriate;
(b)the Court could reduce the percentage of legal costs if it would otherwise be disproportionate to the work ultimately performed; and
(c)the Court takes an active role in the case management of class actions to ensure that the interests of group members are being upheld, and consider this continuing supervision by the Court to be an additional benefit to group members.
GCO at a lower rate
Scattini said, in relation to the possibility of a GCO at a lower rate:
I have given consideration to what course Quinn Emanuel might take if a GCO is approved but at a rate less than that which I consider is a reasonable rate for the firm and Regency having regard to the risks, namely 30%. If that occurs, I would need to consider whether or not to recommend to the Quinn Emanuel partnership that the firm continue to act in the matter (assuming that third party funding could not be obtained). I expect my recommendation would depend upon the precise rate ordered and the court’s reasons.
Wolden said:
If a GCO is granted but at a rate lower than 30%, I would need to calculate the rate of return to Regency and consider whether it provides a fair and reasonable return on Regency’s investment. I would then make a recommendation to Mr Budd for Regency to either (a) continue to fund the Claim Costs in the proceeding; or (b) to exercise its termination rights. Based on my experience of working closely with Mr Budd, I consider it likely that Mr Budd would follow my recommendation, but given this would be a complicated assessment and high risk decision, I would expect that Mr Budd would rely upon his own extensive experience together with the recommendation from me.
GCO not made
Scattini said when the GCO application was made:
I also again informed Mr Ferrara of the potential outcomes if the GCO is not made — that Quinn Emanuel would consider its rights and obligations under the Retainer and Deed of Variation and that it was more than likely that the proceeding would not go forward. Nonetheless, I relayed to Mr Ferrara that Quinn Emanuel would consider entering into discussions with Regency about potentially providing full funding of the matter but noted that Regency had previously indicated that under any third party funded arrangement (if it would entertain such an arrangement) it would likely seek a funding commission of at least 40% (see paragraph 82 below). This was based on, among other things, the financial risk exposure to Regency in carrying the total claims costs (now estimated at approximately [amount] (including GST), any potential adverse costs and any future security for cost payments.[18]
[18]The value in Mr Scattini’s evidence is set out in the confidential schedule.
Scattini gave evidence about alternative funding arrangements if a GCO is not made which I have referred to in the confidential schedule. Scattini said that absent a GCO Quinn Emanuel will consider its rights and obligations under the costs agreement as varied, including the potential of third-party litigation funding.
Wolden described the three key risks that he could foresee for any investment in this proceeding which are set out in the confidential schedule.
Wolden referred to the preliminary proposal sought by Scattini from Regency to transition to a third-party funding model if a GCO is not granted. He said he had not entered into detailed negotiations with Quinn Emanuel given the hypothetical nature of the exercise, but that his preliminary view was that Regency would not offer terms that involved taking on liability for Quinn Emanuel’s legal fees, and that:
In the unlikely event that Regency would consider expanding its costs and risk profile to such a degree, it would require an increase to the funding commission that is commensurate with the higher cost base and attendant additional risk. I discussed with Mr Scattini that it would be likely that Regency would not consider a commission rate of less than [amount]. This is due to matters including:
(a)having regard to the extended duration and complexity of this matter as set out in paragraphs 13 and 26 above;
(b)having regard to the increased disbursement budget which has already more than doubled the required capital to be invested by Regency;
(c)the inability to secure a common fund order (CFO) at this stage of the proceeding, the uncertainty as to the commission rate that may ultimately be awarded by the Court and the present uncertainty as to whether the Court ultimately has the power to make a CFO at the end of the proceeding;
(d)having to take into account the cost and time of book building, during which group members would be offered the opportunity to enter into the litigation funding agreement; and
(e)the cost of bearing [amount] of Quinn Emanuel’s professional fees, which are currently estimated to be [amount] (ex GST).[19]
[19]The values in Mr Wolden’s evidence are set out in the confidential schedule.
Should a contradictor be appointed?
