Lynden Iddles v Fonterra Aust Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2020 02588

LYNDEN IDDLES & ANOR	Plaintiffs
v
FONTERRA AUSTRALIA PTY LTD & ORS	Defendants

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JUDGE:	DELANY J
WHERE HELD:	Melbourne
DATE OF HEARING:	28 February 2023 and 23 June 2023
DATE OF JUDGMENT:	20 September 2023
CASE MAY BE CITED AS:	Lynden Iddles & Anor v Fonterra Aust Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2023] VSC 566

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GROUP PROCEEDING — Settlement of group proceeding — Approval of settlement under s 33V of the Supreme Court Act 1986 (Vic) — Settlement fair and reasonable — Group proceeding funded by litigation funder — Common fund order sought — Appropriate to make common fund order — Funding commission of 27.5% allowed — Cost of after the event insurance disallowed — Reimbursement of fair, reasonable and proportionate legal costs allowed — Allow $30,000 in favour of lead plaintiffs.

GROUP PROCEEDING — Common fund order — Whether power to make common fund order — Botsman confirms power in s 33V(2) of the Supreme Court Act 1986 (Vic) to make common fund order at point of settlement — Botsman v Bolitho (2018) 57 VR 68 applied.

PRACTICE AND PROCEDURE — Special referee — Costs — Adoption of report — Report of the special referee adopted except in relation to the period after 21 February 2023 with the assessment of costs for that period to be referred back to the special referee for further report — Supreme Court (General Civil Procedure) Rules 2015 (Vic), rr 50.03 and 50.04 — Wenco Industrial Pty Ltd v W W Industries Pty Ltd (2009) 25 VR 119 applied, Rowe v Ausnet Electricity Services Pty Ltd (No 9) [2016] VSC 731 referred to.

COSTS — Conditional costs agreement — Agreement not in plain language — Does not identify basis on which uplift fee is to be calculated — Costs agreement void — Uplift fee not recoverable — Legal Profession Uniform Law, ss 181(2)(a), 182(3)(a), 185(1) and (3) — Russells v McCardel [2014] VSC 287; Wills v Woolworths Group Pty Ltd [2022] FCA 1545, considered.

COSTS — Costs of approval hearing allowed out of settlement sum — Costs of further hearing relating to adoption of costs referee’s reports not allowed out of settlement sum — Costs of that hearing incurred for benefit of law practice — Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430; Thackray v Gunns Plantations Ltd (No 2) [2011] VSC 417; Re PPI Corporation Pty Ltd [2014] VSC 366; Re Custometal Engineering Pty Ltd [2018] VSC 726; Sons of Gwalia Ltd v Margaretic (2006) 232 ALR 119; Shao v One Funds Management Limited [2023] VSC 251, distinguished.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	First hearing: Mr L Armstrong KC with Mr M Guo and Ms P Kelly	Adley Burstyner
Second hearing: Dr O Bigos KC with Ms N Lenga
For the Defendants	First hearing: Mr R Heath KC with Ms L Dawson	Arnold Bloch Leibler
For the Intervenor	First and second hearing: Mr W Edwards SC with Mr O Nanlohy	William Roberts Lawyers
For the Objector	First hearing: Mr N Comben (self‑represented)	None

TABLE OF CONTENTS

Settlement Approval: the principles to be applied..................................................................... 6

The facts............................................................................................................................................... 8

The proceeding................................................................................................................................. 10

Objections to the Settlement......................................................................................................... 12

Evidence in support of the approval application...................................................................... 13

Confidentiality............................................................................................................................. 15

Assessment of the settlement as between the parties............................................................... 16

Assessment of the settlement as between group members..................................................... 19

What allowance should be made in favour of the lead plaintiffs?........................................ 22

Can and should a Common Fund Order be made?................................................................... 24

The proposed deduction of 27.5% funder commission from the settlement sum.............. 31

Is after the event (ATE) insurance to be reimbursed in addition to the funder’s commission? 34

The administration of the SDS...................................................................................................... 37

The legal costs claims...................................................................................................................... 37

