KPMG (A Firm) v Bogan & Ors

[2022] HCATrans 208

[2022] HCATrans 208

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S67 of 2022

B e t w e e n -

KPMG (A FIRM) (ABN 51 194 660 183)

Applicant

and

ANTHONY BOGAN

First Respondent

MICHAEL THOMAS WALTON

Second Respondent

THE ESTATE OF PETER JOHN SMEDLEY, DECEASED

Third Respondent

ANDREW GERARD ROBERTS

Fourth Respondent

PETER GRAEME NANKERVIS

Fifth Respondent

JEREMY CHARLES ROY MAYCOCK

Sixth Respondent

Application for removal

GAGELER J
GLEESON J
JAGOT J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 NOVEMBER 2022, AT 11.31 AM

Copyright in the High Court of Australia

____________________

MR P.D. HERZFELD, SC:   Your Honours, I appear with MS J.L. ROY for the applicant.  (instructed by Ashurst)

MR S.H. HARTFORD DAVIS:   May it please the Court.  I appear with MR M.O. PULSFORD for the first and second respondents.  (instructed by Banton Group)

MR M.R. PESMAN, SC:   May it please the Court.  I appear for the third to sixth respondents.  (instructed by Baker McKenzie)

GAGELER J:   Thank you.  Yes, Mr Herzfeld.

MR HERZFELD:   Your Honours, on 1 July 2020, the Victorian Supreme Court was given power to make what are called group costs orders in class actions in that court.  Those orders permit a law firm to be paid a percentage of any award or settlement.  No other Australian jurisdiction empowers such orders and they stand in contrast to the uniform prohibition against contingency fees across Australia.

The prospect of group costs orders has led to a surge in class action filings in the Supreme Court of Victoria.  In this matter in particular, it led to the institution in Victoria of a class action by the first and second respondents – who I will refer to as the plaintiffs – which has nearly no connection with Victoria whatsoever.

GAGELER J:   What does that mean, that it has got no connection with Victoria whatsoever?  Where are the class members?

MR HERZFELD:   The only objective features of the circumstances the subject of the action which connect with Victoria are the place of residence of two of the direct defendants – one of whom is now dead – and that is it.

We have identified the preponderance of factors connecting the matter with New South Wales in our written submissions at application book page 9 in paragraph 12.  Overwhelming preponderance of factors connects to New South Wales.  The fact that ‑ ‑ ‑

GAGELER J:   So, you want us to decide the transfer application?

MR HERZFELD:   Yes, and let me explain why.  The fact that it was the group costs order regime which led to the institution of the proceedings in Victoria is plain from the evidence which has been filed on behalf of the first and second respondents.  Would your Honours turn to application book page 42, please.  Your Honours will see at the top of page 42, in paragraphs a and b, extracts from evidence which was filed on behalf of the first and second respondents.  At paragraph a is an extract of evidence filed by the managing partner of the solicitors – Ms Banton.  Your Honours will see:

“All retainers issued up to January 2021 anticipated that the Proceedings would be commenced in New South Wales –

and there was then a change in approach.  The reason for the change in approach is apparent in paragraph b:

the agent of the Funder, Mr Paul Lindholm . . . states . . . 

“Given the recent enactment of the Group Cost Order provisions in Victoria, I supported the decision to commence the Proceedings in . . . Victoria.

The overwhelming connection with New South Wales was the reason that we applied for the matter to be cross‑vested to the Supreme Court of New South Wales – and because it was a shareholder class action, alleging breaches of the Corporations Act and ASIC Act as is inevitable in shareholder class actions, the applicable transfer provision is that in the Corporations Act, section 1337H, and like the provisions under the more general uniform cross‑vesting provisions, it provides for a transfer if, having regard to the interests of justice, it is more appropriate for the proceedings to be heard in another court.

Instead of determining our cross‑vesting application, the Supreme Court of Victoria decided, at the urging of the plaintiffs, and over our opposition, to determine first the application for group costs orders and it has now made a group order permitting the plaintiffs’ solicitors to receive 40 per cent of any award or settlement.  The plaintiffs are now seeking to use that group costs order as an anchor to keep these proceedings in Victoria, notwithstanding the overwhelming preponderance of factors connecting it to New South Wales.  That is apparent in two ways.

The first is that it is clear from the written submissions in this Court that the plaintiffs foreshadowed an intention to explore – in opposition to our cross‑vesting application – KPMG’s attitude to revocation of the group costs order if the matter is transferred to New South Wales.  But that is a factor which only can be relied upon by the plaintiffs because the group costs order has been made at all.

Secondly, the Supreme Court of Victoria, clearly, has power to revisit the group costs order, including the rate, as the class action continues, but the plaintiffs seek to propagate uncertainty as to whether, if the proceedings were transferred to New South Wales, that court would have power to deal with the group costs order in that way.  That uncertainty – the existence of the uncertainty – will no doubt form part of the resistance to a cross‑vesting application.