The Court may appoint a contradictor if it considers it is likely to be significantly assisted by doing so.[20] However, a contradictor will not be appointed if it would result in further costs or delay in the proceeding that is disproportionate to the likely benefit of that assistance.[21]
[20]Levy v State of Victoria (1997) 189 CLR 579, 605, 650–1 (Kirby J).
[21]Priest v West (2011) 35 VR 225, 529 [33] (Maxwell P and Harper JA).
The following matters may favour appointment of a contradictor. First, there is a potential conflict of interest between plaintiffs and group members on the one hand and lawyers and financiers on the other that is inherent in a GCO application.[22] Second, the defendants have appropriately adopted a neutral position in relation to the GCO application. Further, the defendants have not had access to, and can therefore make no comment on, confidential material relied on in support of the application.[23]
[22]Allen (n 6) [52] (Nichols J).
[23]Bolitho v Banksia Securities Ltd (No 6) (2019) 63 VR 291, 306 [50] (John Dixon J); Fox/Crawford (n 5) [7] (Nichols J); Allen (n 6) [8] (Nichols J).
Whether a contradictor should be appointed was appropriately raised by the defendants in their brief submissions on the application. That matter was the subject of further oral submissions at the start of the hearing. I determined to proceed with the hearing so that a more concrete consideration could be given of the need for a contradictor and the likely assistance that could be provided.
After the plaintiff’s oral submissions had been made the need for assistance from a contradictor was reduced to the following:
(a) the relevance of clause 13 of the financial commitment agreement to acceptance of Scattini’s evidence; and
(b) whether a GCO should be made at 30% or at some lower rate.
I concluded for the following reasons that a contradictor should not be appointed. First, the evidence led in this application allowed me to understand and make an assessment of the relevant issues, including the matters to which the defendants drew attention, without the assistance of the contradictor.
Second, it is relevant that Ferrara obtained independent legal advice at three stages of the proceeding:
(a) before instructing Quinn Emanuel and executing the costs agreement;
(b) before executing a deed of variation of the costs agreement; and
(c) after the hearing of this application.
I gave 5 Boroughs the opportunity after hearing the application to provide further evidence from Ferrara clarifying that he is aware of the inconsistency between clause 13 of the financing commitment agreement and the GCO applied for, and that he was also aware of the report prepared by Houston and Scattini’s estimates of the settlement range, and the shares of group members, Quinn Emanuel and Regency within that range resulting from the proposed GCO. Appropriately, Quinn Emanuel arranged for Ferrara to obtain further independent legal advice before making an affidavit as to the matters. Having done so, Ferrara remains of the view that the order sought by the GCO application is in the best interests of group members.
Third, as I have already observed there has been limited progress with this proceeding in the period of over two years since it was commenced. The parties are committed to a trial date in September 2025. The timetable for the necessary interlocutory steps to occur before trial has not yet been settled. However, based on the discussions that occurred at the last case management conference the timetable will be tight. Any flexibility it contains will be needed to allow the opportunity to resolve issues that will inevitably arise. Appointment of a contradictor for the GCO application would have delayed the further hearing and resolution of that application until sometime early next year. That delay was not justified by the limited assistance that was likely to be provided.
Consideration
I accept that clause 13 of the financing commitment agreement is inconsistent with the understanding of Scattini and Wolden as to financing arrangements for the proceeding. The financial outcome for group members from a settlement based on a GCO consistent with clause 13 is uncertain. Further, an order in terms of the clause is beyond the power in s 33ZDA of the Act. I accept that the scheme of distribution as set out in clause 13 is inconsistent with what was intended by Quinn Emanuel and Regency, and that the GCO percentage in the clause was a placeholder. I conclude the clause is irrelevant to this application.
Having undertaken a broad evaluative assessment of relevant circumstances I concluded for the following reasons that the GCO sought by 5 Boroughs should be made.
First, Ferrara, having been fully appraised of all relevant information, and having taken the opportunity on three separate occasions to obtain independent legal advice, firmly supports the GCO sought. Ferrara gives cogent reasons for his view that the GCO is in the interests of 5 Boroughs and group members and for supporting the application. I refer again to the matters set out in paragraphs 69 and 70 above. Ferrara’s evidence is of particular importance to the consideration of whether the proposed GCO is fair and equitable, and will protect or further the interests of group members.
