Furnell v SEPL Pty Ltd
[2022] FCA 1603
•13 December 2022
FEDERAL COURT OF AUSTRALIA
Furnell v SEPL Pty Ltd [2022] FCA 1603
File number: SAD 76 of 2020 Judgment of: CHARLESWORTH J Date of judgment: 13 December 2022 Date of publication of reasons: 24 January 2023 Catchwords: REPRESENTATIVE PROCEEDINGS – application for approval of settlement – whether proposed settlement fair and reasonable as between the parties and as between group members – settlement sum to include a capped amount for the applicants’ costs – whether issues affecting the applicants’ costs warrant further enquiry – whether any further enquiry would result in an assessment below the capped figure – settlement including the capped costs sum approved Legislation: Fair Work Act 2009 (Cth)
Federal Court of Australia Act 1976 (Cth) ss 33V, 33VF
Cases cited: Australian Securities and Investments Commission v Richards [2013] FCAFC 89
Baker v Woolworths Group Limited (No 2) [2022] FCA 534
Blairgowrie Trading Ltd v Allco Finance Group Ltd (ACN 007 721 129)(recs & mgrs apptd) (in liq) (No 3) [2017] FCA 330; 343 ALR 476
Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527
Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70
Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439
Prygodicz v Commonwealth of Australia (No 2) (2021) 173 ALD 277
Schoneweiss v The Fourth Force Pty Ltd (No 2) [2022] FCA 1489
Stanford v DePuy International Ltd (No 6) [2016] FCA 1452
Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106
Division: Fair Work Division Registry: South Australia National Practice Area: Employment and Industrial Relations Number of paragraphs: 38 Date of hearing: 13 December 2022 Counsel for the Applicants: Dr Hanscombe KC with Mr J Fetter Solicitor for the Applicants: Adero Law Counsel for the Respondent: Mr M Hoffman KC with Mr L Wicks Solicitor for the Respondent: Piper Alderman Counsel for Adero Law: The non-party Adero Law appeared by its representative Mr R Markham ORDERS
SAD 76 of 2020 BETWEEN: AARON FURNELL
First Applicant
PAUL YOUNG
Second Applicant
SHANNAN MAHONEY (and others named in the Schedule)
Third Applicant
AND: SEPL PTY LTD
Respondent
ORDER MADE BY:
CHARLESWORTH J
DATE OF ORDER:
13 DECEMBER 2022
THE COURT NOTES THAT:
1.The applicants have withdrawn all allegations of serious contraventions of the Fair Work Act 2009 (Cth).
2.The parties have agreed to the terms upon which these proceedings will otherwise be dismissed without any admission of liability or wrongdoing by the respondent (denials of which are maintained by the respondent).
3.A person who has registered to participate in the settlement the subject of these orders may not fall within the definition of Group Member, including because that person was not employed under the Shahin Enterprises Pty Ltd Employee Collective Agreement – Customer Service Employee, the Shahin Enterprises Pty Ltd Employee Collective Agreement – Full Time Employees or the Vehicle Manufacturing, Repair, Services and Retail Award 2010, for example because they were employed under the Fast Food Award after 1 July 2018.
THE COURT ORDERS THAT:
Change of name of Respondent
1.Pursuant to r 8.21(1)(d) of the Federal Court Rules 2011 (Cth), the applicants have leave to amend the Amended Originating Application so as to alter the name of the Respondent to SEPL Pty Ltd, such Amended Originating Application to be filed on or before 20 December 2022.
Settlement Approval
2.Subject to these orders, pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the settlement of the proceedings upon the terms set out in the “Deed of Settlement” between the applicants, SEPL Pty Ltd, cross-respondents, Adero Law Pty Ltd (Adero) and Mr Rory Michael Markham exhibited as “RMM10-1” to the Affidavit dated 24 October 2022 is approved.
3.Pursuant to s 33V and s 33ZF of the FCA Act, the Court authorises the applicants nunc pro tunc to enter into and give effect to the Deed of Settlement for and on behalf of group members.
4.Pursuant to s 33ZB and s 33ZF of the FCA Act, the persons affected and bound by the settlement of the proceedings are the parties to the Deed of Settlement and group members as defined in the Second Further Amended Statement of Claim, other than those who have opted out of the proceeding pursuant to s 33J of the FCA Act.
