Courtney v Medtel Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Courtney v Medtel Pty Limited [2002] FCA 957

REPRESENTATIVE PROCEEDING – whether respondents may make settlement offers directly to unrepresented group members – whether such offers should be subject to approval by applicant’s solicitors – whether notice of such offers should be given in advance to applicant’s solicitors – scope of the power conferred by s 33ZF(1) of the Federal Court of Australia Act 1976 (Cth).

Federal Court of Australia Act 1976 (Cth), ss 33A, 33C, 33E, 33J, 33N, 33P, 33T, 33W, 33V, 33Z, 33ZF, 33ZJ, 43(1A)
Trade Practices Act 1974 (Cth), ss 52, 74B, 75AD, 82
Federal Court of Australia Amendment Act 1991 (Cth)
Law and Justice Legislation Amendment Act (No. 4) 1992 (Cth), s 3
Supreme Court Act 1986 (Vic), s 35

Professional Conduct and Practice Rules (NSW), r 31.1

Courtney v Medtel Pty Ltd (2001) 113 FCR 512, cited.
Femcare Ltd v Bright (2000) 100 FCR 331, cited.
King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) [2002] FCA 872, cited.
Mobil Oil Australia Pty Ltd v Victoria [2002] HCA 27, cited.
Johnson Tiles Pty Ltd v Esso Australia (1999) 166 ALR 731, cited.
Boeing Co v Van Gemert 444 US 472 (1980), cited.
Burns Philip & Co Ltd v Bhagat [1993] 1 VR 203, cited.
Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250, cited.
Carnie v Esanda Finance Corporations Ltd (1995) 182 CLR 398, cited.
Wong v Silkfield Pty Ltd (1999) 199 CLR 255, cited.
Cutts v Head [1984] Ch 290, cited.
Williams v FAI Home Security Pty Ltd No 4) [2000] FCA 1925, cited.
West v AGC (Advances) Ltd (1986) 5 NSWLR 590, cited.

Australian Law Reform Commission, Grouped Proceedings in the Federal Court (Report No. 46, 1988)
V Morabito, “Federal Class Actions, Contingency Fees and the Rules Governing Litigation Costs” (1995) 21 Monash Uni LR 231
C Silver, “A Restitutionary Theory of Attorneys’ Fees in Class Actions” (1991) 76 Cornell LR 656.

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in par 1 of the Fifth Amended Statement of Claim v MEDTEL PTY LIMITED & ANOR
N 661 of 2000

SACKVILLE J
SYDNEY
1 AUGUST 2002


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 661 OF 2000

BETWEEN:

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in paragraph 1 of the Fifth Amended Statement of Claim
APPLICANT

AND:

MEDTEL PTY LIMITED
FIRST RESPONDENT

PACESETTER INC a Delaware corporation with its principal place of business 15900 Valley View Court, Sylmar, California
SECOND RESPONDENT

JUDGE:

SACKVILLE J

DATE OF ORDER:

1 AUGUST 2002

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The motion be stood over to 10.15 am on 16 August 2002 for the making of orders in conformity with this judgment.

Note:         Settlement and entry of orders is dealt with in Order 36 of…

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Details
Case
[2002] FCA 957
Decision Date

CaseChat Overview and Summary

In the case of Courtney v Medtel Pty Ltd, the applicant sought various forms of relief against the respondents, who were manufacturers and distributors of a medical device. The central issue was whether the respondents could communicate settlement offers directly to group members without court approval. The case revolved around the interpretation and application of Part IVA of the Federal Court Act, specifically concerning the settlement of group members' claims within representative proceedings. The applicants argued that the respondents' direct communications with group members to propose settlements constituted misleading and deceptive conduct and breached a duty of care. The applicants sought declarations, compensation, and damages under the Trade Practices Act and the general law.