Second, there is a material risk that if a GCO is not made the proceeding will not continue because of an inability to obtain alternative funding. It is very unlikely Quinn Emanuel will agree to represent the plaintiff on a conditional basis with recovery of legal costs calculated on an hourly rate. I accept there is a significant risk Regency will not offer a third-party funding arrangement to allow this matter to proceed. Understandably there has not been full investigation of alternative funding arrangements. However, there is no evidence of any alternate solicitors or funders waiting in the wings to take over this matter, and a well-founded reluctance by the current solicitors and financier to continue with the matter should an appropriate GCO not be made. In the circumstances, I accept that there is a risk if a GCO is not made that the plaintiff and group members will lose the opportunity to vindicate their rights.
Third, I accept the real likelihood that if alternate funding could be arranged the outcome for group members would be less favourable. This is for two reasons. First, third-party funding would not provide the simplicity, transparency and certainty that Ferrara said were desirable outcomes. Second, there is a very real prospect that group members would achieve a poorer financial outcome following resolution of the proceeding if an alternate funding arrangement to a GCO is in place.
Fourth, as I have already said, this proceeding is novel, complex, difficult, and attended with significant risk. 5 Boroughs’ claim has been vigorously defended to date. It survived the summary dismissal application, but the duty and causation issues on which that application was based remain to be finally determined at trial. In addition the question of breach looms as factually complex and challenging.
The claim made by 5 Boroughs raises for consideration important issues concerning the public health response by government to the COVID-19 pandemic, the duties and obligations that might arise in that context, and the corresponding rights of and protections provided to different sections of the community. The response by 5 Boroughs to the summary dismissal application and strike out application demonstrates a serious approach to those issues. I do not imply, by referring to the complexity and difficulty of 5 Borough’s claim, that the Court will be facilitating the speculative or unmeritorious prosecution of a claim by granting the GCO application.
Fifth, I accept that both Quinn Emanuel and Regency will make a substantial investment in the proceeding, that will be at risk if a successful outcome cannot be achieved. The novelty and complexity of the proceeding has already led to a substantial increase in budgeted costs and in the expected time to completion of the proceeding, resulting in an increase in the degree and time on risk faced by Quinn Emanuel and Regency. Restrictions imposed by the concurrent VWA prosecution mean that 5 Boroughs has not had the opportunity as yet to gather and analyse much of the evidence that will be relevant to its claim. Because of the complexity of the claim there remains the risk of further significant cost blow-outs in future. Since Scattini prepared the most recent costs budget there has already been an increase in the estimated trial duration from 9 weeks to 12–15 weeks. There will, of course, be a commensurate increase in the defendants’ costs. Quinn Emanuel and Regency carry the uncertain risk of the costs of both 5 Boroughs and the defendants.
The novelty, complexity and difficulty of the proceeding, and the resulting degree and magnitude of risks faced by Quinn Emanuel and Regency are important factors justifying the GCO percentage for costs that is being sought. The uncertainty faced by Quinn Emanuel and Regency may be contrasted with the considerable benefit of the certainty that will be achieved for group members by the proposed GCO. The risk/reward consideration is very relevant to the determination of this application.
Sixth, while each application under s 33ZDA of the Act must be determined on its own facts and circumstances, my review of the outcome of other applications has fortified my conclusion that the GCO application should be allowed. The order that I will make in this case will be the second highest GCO rate ordered to date. That outcome is only justifiable because of the complexity of 5 Borough’s claim, and the resulting degree and magnitude of risk that will be borne by Quinn Emanuel and Regency, considered in the context of all the circumstances of the case.
Seventh, the benefit of certainty provided by the GCO is supported by the plaintiff’s undertaking that it will not apply to increase the GCO percentage at any stage of the proceeding.
Conclusion
I have concluded that a GCO of 30% is appropriate to ensure that justice is done in the proceeding.
I will make the orders sought by the plaintiff.
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