Francis (Trustee) v Oculus Accounting Pty Ltd (No 2)

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FEDERAL COURT OF AUSTRALIA

Francis (Trustee) v Oculus Accounting Pty Ltd (No 2) [2021] FCA 1275

File number: QUD 11 of 2020
Judgment of: DERRINGTON J
Date of judgment: 20 October 2021
Catchwords:

PRACTICE AND PROCEDURE – application under s 33V of Federal Court of Australia Act 1976 (Cth) for approval to discontinue representative proceeding –discontinuance to apparent benefit of representative parties and legal representatives only – terms on which proceedings to be discontinued adverse to interests of other group members – application dismissed

PRACTICE AND PROCEDURE – application under s 33N for order that proceeding no longer continue as representative proceeding under Pt IVA – whether Court should move on its own motion – no reason identified why inappropriate that claims be pursued by means of representative proceeding – application dismissed
Legislation: Federal Court of Australia Act 1976 (Cth) ss 33N, 33V, 33W, 33ZE, 33ZF
Cases cited:

AUB19 v Commonwealth of Australia [2019] FCA 1722

Babscay Pty Ltd v Pitcher Partners (2020) 148 ACSR 551

Calinoiu v QLD Law Group – A New Direction Pty Ltd [2019] FCA 2194

Dyczynski v Gibson (2020) 280 FCR 583

Gill v Ethicon Sarl (No 4) [2019] FCA 1814

Laine v Thiess Pty Ltd [2016] VSC 689

Mercedes Holdings Pty Limited v Waters (No 1) (2010) 77 ACSR 265

Multiplex Funds Management Limited v P Dawson Nominees Pty Limited (2007) 164 FCR 275

P Dawson Nominees Pty Ltd v Multiplex Limited (2007) 242 ALR 111

P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4) [2010] FCA 1029

Simonetta v Spotless Group Holdings Limited [2017] FCA 1071

Tate v Westpac Banking Corporation (No 2) [2020] FCA 1374

Turner v Bayer Australia Ltd [2021] VSC 241

Williams v FAI Homes Security Pty Ltd (No 5) [2001] FCA 399

Wotton v Queensland (2009) 109 ALD 534
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 61
Date of hearing: 27 September 2021
Counsel for the Applicants: Mr R Turnbull
Solicitor for the Applicants: Bounty Law
Counsel for the Respondent: Mr D Dickie
Solicitor for the Respondent: Stacks Law Firm

ORDERS

QUD 11 of 2020
BETWEEN:

GARRY CHARLES FRANCIS AND JODI LEE FRANCIS BOTH IN THEIR OWN RIGHT, AND/OR ACTING AS TRUSTEES OF THE FRANCIS FAMILY TRUST, AND ALSO ACTING AS REPRESENTATIVES OF THE GROUP MEMBERS
Applicants
AND: OCULUS ACCOUNTING PTY LTD ACN 097 021 031
Respondent

ORDER MADE BY:

DERRINGTON J

DATE OF ORDER:

20 OCTOBER 2021

THE COURT ORDERS THAT:

1.The applicants’ second amended interlocutory application filed 1 July 2021 be dismissed.

2.The costs of the application be reserved.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

DERRINGTON J:

  1. The present action was commenced by the applicants, Mr Garry Francis and Mrs Jodi Francis, as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Act) on their own behalf and on behalf…

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Details
Case
[2021] FCA 1275
Decision Date

CaseChat Overview and Summary

The case of Francis (Trustee) v Oculus Accounting Pty Ltd (No 2) involved the applicants, who were clients of Oculus, seeking to discontinue a representative proceeding. The applicants claimed that Oculus provided them with investment advice regarding their investment in Guvera Limited shares, which they alleged was flawed, leading to significant financial loss. The applicants sought to discontinue the proceedings, which were on foot since January 2020, in light of having reached a settlement with Oculus. However, the proceedings included other group members with similar claims, and the applicants' proposed discontinuance raised several legal issues.

The court had to determine whether the discontinuance of the representative proceeding should be approved under section 33V of the relevant legislation. This required consideration of whether discontinuance would be fair and reasonable and in the interests of all group members, or if it was sufficient to show that discontinuance would not be unfair, unreasonable, or adverse to their interests. Additionally, the court had to consider whether the applicants were entitled to an order under section 33N of the legislation, which pertains to the settlement of a representative party's claim. The applicants also needed to address the implications of their settlement on the distribution of any settlement sum, as there was no clear mechanism or term in the settlement deed governing this distribution.

The court found that the applicants had not demonstrated that discontinuance would be fair and reasonable or in the interests of all group members. There was significant uncertainty regarding whether the applicants would receive any part of the settlement sum, as the settlement deed did not clearly outline the distribution of the settlement monies. Furthermore, the applicants did not provide any evidence to clarify this issue, and it was not established that they were legally bound to follow any proposed distribution schedule. Consequently, the court concluded that the application for discontinuance should be dismissed. However, the court noted that the issues raised were not insurmountable and could potentially be addressed in a future application. The court also reserved the matter of costs to allow the parties to make submissions on an appropriate order.