That is so, both in this matter and, while that uncertainty persists, in any future matters.  It is in that context that we seek removal, and may we make these points in ‑ ‑ ‑

GAGELER J:   Of the entire application?

MR HERZFELD:   We have framed it as removal of the proceedings.  It is only so as to determine the cross‑vesting application.  So, it is possible that the removal could simply be of our – so much of the proceeding as concerns our application.  The reason we have framed it as removal of the proceedings is because the thing which would be transferred is the proceedings, but that technical matter is not substantively relevant to the question of removal.

May we make these points in favour of a substantive point of removal.  The first is that section 1337R of the Corporations Act provides that:

An appeal does not lie from a decision of a court:

(a)in relation to the transfer of a proceeding –

GAGELER J:   You are reading that as including an appeal to this Court?

MR HERZFELD:   Yes.

GAGELER J:   By special leave?

MR HERZFELD:   Yes. 

GAGELER J:   As an exception under section 73 of the Constitution?

MR HERZFELD:   That is so.  Its effect is that if the Supreme Court of Victoria determines our cross‑vesting application, not only can there be no appeal to the Court of Appeal, there could be no appeal to this Court.  So, we cannot adopt the ordinary course of simply running our application in the Supreme Court and then seeking to come to this Court if, and only if, we are dissatisfied with the outcome because ‑ ‑ ‑

GAGELER J:   Mr Herzfeld, there are much more creative ways than using removal power than seeking to remove the entirety of the proceeding at the outset, as you will have seen from your review of the way in which cases that were thought not to be capable of being appealed were removed into the High Court after the delivery of reasons for judgment before the making of orders, in a number of cases.

MR HERZFELD:   There are a number of difficulties with that.  The first difficulty is that it would be dependent on the discretion of the Supreme Court of Victoria to take that course.  If the Supreme Court makes an order over our opposition, then that course would not be available.  The second difficulty is that there certainly would be no hint of an agreement by the plaintiffs that they will support that course.  In fact, one rather thinks, in light of their opposition to the present application, that what one will find is that they will oppose the taking of that course.

Certainly, there is no undertaking to this Court or to us that they will support a course facilitating the matter coming before this Court after the Supreme Court has had an opportunity to consider the matter.  So, the difficulty we face is that if we take the ordinary course, we may well be – and expected to be – shut out from any ability to come to come to this Court.  More generally, important questions concerning the ‑ ‑ ‑

GAGELER J:   But, Mr Herzfeld, one of the proposals I think I saw in a document that emanated from your opponent, was the stating of the case or some other procedure that would have the questions that you say are questions of principle decided by the Court of Appeal of Victoria.  Would you oppose that?

MR HERZFELD:   It has not been said that whatever case is stated to the Court of Appeal and then decided by the Court of Appeal will then be – there has been no agreement that that will then be put into a form which can be removed into this Court, no matter what the decision is of the Court of Appeal.

So, these proposals which have been put up in the document, to which your Honour has referred, of some uncertain status are not put forward as creative ways to cooperate, they are put forward as rather transparent ways to resist the present application without any certainty for us that when we come to the point of crunch time there will be support.  What one must anticipate is that ‑ ‑ ‑

GAGELER J:   Is this a matter of case management where one can presume the Supreme Court of Victoria at first instance, and – if it gets there – in the Court of Appeal will act justly?

MR HERZFELD:   Well, one, with respect, might have presumed the same about the ordering of the applications for cross‑vesting in group costs orders, and yet what we have found is the rather extraordinary decision of the Supreme Court to determine first a group costs order application.

That really brings me on to why it deserves the attention of this Court.  First, we contend that the group costs order is entirely irrelevant to the question of cross‑vesting because that procedural course that I have just mentioned was wrong.  Our cross‑vesting application should have been determined first before the group costs order application.  It fundamentally subverts the policy of the cross‑vesting regime to determine a group costs order application first and thereby provide an anchor to Victoria which would not otherwise have existed.

GLEESON J:   Do you have a right of appeal in relation to that decision?

MR HERZFELD:   There would have been, in theory, an ability to seek leave to appeal from that decision.  There were no reasons provided by the primary judge, or the docket judge, for it, although I accept no reasons were requested.  But that application for leave to appeal, no doubt, would have been met with the usual response that this is a matter of practice and procedure in case management and so leave should be refused.

The question then comes up in this Court – or would come up in this Court – because we would contend that the existence of the group costs order should be entirely put aside precisely because the procedural course was wrong, and if that is resisted, the question of the correctness of the procedural course would fall for decision.  That is an important question for future applications like this in the Supreme Court.

The second point is that we will contend that the group costs order is entirely irrelevant in a cross‑vesting application because it is the kind of procedural advantage to one party which this Court unanimously held in BHP Billiton v Schultz must be excluded from consideration.  That, in itself, is important, but it is also important because, as we have identified in our written submissions, a number of first instance decisions are simply not following the pronouncement of this Court in Schultz that procedural advantages to one party must be put aside.