The court examined the legal framework governing settlements in group proceedings, particularly the provisions of Part IVA of the Federal Court Act and the recommendations of the Australian Law Reform Commission. The court noted that while the ALRC recommended court approval for settlements by the representative party, it did not require such approval for direct settlements between respondents and group members. The court concluded that Part IVA of the Federal Court Act does not expressly mandate court approval for settlements made directly between respondents and group members, aligning with the ALRC's proposal. The court further observed that the differences between the ALRC's recommendations and the provisions of Part IVA did not alter the substantive approach to settlement of group members' claims. Consequently, the court found that the respondents' direct communications with group members for the purpose of proposing settlements were permissible under the Act.

Ultimately, the court stood the motion over to a later date to make orders in conformity with the judgment, ensuring that the rights and protections of group members in representative proceedings were properly balanced with the practicalities of litigation.

Orders

Orders of the court

1. The motion be stood over to 10.15 am on 16 August 2002 for the making of orders in conformity with this judgment.

Background

Background to the litigation

The applicant pleads that the Pacemaker was not reasonably fit for its purpose within the meaning of s 74B of the Trade Practices Act 1974 (Cth) (“Trade Practices Act”) and had a “defect” within the meaning of s 75AD of the Trade Practices Act, by reason of which the applicant and the Group Members suffered injury. Each of the respondents is also said to have engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act and to have breached a duty of care owed by them to the applicant and the Group Members. The applicant seeks declaratory relief, compensation pursuant to ss 74B and 75AD of the Trade Practices Act and damages under s 82 of the Trade Practices Act and under the general law.FACTUAL BACKGROUND It was common ground that nearly 400 Group Members have opted out of the proceedings, leaving approximately 600 on whose behalf the applicant is conducting the proceedings. I refer to these remaining 600 Persons as “the remaining Group Members”. Of the 600 remaining Group Members, it seems that about 125 have given MBC instructions to act on their behalf in the proceedings. (The transcript of argument contains references to both 125 and 175 remaining Group Members as having given instructions to MBC, but I understand the former figures to be more accurate.) I refer to the other 475 remaining Group Members as the “unrepresented remaining Group Members” although, of course, it is possible that some have instructed solicitors, other than MBC, to act on their behalf in relation to the proceedings. The evidence indicates that prior to the date fixed by the Court by which Group Members could opt out of the proceedings pursuant to s 33J(2) of the Federal Court Act, the respondents communicated settlement offers to some Group Members who were not represented by MBC. It appears that those offers were communicated by telephone, although it may be that each of the Group Members concerned first contacted the respondents’ solicitors (the evidence does not address the point). Be that as it may, some of the Group Members who opted out of the proceedings did so in consequence of accepting offers of settlement put to them directly by the respondents’ solicitors. In a judgment delivered on 25 September 2001, Stone J dismissed a motion filed by the applicant seeking an order, inter alia, that the respondents not communicate, either directly or through the respondents’ legal representatives, with Group Members except with the leave of the Court: Courtney v Medtel Pty Ltd (2001) 113 FCR 512. The grounds on which the applicant relies in support of the present motion are different from those relied on before Stone J. The respondents’ intentions in relation to the unrepresented remaining Group Members (or a segment of them) are set out in a letter dated 23 May 2002 from their solicitors to MBC. In that letter, the respondents’ solicitors express the view that “no solicitor/client relationship exists between group members and the solicitor representing the representative applicant save for those group members who have expressly retained that solicitor in relation to the matter. Similarly, we are of the view that there is nothing per se which prohibits a respondent from communicating with a group member for the purpose of attempting to resolve a dispute in the absence of a solicitor client relationship.”The letter continues as follows:“As you are also aware our clients have, from the outset, denied that they have any liability in relation to the matters alleged in these proceedings. While our clients are keen to avoid incurring unnecessary legal expenses in relation to the defence of these proceedings, the sums that you have demanded on behalf of the various categories of group members are, quite frankly, excessive and unreasonable. This is particularly so in relation to those group members who have not even had the allegedly defective pacemaker removed or replaced to this day.Accordingly, in an attempt to simplify these proceedings, our client intends to make an offer to those group members who have not had their pacemakers removed in order to settle their claims without the necessity for further litigation. To that end, our clients intend to communicate that offer to those group members in not less than three business days time from the date of this letter.Having regard to the information available to us, we think it unlikely that any of the group members to whom we propose to communicate this offer have expressly retained you to act on their behalf in these proceedings. Nevertheless, we wish to take all possible steps to ensure that we do not communicate directly with a group member who has retained you to act on their behalf in relation to this matter. Accordingly, would you please provide us with the name or names of any group member who has expressly retained you to act on their behalf in these proceedings as soon as possible and, in any event, by no later than 5.00 pm on Monday, 27 May 2002. In the event that you have been retained to act on behalf of any group member who has not had their pacemaker explanted we will, of course, communicate the offer to you so that you might take their instructions.” (Emphasis added.)