Settlement Distribution Scheme
5.Pursuant to s 33V and s 33ZF of the FCA Act, the “Settlement Distribution Scheme” be established on the terms set out in the Settlement Distribution Scheme document appearing as Annexure D to the Deed of Settlement (Scheme Document) save that:
5.1Schedule 1 of Annexure D (entitled “Calculation Principles”) shall be taken to contain the following text in lieu of the words presently appearing in square brackets:
The calculation principles are embodied in the Microsoft Excel document described as the “Revised Adero Model” in paragraph 57 of the affidavit of Thomas Alexander Griffith dated 6 December 2022. The Settlement Administrator shall make a copy of the Revised Adero Model available to any Group Member upon request, but shall mask the names and other identifying information of other persons who are referred to therein;
5.2Clause 7 of the Scheme Document is to operate as if the words “30 days” were replaced with the words “42 days” after the appointment of the Administrator.
6.Pursuant to s 33V and s 33ZF of the FCA Act, Adero Law be appointed Administrator of the Settlement Distribution Scheme pursuant to clause 4 of the Scheme Document (Administrator).
Costs of the proceedings
7.Pursuant to s 33V and s 33ZF of the FCA Act, the applicants’ Costs referred to in clause 1(b) of the Deed of Settlement be approved in the amount of $1,650,000.00 inclusive of any GST, to be paid out of the Settlement Sum.
Dismissal of the proceedings
8.The proceedings be dismissed upon the Administrator filing the Completion Certificate pursuant to clause 15 of the Scheme Document with no further order as to costs.
Confidentiality
9.Pursuant to s 37AF of the FCA Act, and on the ground that the order is necessary to prevent prejudice to the proper administration of justice, the following information and material (the Suppressed Material) is to remain confidential, and be placed on the Court file in a sealed envelope marked “Not to be opened except by Direction of a Judge of the Court”:
9.1the unredacted copy of the affidavit of Mr Rory Michael Markham dated 10 November 2022;
9.2the opinion of Dr Kristine Hanscombe KC and Mr Joel Fetter dated 9 November 2022, which is annexure RMM 13-1 to the Affidavit of Mr Rory Michael Markham made 10 November 2022 (the Affidavit): and
9.3all negotiations in connection with the Deed, the Heads of Agreement and the settlement and all information given under the Deed of Settlement, the Heads of Agreement and the settlement.
10.Publication of the Suppressed Material is prohibited.
11.Sub-clause 13.1(a) of the Deed of Settlement is not approved.
12.Upon entry of these orders all previous suppression or confidentiality orders are revoked.
13.By 20 December the applicants are to file a version of the Affidavit which does not annex the Opinion identified at paragraph 9.2 above, and any non-party seeking access to the Affidavit is to be provided with that version upon payment of any applicable fee.
Liberty to apply
14.The parties have liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
CHARLESWORTH J
This matter is constituted as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act). It was commenced by an originating application and statement of claim both filed on 13 May 2020. The named applicants are Mr Aaron Furnell, Mr Paul Young, Ms Shannan Mahoney, Mr Christopher Palmer and Mr Laurence Williamson. The respondent is SEPL Pty Ltd. It operates a chain of convenience stores, fuel stations and fast food outlets trading as “On the Run”.
By their second further amended statement of claim filed on 17 March 2022, the applicants alleged that the respondent contravened various provisions of the Fair Work Act 2009 (Cth) (FW Act) by underpaying them and their fellow employees. The applicants sought declarations that the respondent has contravened the FW Act as well as orders for the payment of compensation and the imposition of civil penalties in unspecified amounts.
The second further amended statement of claim outlined five represented groups. Each group claimed that the respondent underpaid them for differing reasons including failures to pay for overtime completed and the unlawful deduction of expenses (such as the costs for uniforms and security checks) from their pay. The claims of the five groups enjoy different prospects of success. The applicants’ solicitor estimates that there are between 5,000 to 8,000 Group Members across the five groups. There are currently 2,304 registered Group Members.
The respondent denies liability. By cross-action, the respondent also claims contribution by two managers who (in the event that the Court should find any underpayments to have occurred) are said to have caused the underpayments to have been made at the stores they managed.
Section 33V(1) of the FCA Act requires that a representative proceeding may only be settled with the approval of the Court.
