Gill v Ethicon Sàrl (No 12)

Link copied
Case Copied 76 min read

FEDERAL COURT OF AUSTRALIA

Gill v Ethicon Sàrl (No 12) [2023] FCA 902  

File numbers: NSD 1590 of 2012
NSD 310 of 2021
Judgment of: LEE J
Date of judgment: 3 August 2023
Catchwords: REPRESENTATIVE PROCEEDINGS – incorporated solicitors controlled by a public company and who claim to be entitled to $82 million in costs and disbursements for running a class action now seek an additional alleged “just” deduction of $32 million from the settlement proceeds which would otherwise be paid to women who suffered serious and chronic complications caused by pelvic mesh implantation and who obtained a “borderline” settlement – where solicitors originally agreed to pay costs and disbursements and did so out of retained earnings until shortly prior to trial and then decided to enter into a “disbursement funding facility” potentially exposing group members to interest charges initially calculated at rates between 22.4% and 31.8% per annum – where evidence does not reveal sufficient exploration of alternatives and no earlier contingency plan if the case proceeded to trial – where evidence reveals inadequate disclosure to applicants and no disclosure to group members – where representation made that the interest sum now claimed could be recovered against the respondents but solicitors now say such an argument is “hopeless” and no attempt was made to make an application to the trial judge for an order for recovery of the sum – evidence reveals retained earnings reduced by over $45 million in dividends since 2016 financial year – absence of sufficient proof that exposure of group members to interest charges was reasonable in all the circumstances – proposed order not just for numerous reasons – application dismissed with costs
Legislation:

Competition and Consumer Act 2010 (Cth) Pt VIB

Corporations Act 2001 (Cth) Pt 2D.1, s 254T(2)

Federal Court of Australia Act 1976 (Cth) Pts IVA, VB, ss 33V(1), 33V(2), 33Z, 33ZA, 33ZB, 33ZJ(3)

Trade Practices Act 1974 (Cth) Pt VIB

Legal Profession Uniform Law (NSW) ss 6, 181, 182

Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) r 4.1.1

Legal Profession Amendment (Incorporated Legal Practices) Act 2000 (NSW) (repealed)
Cases cited:

Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3) [2020] FCA 1885; (2020) 385 ALR 625

Dyczynski v Gibson [2020] FCAFC 120; (2020) 280 FCR 583

Ethicon Sàrl v Gill [2021] FCAFC 29; (2021) 288 FCR 338

Flower & Hart v White Industries (Qld) Pty Ltd [2001] FCA 370; (2001) 109 FCR 280

Furnell v SEPL Pty Ltd [2022] FCA 1603

Gill v Barnsley Canister & Others (County Court at Barnsley, Corkill DCJ, 15 November 2021, unreported)

Gill v Ethicon Sàrl (No 2) [2019] FCA 177; (2019) 134 ACSR 649

Gill v Ethicon Sàrl (No 5) [2019] FCA 1905

Gill v Ethicon Sàrl (No 6) [2020] FCA 279

Gill v Ethicon Sàrl (No 7) [2020] FCA 700

Gill v Ethicon Sàrl (No 10) [2023] FCA 228

Gill v Ethicon Sàrl (No 11) [2023] FCA 229

IMF (Australia) Ltd v Meadow Springs Fairway Resort…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Gill v Ethicon Sàrl (No 12) and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[2023] FCA 902
Decision Date

CaseChat Overview and Summary

In Gill v Ethicon Sàrl (No 12), the Federal Court considered an application by Shine Justice, a law firm, to deduct over $32 million in interest from settlement proceeds intended for women who suffered complications from pelvic mesh implants. The dispute centred on the firm's decision to enter into a "disbursement funding facility" to fund the litigation, which exposed the group members to potentially high-interest rates. The court was tasked with determining whether such a deduction was permissible and fair under the circumstances.

The legal issues before the court involved the interpretation of the Federal Court of Australia Act 1976 and the Corporations Act 2001 (Cth). Specifically, the court had to decide whether the proposed deduction was just and reasonable under section 33V(2) of the Federal Court Act and whether it complied with the Corporations Act regarding dividend payments and financial disclosure. Additionally, the court considered whether the firm had adequately disclosed the financial implications of the disbursement funding facility to the group members and the applicants.

The court found that the firm had not sufficiently explored alternative funding options and had not disclosed the true extent of the financial risks to the group members. The court also noted that the firm had paid dividends amounting to over $45 million since the 2016 financial year, which suggested that the directors believed the company's financial position was sound. The court concluded that the proposed deduction was not just and reasonable in all the circumstances, as there was insufficient evidence that the exposure to high-interest rates was reasonable. Consequently, the application was dismissed, and the firm was ordered to pay the contradictor's costs.