The third point is that we will contend that the group costs order is still entirely irrelevant to the cross‑vesting application because it will be able to travel to New South Wales pursuant to section 37P and only this Court can authoritatively resolve the uncertainty which exists about that proposition.  The difficulty of the Supreme Court of Victoria deciding the matter is that it cannot authoritatively resolve whether the Supreme Court of New South Wales would regard the group costs order as enforceable there, and that very uncertainty is something which can be relied upon, and is relied upon, by the plaintiffs in resisting the cross‑vesting application.  None of those questions of general importance can be brought before this Court through the ordinary appellate process.

I should say, your Honour Justice Gageler has also raised the possibility of the Court of Appeal deciding the matter and then something else happening after that, but it is not quite clear what the something else would be.  If that court, for example, makes a declaration, we could not appeal from that declaration because that would be an appeal from a decision in relation to a cross‑vesting application.

So there is not – there is some little difficulty in working out precisely what could be done even after the Court of Appeal were to, on this theory, state a case and answer a question.  The much more straightforward course is the obvious one, which is removing the matter into this Court so that it can determine the cross‑vesting application, no doubt, with the benefit of the special case negotiated by the parties and questions to be answered.

GAGELER J:   What are the prospects of negotiating a special case, given the procedural history that you rely upon?

MR HERZFELD:   The lack of connection to Victoria here is palpable.  All of those objective features are not controversial.  Likewise, the limited connection to Victoria as place of residence of the previous two directors is conceded.  We do not challenge that.  I must say, the force of that factor is very much muted, given that the director defendants, in fact, support our application for transfer to New South Wales.

There is really just no controversy about all of the objective matters connecting this proceeding to New South Wales.  There is ‑ ‑ ‑

GLEESON J:   Why do you think the Victorian court would not transfer the matter to New South Wales?

MR HERZFELD:   It might, but if it does not, we cannot appeal.  That is the difficulty we are facing because of 1337R.  If there was no difficulty with simply the ordinary appellate process taking course, we could run our matter before the Supreme Court of Victoria, and if we were unhappy, we could appeal and seek special leave to this Court.  We cannot do that because of section 1337R, so we cannot simply wait to see what happens.

To return to your Honour Justice Gageler’s question, there is, in the respondent’s response, a rather transparent attempt to manufacture controversy by some vague allusions to contested facts and cross‑examination.  Your Honours should, with respect, see through that.  We have identified in our written submissions why the matters identified by the plaintiffs are not real matters of controversy.  If there are genuine matters of controversy which would present a special case being agreed, they have not been identified by the plaintiffs, and it is really a matter for Mr Hartford Davis to explain to your Honour credibly why there are matters of controversy which would preclude a special case being identified.

GAGELER J:   You would have a judge of this Court case‑manage the matter, would you?

MR HERZFELD:   Only insofar as any matter instituted in the original jurisdiction is case‑managed, which usually takes the form of a direction to the parties to agree to a special case and stern admonishment when that does not occur – and it almost always occurs with responsible practitioners, as there are in this case.  Your Honour’s reference to case‑management perhaps, rather tendentiously, suggests more of a process than is necessary. 

As I say, it really has not been identified by the plaintiffs why there is any real difficulty beyond vague allusions to agree in a special case if the matter is removed into this Court.  Of course, if it turns out that it cannot be agreed, then the matter can be remitted.  That should not be summarily determined on a removal application such as this.

The final point I should make is this.  There is no realistic interruption to the course of the proceeding in the Supreme Court of Victoria because it is not very far advanced.  A dispute about discovery to

be made by KPMG which was argued in February this year was only just determined in late October, and the orders provide for discovery by KPMG of tranches all the way up to February next year.

In relation to the director defendants, an associate justice is still reserved on the director defendants’ application for security for costs, which was heard in August this year.  The director defendants have said that they will not even start reviewing documents so as to make discovery until security for costs is in place.  Discovery by the director defendants has not even been disputed, argued, and determined, let alone made.  In short, this matter in the Supreme Court is far away from any kind of timetable, even for evidence, and there would not be any real interruption to the proceedings by removal of the application into this Court.

Those are the submissions we seek to make, your Honour.

GAGELER J:   Thank you, Mr Herzfeld.  Mr Pesman, your response says that you support the application but do not wish to be heard in relation to it.  Does that remain your position?

MR PESMAN:   Yes.  My learned friend’s submission . . . . . require repetition with affirmation.

GAGELER J:   Thank you.  Mr Hartford Davis, we do not need to hear from you.  Our opinion is that the proceeding is inappropriate for removal into this Court at this stage.  The application is refused with costs.

AT 11.49 AM THE MATTER WAS CONCLUDED