By an amended interlocutory application filed on 12 December 2022 (the Approval Application), the applicants sought the Court’s approval of a Deed of Settlement and Release and agreed distribution model dated 17 August 2021 executed by the applicants, respondent, cross-respondents and the applicants’ solicitor, Adero Law Pty Ltd and its principal Mr Rory Michael Markham (the Proposed Settlement). All parties consented to the orders sought on the Approval Application.
On 13 December 2022, I made orders granting the Approval Application. The parties and interested non-parties were informed that the Court would publish more detailed written reasons in due course. These are those written reasons.
THE DEED
The parties engaged in a court ordered mediation on 25 May 2022 and 24 June 2022 after the opt out deadline passed on 14 May 2021. Thirteen Group Members had opted out by that date. The outcome of the mediation was the agreement between the parties and interested non-parties recorded in the Deed. In brief, the terms of the Deed are to the following effect:
(1)the respondent denies liability;
(2)the applicants withdraw all allegations of serious contraventions of the FW Act;
(3)the respondent will pay $5,800,000.00 in full and final settlement of the claims of the Group Members who have not opted out (the Settlement Sum);
(4)the Settlement Sum is to be paid 30 days after the Court approves the Proposed Settlement;
(5)the applicants’ costs are capped at $1,500,000.000 plus GST and are to be paid out of the Settlement Sum;
(6)the applicants’ costs are defined in clause 1(b) as:
Applicants’ Costs means the Applicants’ costs of and incidental to the Proceedings (including disbursements) in an amount to be assessed by an independent costs assessor and approved by the Court and which costs include:
(1) the costs of negotiating and entering into this deed and taking any steps contemplated by it;
(2) any costs incurred on behalf of Group Members; and
(3)the costs of and incidental to administering the Settlement Distribution Scheme (Settlement Administration Costs).
(7)after the payment of the applicants’ costs, the balance of the Settlement Sum is to be distributed between the applicants and Group Members in accordance with the Settlement Distribution Scheme incorporated as “Annexure D” to the Deed.
By orders dated 26 August 2022, I set the final date, being 24 October 2022, for a Group Member to become a registered Group Member. By that date, 2,304 Group Members had become registered.
APPROVAL
The principles relating to the Court’s discretion under s 33V of the FCA Act in approving the settlement of Pt IVA class actions are well established. They were recently summarised in Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106 (at [37] – [42]).
The Court must be satisfied that the Proposed Settlement is fair and reasonable, as between the lead applicants and Group Members and the respondents, and as between the Group Members themselves: Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70, Beach J (at [17]); Blairgowrie Trading Ltd v Allco Finance Group Ltd (ACN 007 721 129)(recs & mgrs apptd) (in liq) (No 3) [2017] FCA 330; 343 ALR 476, Beach J (at [81]); Prygodicz v Commonwealth of Australia (No 2) (2021) 173 ALD 277 at [85].
The Federal Court Class Actions Practice Note (GPN-CA) at [15.5] sets out a non-exhaustive list of some of the relevant considerations in determining whether the Proposed Settlement is fair and reasonable including the:
(1)complexity and likely duration of the litigation;
(2)reaction of the class to the settlement;
(3)stage of the proceedings;
(4)risks of establishing liability;
(5)risks of establishing loss or damage;
(6)risks of maintaining a class action;
(7)ability of the respondent to withstand a greater judgment;
(8)range of reasonableness of the settlement in light of the best recovery;
(9)range of reasonableness of the settlement in light of all the attendant risks of litigation; and
(10)terms of any advice received from Counsel and/or from any independent expert in relation to the issues which arise in the proceeding.
The Court has a protective role in relation to approving settlements under s 33V of the FCA Act especially in relation to the interests of Group Members who are not directly represented in the proceedings: Australian Securities and Investments Commission v Richards [2013] FCAFC 89, Jacobson, Middleton and Gordon JJ (at [8]); Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439, Murphy J (at [62]); Blairgowrie (at [81] – [85]); Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527, Murphy J (at [12]); Bakerv Woolworths Group Limited (No 2) [2022] FCA 534, Murphy J (at [37]).
An applicant must demonstrate an entitlement to an order for approval of the proposed settlement even when the order is not opposed: Baker (at [37]):
It is sufficient to make the following short observations about the Proposed Settlement to which I had regard at the time of granting the Approval Application, now expressed in the present tense.