In summary, the court held that the firm's attempt to deduct over $32 million in interest from the settlement proceeds was unjust and unreasonable. The court emphasised the need for transparency and adequate disclosure to both the applicants and the group members. The dismissal of the application and the order for the firm to pay costs underscored the importance of fair and reasonable practices in representative proceedings.

Orders

Orders of the court

1. The application by the solicitors for the applicants for an order pursuant to s 33V(2) of the Federal Court of Australia Act 1976 (Cth) for a deduction from the approved settlement fund of an amount in excess of $32 million, calculated by reference to the interest incurred on disbursement funding facilities be dismissed.

2. For the avoidance of doubt, Order 1 does not prevent a further application by the solicitors for the applicants for a different s 33V(2) order relating to the same subject matter.

3. The solicitors for the applicants pay the costs of the contradictor as agreed or, failing agreement, following a lump sum assessment, with such an assessment to be conducted if the failure to reach agreement as to costs within 14 days is notified to the Associate to Justice Lee.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

It is necessary to commence by turning to make a number of findings as to the relevant background.B THE EVIDENCE AND FINDINGS Although initially I thought it may be possible to determine this application promptly on limited evidence at the time of the settlement approval application, it became apparent the application raised novel and substantive issues and its resolution was deferred in order to allow Shine to put on any and all material it proposed to rely upon. A direction to this effect was communicated by my Associate to Shine on 7 June 2023. In the end, the following affidavits were read: five affidavits of Mr Ravin Raj, the Chief Financial Officer of Shine Justice, affirmed on 11 November 2022 (November Affidavit); 19 December 2022 (December Affidavit); 4 April 2023 (April Affidavit); 9 June 2023; and 21 July 2023 (July Affidavit); three affidavits sworn by Mrs Saddler on 11 November 2022 (First Saddler Affidavit); 15 November 2022 (Second Saddler Affidavit); and 28 November 2022 (Third Saddler Affidavit); and an affidavit sworn by Mr Craig Allsopp on 22 July 2023 (Allsopp Affidavit). Without objection, the following materials were also admitted into evidence:(1)the “Prospectus for an offer of 45,000,000 shares in Shine Corporate Ltd ACN 162 817 905 at $1.00 per share”, dated 28 March 2013 (Prospectus). Shine Corporate Ltd (Shine Corporate) later became Shine Justice;(2)the Shine Justice “Code of Conduct”, adopted by the board on 26 May 2016 and last reviewed on 26 May 2023 (Code of Conduct);(3)the Constitution of Shine Justice dated 19 October 2022 (Constitution); and(4)Shine Justice’s Annual Reports from 2016 to 2022. On the basis of this material, I make the following findings.B.1 Shine and Shine Justice Ltd Shine is the largest legal entity within the Shine Justice group of companies. Although there was no reference to it in the evidence filed by Shine on this application, Shine Justice has paid dividends to its shareholders during the currency of this proceeding. Shine Justice’s Annual Reports record the total amount paid in dividends each financial year. The dividend payments (rounded to the nearest thousand) and dividend payout ratio (calculated based on the dividends actually paid during the year and profit for the year) for 2016–2022 were as follows: The total distributed in dividends since the 2016 financial year amounts to some $45.026 million. This means, one assumes, that at the time these dividends were paid, the directors of Shine Justice considered, in accordance with s 254T(1) of the Corporations Act 2001 (Cth) (Corporations Act) that: (1) the company’s assets exceed its liabilities immediately before the dividend was declared and the excess was sufficient for the payment of the dividend; (2) the payment of the dividend was fair and reasonable to the company’s shareholders as a whole; and (3) the payment of the dividend did not materially prejudice the company’s ability to pay its creditors. The precise timing and amounts of certain dividend payments are recorded in the sections that follow.B.2 The Retainers and the Litigation Generally