Adoption of the referee’s reports: the principles.................................................................... 41
The Uniform Law........................................................................................................................ 44
The referee’s stepped approach to the assessment of costs.................................................. 49
Professional fees................................................................................................................. 49
Disbursements.................................................................................................................... 52

Preliminary Matter 1: Construction of the conditional costs letter and the LFA.............. 53
Preliminary Matter 2: Compliance with the Uniform Law................................................... 57
Sections 174 and 175: Harwood Andrews personnel................................................... 58
Non-compliance with s 181: Conditional costs agreement not in ‘plain language’ 62
The Costs Agreement........................................................................................... 63
Consideration........................................................................................................ 65

The CA is not in plain language...................................................................................... 68

Adley Burstyner is not entitled to charge an uplift fee......................................................... 71
Costs prior to commencement of the proceeding.................................................................. 75
Referee’s allowance........................................................................................................... 76
Plaintiffs’ submissions...................................................................................................... 78
Consideration..................................................................................................................... 79

Costs of the debt recovery proceeding..................................................................................... 84
Harwood Andrews employee costs......................................................................................... 89
25% discount for multiple activities......................................................................................... 94
Costs of settlement administration........................................................................................... 95
Costs:1 December 2022 – 20 February 2023........................................................................... 98
Costs:21 February 2023 – 28 February 2023........................................................................... 98
Costs of the further hearing: 1 March 2023 – 23 June 2023................................................... 99
The Referee’s Costs................................................................................................................... 104

Orders............................................................................................................................................... 104

HIS HONOUR:

The plaintiffs, Lynden and Geoffrey Iddles, are dairy farmers. They bring this proceeding as a group proceeding pursuant to Part 4A of the Supreme Court Act 1986 (Vic) (‘the Act’) on their own behalf and on behalf of all persons (including companies):

(a)who supplied milk to Fonterra[1] from 1 July 2015 to 30 June 2016 (‘2015 season’) from farms in Victoria, New South Wales, Tasmania or South Australia pursuant to a ‘Fonterra Australia Milk Supply Handbook’ (but not the Fonterra Australian ’Milk Supply Handbook – Wagga Wagga’) and/or a Fonterra Australia ‘Exclusive Milk Supply Agreement’; and
(b)who, as at 5 May 2015, continued to supply milk, or had committed to supply milk, during the 2015 season.

The plaintiffs claim that when Fonterra reduced the farmgate milk price (‘FMP’) for the 2015 season on 5 May 2016 (‘the May 2016 Price Decrease’),[2] it breached its contracts with them and with the group members. They allege that between 29 June 2015 and 5 May 2016 Fonterra engaged in misleading or deceptive conduct and unconscionable conduct contrary to the Australian Consumer Law (‘ACL’) set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth) in relation to its milk price announcements, and in implementing the May 2016 Price Decrease. The plaintiffs claim compensation for themselves and for group members who suffered loss arising from the alleged conduct.

Fonterra denies liability for the claims by the plaintiffs and group members. It also disputes the losses claimed by the plaintiffs and group members.

The group proceeding was due to be heard at a trial listed to commence on 15 November 2022.

Pursuant to a settlement agreement dated 4 November 2022 (‘Settlement Agreement’), the plaintiffs and Fonterra agreed on terms for a settlement of the group proceeding.

Pursuant to the Settlement Agreement, Fonterra has agreed to pay $25m (‘the settlement sum’) to the plaintiffs and group members, inclusive of costs, without admission of liability. The Settlement Agreement is subject to Court approval.

These reasons concern the plaintiffs’ application for approval pursuant to s 33V of the Act. Section 33V is in the following terms:

Settlement and discontinuance
(1)A group proceeding may not be settled or discontinued without the approval of the Court.
(2)If the Court gives such approval, it may make such orders as it thinks fit with respect to the distribution of any money, including interest, paid under a settlement or paid into court.

The Settlement Agreement provides that, where a group member owes money to Fonterra under a Fonterra Australia Support Loan (‘FASL’), that balance will be deducted from any compensation paid to that group member. Where the balance of a group member’s loan exceeds that group member’s entitlement to compensation, the outstanding FASL balance will be waived by Fonterra.