Notice
I am satisfied that the potential Group Members were given adequate notice of the proceedings and the terms of the Proposed Settlement. On 11 February 2021, the Court made orders requiring the applicants’ solicitor to publish a notice detailing each Group Member’s right to become registered, opt out or do nothing and the legal consequences of each decision. The notice set the deadline to opt out as 14 May 2021. The notice was required to be published on the applicants’ solicitor website and Facebook page, sent by email to Group Members who were currently registered and by post to the address of all former employees of the respondent who were employed during the period relevant to the respective claims.
After the Proposed Settlement had been entered into, I made orders on 26 August 2022 requiring the applicants to provide a notice detailing the Proposed Settlement, how Group Members could register to participate in the Proposed Settlement, how Group Members could object to the Settlement Sum and, specifying that a Group Member will be bound by the Proposed Settlement but will not share in the distribution of the Settlement Sum if they fail to take any action. I am satisfied that it was published on the applicants’ solicitor website and Facebook page as well as the respondent’s payroll website.
Accordingly, each Group Members has been afforded a reasonable opportunity to make an informed decision to either opt out of the proceeding, register to participate in the Proposed Settlement or lodge an objection to it.
Quantum
I am satisfied that the quantum to be paid to each Group Member is reasonable having regard to the matters in issue in the proceeding and the parties own assessment of the merits of their respective cases. On average, each registered Group Member is expected to receive $1,797.00.00. On the material before me (some of which it is suppressed) I am satisfied that the Settlement Sum reflects the applicants’ risk of failing to establish a system on behalf of the respondent giving rise to a common issue to be tried. If such a system cannot be established, the action may be de-classed and each Group Member would have no choice but to pursue their own claim individually.
The reasons should not be understood as accepting a proposition that the applicants’ solicitor was entitled under the general law to cease acting for the applicants. I have not accepted submissions advanced by the applicants’ Counsel on that topic and I have not weighed the prospect of the applicants’ becoming self-represented in the balance in determining whether the Proposed Settlement should be approved. Whether the applicants’ solicitor could lawfully cease acting in a case such as the present should await substantive determination in a matter where the outcome turns upon it.
I have, however, taken into account the prospect that there would be high irrecoverable costs if the matter were to proceed to trial. This Court’s expectation is that the costs and benefits of litigation of this kind have been explained to persons in the position of lead applicant in a timely and accurate way so that informed decisions can be made as to whether or not a proceeding of this kind should be commenced at all. I am satisfied the applicants have obtained legal advice as to whether or not (at least) the continuation of their claims is commercially tenable.
The average figure to be received by each registered Group Member could, at best, be described as modest. However, I recognise that the parties and their lawyers are in a better position to appreciate the risks of their respective cases. As such, the “settlement must be viewed as a pragmatic compromise to the relevant claims”; Stanford v DePuy International Ltd (No 6)[2016] FCA 1452, Wigney J (at [116]); see also Prygodicz (at [87]).
Objections
Nine Group Members have objected to the Proposed Settlement. None of the objectors made oral submissions during the hearing of the Approval Application. By and large, the objectors complain that the amount of money they will receive after distribution is not enough. That is an understandable response. However, none of the objectors’ submissions mention the risks and costs of persisting with the action to judgment, nor the delay in obtaining relief should the action succeed. Whilst I have had regard to the objectors’ complaints, they do not raise any matter sufficient to justify the Court withholding its approval.
Moreover, each registered Group Member was given sufficient notice to opt out of the proceedings and pursue their own individual claim.
The model for distribution
It is necessary to be satisfied that the Proposed Settlement is fair and reasonable as between the Group Members themselves.
The Settlement Distribution Scheme sets out the steps to be taken and the method to be used to distribute the Settlement Sum amongst the registered Group Members after the deduction of costs.
Between the date of the Deed and the hearing of the Approval Application on 13 December 2022, the applicants proposed various models to calculate each registered Group Member’s share of the Settlement Sum. However, there were understandable concerns that the applicants’ model was not fair or accurate.
For example, the model did not take into consideration that the respondent had refunded some employees the cost they incurred for obtaining their own security costs and uniforms, and a method for accounting for back pay already received was unsophisticated and potentially unfair. In response, the respondent engaged Mr Brian Morris, a forensic accountant, to analyse the applicants’ model and to make improvements. By draft minutes of order, the parties seek to rely on Mr Morris’ revised and improved model for the purposes of the Settlement Distribution Scheme.