Decision

Reasons for decision

Finally, the Talbot Proceeding was commenced in April 2021 to bring the same claims brought in the Gill Proceeding against Ethicon for the benefit of women who suffered a complication on or after 4 July 2017 (being the day after the cut-off date for class closure in the Gill Proceeding).B.3 The Decision to Obtain Disbursement Funding As at 31 December 2016, the total amount of the work in progress for the Gill Proceeding was $15.2 million and the aggregate disbursements paid or payable amounted to $4.8 million: November Affidavit (at [14]). At this time, Shine typically conducted personal injury matters and class actions on a speculative “no win, no fee” basis, paying for disbursements out of its own cash reserves rather than engaging litigation funders or other financial backing: November Affidavit (at [11]–[12]). Mr Raj’s view was that the Gill Proceeding “represented a significant impost on the balance sheet, and financial reserves of the business of Shine Lawyers”: November Affidavit (at [15]). In early 2017, the team responsible for the Gill Proceeding informed Mr Raj that the trial was listed to commence in July 2017 and was estimated to take approximately six months: December Affidavit (at [6]). Mr Raj was told “significant further disbursements, estimated to be in the order of $10 million, were going to be incurred” as the matter proceeded to trial: November Affidavit (at [16]); December Affidavit (at [7]). Mr Raj formed the view that unless Shine Justice could access significant sums of cash from an external source, it did not have sufficient cash reserves to fund such large outgoings in addition to its ordinary business expenses: December Affidavit (at [8]). He came to this conclusion on the basis of his opinion that Shine Justice’s “short-term liquidity” was insufficient (December Affidavit (at [3]–[5])), that is, the amount of cash held by Shine Justice, less current trade payables, short term borrowings and current lease liabilities, was too small to fund operations beyond essential expenses. Shine Justice’s short-term liquidity at the end of the financial years 2016–2020 was as follows: As can be seen, Shine Justice had negative “short-term liquidity” as at 30 June 2016 and 30 June 2017. Shine had a number of debt facilities with the Commonwealth Bank of Australia (CBA) at the time, however, most are said to have been “fully or mostly drawn throughout that period”: December Affidavit (at [11]). The evidence before the Court in support of this proposition is scarce and unsatisfactory. Three debt schedules are in evidence and, for what it is worth, they demonstrate these facilities were fully or mostly drawn at particular points in time (as at 30 June 2017; 31 December 2017; and 30 June 2018). An obvious and important gap in the evidence is the drawn balance of these facilities in 2016. Additionally, no cash flow projections prepared around this time are in evidence. There were, however, two exceptions to the fully or mostly drawn facilities: the “Better Business Loan General Corporate Purposes” facility (BBL) and the “Group Limit Facility” (Overdraft): December Affidavit (at [11]). The debt schedules show as follows for those facilities:

Ratio Decidendi

Legal Principle Established

This means, one assumes, that at the time these dividends were paid, the directors of Shine Justice considered, in accordance with s 254T(1) of the Corporations Act 2001 (Cth) (Corporations Act) that: (1) the company’s assets exceed its liabilities immediately before the dividend was declared and the excess was sufficient for the payment of the dividend; (2) the payment of the dividend was fair and reasonable to the company’s shareholders as a whole; and (3) the payment of the dividend did not materially prejudice the company’s ability to pay its creditors. The precise timing and amounts of certain dividend payments are recorded in the sections that follow.B.2 The Retainers and the Litigation Generally For those unfamiliar with this litigation, the Gill Proceeding was commenced in October 2012. The initial representative applicant, Mrs Julie Davis, entered into a Conditional Costs Agreement dated 21 August 2012, which was superseded by a Conditional Costs Agreement dated 10 September 2014. Mrs Kathryn Gill entered into a Conditional Costs Agreement dated 11 December 2015. Conditional Costs Agreements were entered into by Mrs Dawson and Mrs Sanders in March 2016 and an undated Conditional Costs Agreement relating to Mrs Talbot is in evidence which, I infer, was entered into in much more recent times. Shine did not suggest that for present purposes there was any material difference between these agreements and, where, appropriate, I will describe them collectively as the Costs Agreements. The Costs Agreements provide for “no win, no fee” retainers. Costs and disbursements are charged at hourly and fixed rates. Clauses 4–6 (and, in Mrs Talbot’s case, cll 13–15) relevantly provide:4.We will only charge you professional fees and disbursements upon the successful outcome of the matter or if this agreement is terminated in accordance with clauses 35 to 38 below.5.If you lose, you will not be liable to pay our professional fees or any disbursements or expenses incurred on your behalf.6.If your claim is successful and an order for payment of your costs is obtained against the Respondents, we agree to limit your costs and disbursements payable to the amount recovered from the Respondents for your share of the party/party costs. The Costs Agreements include further statements to the following effect in respect of the recovery of costs and disbursements:(1)cl 29 (cl 37 in Mrs Talbot’s case): “An order by a court for the payment of costs in your favour will not necessarily cover the whole of your legal costs. However, we agree that the total costs and disbursements payable by you will be limited to the amount we recover from the Respondents for your share of party / party costs”; and(2)cl 32, note (c) (cl 40, note (c) in Mrs Talbot’s case): “The estimated ranges of costs are prepared bearing in mind that only a certain percentage of your total legal costs are recoverable or may be payable. In most matters, even if you win and obtain an order that the other party pays your costs, you will still be out of pocket with respect to legal costs charged by us on the solicitor/client basis. However we agree to limit your costs and disbursements payable to the amount we recover from the Respondents for your share of the party/party costs.”