The Settlement Agreement provides that, upon approval by the Court, the plaintiffs and group members release Fonterra from all claims made in this proceeding and in proceeding S ECI 2020 03513.

The proceeding has been funded by a litigation funder, LLS Fund Services Pty Ltd as Trustee for Litigation Lending Fund 1 (‘the funder’). The Settlement Agreement provides that the parties to the agreement, being the plaintiffs, their solicitors, the funder and Fonterra, will do all things reasonably necessary for an application for orders in the nature of a Common Fund Order (‘CFO’) for payment to the funder firstly as reimbursement of legal costs, including insurance premiums, and secondly of a funding commission out of the settlement sum.

The authors of Class Actions in Australia set out the definition of a CFO as follows:[3]

A “common fund order” is an order made on the application of a representative party who is in an existing contractual relationship with a litigation funder that requires group members to contribute pro rata to the funder a percentage of the common fund that comprises any moneys recovered through settlement or judgment in their favour, regardless of whether the group member has entered into a funding agreement with the funder. The liability to the funder is discharged as a first priority from any moneys recovered.

While not conditions precedent to the Settlement Agreement, the agreement contemplates that Court approval will be sought for payment from the settlement sum of the following items before distribution of the balance to the plaintiffs and group members:

(a)the reimbursement to the funder of legal costs, including insurance premiums;
(b)the funding commission;
(c)the plaintiffs’ reasonable unpaid legal costs (including any uplift) and disbursements of and incidental to the proceeding;
(d)the plaintiffs’ reasonable legal costs (including any uplift) and disbursements of and incidental to the application for settlement approval;
(e)the reasonable legal costs and disbursements of the administrator of administrating the settlement distribution scheme (‘SDS’); and
(f)any other payments as approved by the Court.

When determining whether it is appropriate to approve the settlement, it is necessary to consider four issues:

(1)Whether the settlement is fair and reasonable as between the plaintiffs and the defendants, having regard to the interests of the group members considered as a whole.
(2)Whether the arrangements for sharing the settlement sum between the plaintiffs and group members and the provisions of the Settlement Agreement and the SDS are fair and reasonable as between the plaintiffs and group members who are bound by the settlement.
(3)Whether the Court has power to make a CFO and, if so, whether such an order should be made.
(4)Whether the proposed deductions from the settlement sum, including the funder’s commission and the legal costs, both paid and unpaid, and the funder’s costs of ATE insurance should be allowed.

At the hearing on 28 February 2023, I announced that I was satisfied that the proposed settlement is fair and reasonable as between the interests of the plaintiffs and defendants and that the distribution arrangements for the settlement sum, including in relation to the FASLs, were reasonable as between the plaintiffs and the group members and as between all group members.

On 28 February 2023, I expressed my thanks to the lead plaintiffs, Lynden and Geoffrey Iddles, for the important role played by them in the proceeding on behalf of the group members. As stated on that occasion, I consider that the payment in their favour of $30,000 from the settlement sum in recognition of their role is appropriate.

Following the hearing on 28 February 2023, there remained for consideration what further deductions should be allowed from the settlement sum, whether the Court has power to order a CFO, and, if so, whether the deductions sought by the plaintiffs, their solicitors and the funder should be permitted pursuant to a CFO. At that time, it was agreed by the parties that the determination of the question of jurisdiction to make a CFO should be deferred until after delivery by the Full Federal Court of its decision in Elliott‑Carde v McDonald’s Australia Ltd (‘McDonald’s’), at that time scheduled to be heard on 6 March 2023. Further evidence was to be filed addressing various issues relating to legal costs proposed by the plaintiffs as deductions from the settlement sum pursuant to a CFO.

On 14 April 2023, I made orders approving the settlement of the class action with reasons to follow so that the administration of the SDS could commence.

On 22 May 2023, I adjourned the further hearing of the application to 23 June 2023, anticipating that, by that time, the reserved decision in McDonald’s may have been handed down. On 19 May 2023, further written submissions were filed in McDonald’s in which the Commonwealth Attorney‑General has intervened in response to a s 78B Judiciary Act 1903 (Cth) notice. A decision in McDonald’s has not yet been handed down.