Orders

Orders of the court

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Background

Background to the litigation

For those reasons, it was not demonstrated that the discontinuance of the representative proceeding ought to be approved. As is explained below, the applicants also failed to establish their entitlement to an order pursuant to s 33N. While this means that their application should be refused, it ought to be emphasised that the termination of the proceedings seems to be appropriate in the circumstances and that the issues identified below are not insurmountable. It will remain open to the applicants to address those issues and re-apply for similar relief.BACKGROUND The background to the proceedings need only be stated briefly. The applicants were clients of Oculus which had previously provided them with accountancy and taxation advisory services in accordance with its day-to-day business activities. In about February 2014, the applicants invested the sum of $100,000 subscribing for shares in Guvera Limited (Guvera), which carried on business as a provider of an internet music streaming service from 2007 until it was placed into external administration in May 2017. The applicants claim that Oculus provided them with investment or financial advice in relation to their investment in Guvera shares. That is denied by Oculus, which says that any advice in relation to that investment was given by an unrelated third party. The applicants commenced their action in January 2020, the essence of which was that:(a)in 2014, Oculus or its agents advised them in relation to subscribing for Guvera shares;(b)they ultimately invested the sum of $100,000 in Guvera shares;(c)an application to list Guvera on the Australian Securities Exchange was rejected in 2016 and the company was subsequently placed into external administration in May 2017;(d)the result was that their shares became worthless and unsaleable;(e)in the course of advising them in relation to their investment, Oculus breached various duties it owed to them, including a duty of care, a fiduciary duty, and obligations arising under Schedule 2 of the Competition and Consumer Act 2010 (Cth); and(f)as a consequence of the breach of those duties, they suffered loss and damage, in that their shares are now worthless and unsaleable, which is recoverable from Oculus. Oculus denies much of the allegations underlying that claim. The other group members are persons with similar claims. It is unclear how many investors fall within this category, but there may be as many as 107. The total amount which they invested in Guvera is also unknown, but for present purposes it may be assumed that they might collectively seek to recover a sum many times greater than $100,000 if the claims raised in the representative proceeding are established.The conduct of the proceedings Although the proceedings have been on foot since January 2020, the parties have been occupied with interlocutory issues which did little to advance the preparation of the matter for trial. The applicants first attempted to identify and join Oculus’ professional indemnity insurers for the relevant period. Although two were joined in March 2020, the claims against them were later struck out by consent and the applicants were ordered to pay the insurers’ costs. It appears that their legal representatives ascertained there were poor prospects of recovering against those insurers consequent on there being doubt as to whether the policies’ cover extended to the provision of advice of the kind Oculus was alleged to have provided. There was also uncertainty as to whether the company had notified their insurers of potential claims in accordance with the terms of the policies.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Notwithstanding the issue discussed above, the notice sent to the other group members in advance of the present application advised them of the risk that the running of the limitation periods would resume and none has raised any objection or sought to take over the action from the applicants. It is also relevant that the risk is of the resumption of running of the limitation periods. In that case, the usual limitation period has been extended by the period of time during which these proceedings have been ongoing, being approximately 21 months. Subject perhaps to the making of an order described above to delay the potential resumption of the running of the limitation periods, I am not persuaded that the risk of such resumption outweighs the approval of the proposed discontinuance. If the other group members are provided sufficient opportunity to avoid the potential adverse consequences of the limitation period resuming, those consequences do not really militate against permitting the lead applicants to discontinue these proceedings.CONCLUSION It follows from the consideration above that the applicants’ interlocutory application should be dismissed. The costs of that application will be reserved so the parties will have an opportunity to make submissions as to the appropriate order as to costs. It ought to be stressed that the issues described above concerning the proposed discontinuance are not insurmountable. It may be necessary for the parties to agree to modifications to the Deed in order to resolve the issues in relation to the distribution of the settlement. There may also be undertakings which could be offered to the Court with respect to the provision of documents to other group members. Likewise, orders could be sought to relieve the applicants and their legal representatives from the restrictions upon the provision of documents provided under compulsion. However, it is not the role of this Court to propose and craft such solutions for the applicants. That is a matter for them and their legal representatives.

Ratio Decidendi

Legal Principle Established

It is also relevant that s 33W permits a representative party, with leave of the Court, to settle their claim. In the event leave is also sought to withdraw as the representative party, another group member may be substituted: s 33W(3). The difficulty for the applicants, which is consequent upon the terms on which they agreed to settle their claim, is that their withdrawal would not satisfy the condition that they discontinue the whole representative proceeding and, instead, the proceedings would be left on foot with no party prepared to assume the role of representative party. Mr Turnbull suggested at an earlier case management hearing that an order could be made pursuant to s 33W conditional upon no party seeking to be substituted. It was not clear whether it was intended that this would lead to the proceedings being discontinued or, instead, being dismissed. In any case, that was not taken further than a suggestion. In the course of the interlocutory hearing on 27 September 2021, he sought to make an instant application for an order under s 33W. However, as such an application had not been notified to group members, it could not be entertained: s 33X(1)(c).CONSIDERATION Given the foregoing, it is necessary to determine the application on the basis of the power in s 33V and the relevant principles to which reference has been made. As was foreshadowed, the applicants have failed to demonstrate on either test that it is appropriate to make an order pursuant to that section approving the discontinuance of the proceedings. It is therefore unnecessary to reach a conclusion as to whether it is sufficient to show that such approval would not be unfair, unreasonable, or adverse to the interests of other group members, or whether it is instead necessary to demonstrate that discontinuance is fair and reasonable and in the interests of the members of the representative proceeding as a whole. An initial issue is that the Court is left in great doubt as to whether the lead applicants, Mr and Mrs Francis, will receive any money from the settlement of their individual claim against Oculus. In particular, there is no apparent term or mechanism in the Deed governing the distribution of the settlement sum. In the ordinary course, a settlement deed which provided for the payment of a settlement sum to a plaintiff’s solicitors would be construed such that the plaintiff is beneficially entitled to the entirety of that sum. Although that is apparently not the intention of the parties, the applicants failed to adduce evidence establishing the true position. Their written outline referred to a “schedule of the proposed distribution of settlement monies”, but this was not put into evidence. It ought to be stressed, again, that it was not the responsibility of the Court to request such a document from the applicants. In any event, it was also not established that there was any legal basis for the applicants being bound to distribute the settlement sum in accordance with that schedule. It was, after all, only a proposed distribution.