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

SACKVILLE J
First, subject to considering the effect of s 33V(1), Part IVA of the Federal Court Act does not expressly require a settlement effected directly between a respondent and a group member to receive approval of the Court. This is consistent with the approach proposed by the Australian Law Reform Commission (“ALRC”) in its report, Grouped Proceedings in the Federal Court (Report No 46, 1988) (“Grouped Proceedings”) which considered (at par 218) that“the Court’s approval should be required for the settlement by the principal applicant of a group member’s proceeding, but a group member should be able, at any stage before judgment is given, without leave, to settle the group member’s proceeding”. (Emphasis added.)See also Grouped Proceedings, App A, cl 28(2), (5)(b). The ALRC argued that the Court’s approval should be required when an applicant settles group members’ claims on their behalf, in order to ensure that the settlement is fair to the group members and that it addresses all relevant issues: Grouped Proceedings, at par 218. The ALRC appears to have taken the view, however, that the same safeguards are not necessarily required when a group member (as distinct from the representative party: see s 33W(1)) settles his or her individual claim directly with the respondent. Not all the ALRC’s recommendations have been implemented in Part IVA of the Federal Court Act. Indeed, there are some important differences.As Moore J has pointed out in King v AG Australia Holdings Ltd (formerly GIO Australia Holdings Ltd) (“King v GIO”) [2002] FCA 872, at [37], the ALRC made its recommendations relating to the settlement of claims in the context of a proposed scheme which required each represented person to be a party to his or her “own separate proceedings”. A representative applicant was to be entitled to commence proceedings between other applicants and the same respondent, but the other applicants were to be parties to those proceedings: Grouped Proceedings, at pars 94-95. The ALRC adopted this approach because it doubted whether, under Chapter III of the Constitution, a group member can be validly bound by a determination in proceedings unless he or she is actually a party to the proceedings: Grouped Proceedings, at par 93. Part IVA of the Federal Court Act clearly departs from the ALRC’s recommendation that all persons “with relevant and related claims be made parties to their own separate proceedings”. In some respects, a representative proceeding instituted pursuant to Part IVA affects group members in much the same way as if they were parties to the litigation. In particular, s 33ZB provides that a judgment given in a representative proceeding binds all group members affected by it, other than those who have opted out of the proceeding pursuant to s 33J. It appears to be generally accepted, however, that group members are not parties to a representative proceeding. In Mobil Oil Australia Pty Ltd v Victoria [2002] HCA 27, at [50], a case involving Victorian legislation in substantially the same terms as Part IVA of the Federal Court Act, Gaudron, Gummow and Hayne JJ noted that a “group member is not a plaintiff”. In Johnson Tiles Pty Ltd v Esso Australia (1999) 166 ALR 731, at 738, Merkel J regarded ss 43(1A), 33A, 33C, and 33ZJ of the Federal Court Act as demonstrating that group members are not parties to a representative proceeding for the purposes of costs or otherwise. But the departure from the ALRC’s proposals concerning the party status of group members does not detract from the fact that Part IVA in substance adopts the ALRC’s approach to settlement of group members’ claims.

Ratio Decidendi

Legal Principle Established

Established by: SACKVILLE J

Full text does not contain this section.