The revised model derives what each registered Group Member was paid through the respondent’s records. It properly accounts for any refunds for police checks and uniform that have already been made. It then estimates what each Group Member should have been paid based on instructions taken from them and applying those to the most favourable constructions of the FW Act and the awards that regulate the five groups. Each Group Member will then be apportioned a pro rata share of the Settlement Sum, with the apportionment reflecting the value of their claim as a proportion of the value of the whole. Previous problems associated with the acknowledgment of back pay already received have been adequately resolved.
All parties agree that the model will detect underpayments not claimed in the pleadings. However, they argue that it is sufficiently accurate to determine each Group Member’s relative share of the Settlement Sum. The calculation principles do not reach a standard of perfection, including because they do not reflect the circumstance that the claims of some sub-groups enjoyed greater prospects of success than others. However, I am satisfied that they are fair and reasonable considering the overarching complexity of the case, the number of registered Group Members and the need to minimise further legal costs overall.
Costs
By clause 12.1(1)(a) of the Deed, the applicants’ costs are capped at $1,500,000.00 plus GST. That sum is to be deducted from the Settlement Sum. The costs are defined in clause 1(b) of the Deed to include both the costs of the proceeding (including professional fees and disbursements), as well as the costs of administrating the Settlement Distribution Scheme.
In support of the claimed costs figure, the applicants and their solicitor rely on two reports of an independent cost consultant, Ms Catherine Dealehr, dated 17 November 2022 and 12 December 2022.
Ms Dealehr’s opinion is that the sum of $406,560.00 should be payable with respect to the administration of the Settlement Distribution Scheme and I accept that opinion.
Ms Dealehr otherwise expressed an opinion as to the costs that may properly be claimed by Adero Law against the lead applicants, arriving at professional fees of $2,054,126.15 and disbursements of $393,631.25, totalling $2,447,757.40. I am not willing to accept the opinion of Ms Dealehr with respect to those figures without closer examination. This case shares some similar features to other matters in which Adero Law has acted for lead applicants in proceedings commenced under the FW Act which need not be detailed here: see generally Schoneweiss v The Fourth Force Pty Ltd (No 2) [2022] FCA 1489. I am nonetheless satisfied that an enquiry into matters affecting the claimed costs would not result in an estimate or assessment lower than the capped figure of $1,500.000.00 plus GST having regard to the deduction from that sum of the appropriate administration costs.
Counsel for the applicants submitted that the Court should not trouble itself at present with the topic of costs and should focus instead on the reasonableness of the settlement as between the parties. I do not accept that submission. The mediation between the parties was utilised by the applicants’ solicitors and the other parties as an occasion to identify an amount to be deducted from the Settlement Sum referable to costs. The propriety of a claim for costs will be a relevant topic of enquiry in all cases having that structure. The Court may enquire into a solicitor’s claim for costs within such proceedings and the time at which it does so is in all such cases a matter for the Court’s discretion. In the present case, if the administration costs were not included in the claimed costs amount I would not have approved the Proposed Settlement without first enquiring into a number of matters of prima facie concern to the Court.
I should not otherwise be understood to express any concluded view on the topic of costs other than to express my satisfaction that there is a proper basis to claim costs in the capped amount of $1,500.000.00 plus GST.
It is appropriate to make an order pursuant to s 33VF of the FCA Act to ensure that those persons who share rateably in the Settlement Sum also share the burden of the lead applicants’ costs.
AMENDMENT TO TIMEFRAME
The Approval Application was heard a week before the Christmas shutdown period. Approval was granted on the basis that the “30 days” period in clause 7 of the Settlement Distribution Scheme should be replaced with “42 days”. That clause imposes the timeframe in which the Administrator is to verify the information provided by the registered Group Members. The change will give all registered Group Members an additional twelve days (or cumulatively six weeks from 13 December 2022) to provide the applicants’ solicitor with all relevant information to apportion their share of the Settlement Sum.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth. Associate:
Dated: 13 December 2022
SCHEDULE OF PARTIES
SAD 76 of 2020 Applicants
Fourth Applicant:
CHRISTOPHER PALMER
Fifth Applicant:
LAURENCE LACOON WILLIAMSON
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