On 19 June 2023, the plaintiffs and the funder informed the Court that they considered there should be no further delay in the finalisation of the outstanding issues. The Court was informed that to proceed with a hearing would reduce the prospect that multiple payments to group members would need to be made, meaning greater efficiency and the avoidance of unnecessary costs.

On 23 June 2023, I received further evidence and submissions in relation to legal costs and disbursements following the provision of a further report by the Court‑appointed costs Special Referee (’the referee’).

Having given consideration to the issues noted in paragraph 13, I have formed the following opinions, some of which, as I have mentioned, were communicated in open Court on 28 February 2023:

(a)The proposed settlement is fair and reasonable as between the interests of the plaintiffs and group members and the interests of the defendants.
(b)The proposed arrangements for sharing the settlement sum and also the provisions of the Settlement Agreement and SDS, and concerning the FASLs are fair and reasonable as between the group members.
(c)It is within the power conferred on the Court by ss 33V and 33ZF of the Act and it is appropriate to make a CFO. It is appropriate to allow the following deductions from the settlement sum on that basis:
(i)a payment to the plaintiffs of $30,000;
(ii)funder’s commission of 27.5%;
(iii)legal costs and disbursements are to be deducted from the settlement sum in accordance with the reports of the referee as to costs, whose reports I adopt, including in relation to the various contested costs issues discussed in these reasons. That is the position concerning legal costs and disbursements referable to the period up to 21 February 2023; and
(iv)the costs of the referee.

(d)It is not appropriate to allow the funder’s costs of ATE insurance.
(e)It is appropriate that certain legal costs of the plaintiffs incurred after 21 February 2023 together with the costs of the further hearing and of the administration of the Settlement Agreement and the SDS be paid with the quantification of those costs to be referred to the referee for further report. It is appropriate to refer the matter for further report because there have been some factual developments that are relevant to the quantification of costs that have occurred since the referee completed her most recent report. If the referee is either unwilling or unable to determine those amounts; such amounts in relation to post 21 February 2023 costs, and also the costs of the referee, are to be determined by the Costs Court acting consistently with the applicable legislation and in accordance with these reasons.

Settlement Approval: the principles to be applied

In Botsman v Bolitho (‘Botsman’),[4] the Court of Appeal said that s 33V of the Act confers two distinct but related powers upon the Court. The first, in s 33V(1), power to approve the settlement. The second, in s 33V(2), power to approve the distribution of payments.

In Australian Securities and Investments Commission v Richards,[5] the Full Court of the Federal Court (Jacobson, Middleton and Gordon JJ) said:[6]

The role of the Court is important and onerous … It is protective. It assumes a role akin to that of a guardian, not unlike the role a court assumes when approving infant compromises.

The s 33V task requires a consideration of whether the settlement is in the interests of all group members and whether it is fair and reasonable having regard to the claims of the group members who will be bound by it if approved.

As Stevenson J observed in Quirk v Suncorp Portfolio Services Ltd (No 2),[7] the question of whether the settlement is reasonable per se cannot be separated from ancillary questions concerning the approval of funding and legal costs.[8] The evaluation of whether a settlement is fair and reasonable ‘must be carried out by reference to what all group members obtain in their hands following the resolution of their individual claims in the event that the settlement is approved’.[9]

In Murillo v SKM Services Pty Ltd (‘Murillo’),[10] John Dixon J emphasised that reasonableness requires an assessment of whether the aspect of the settlement under consideration is within the range of reasonable decisions:[11]

The practical approach to resolution of whether a settlement is ‘fair and reasonable’ involves identifying ‘any features of a settlement that are obviously unreasonable or unfair.’ The court does not ‘second-guess’ or go behind the plaintiff’s legal representative’s tactical or other decisions, but satisfies itself that the decisions are within the range of reasonable decisions in the known circumstances and the reasonably perceived risks of the litigation.

Earlier, in Williams v FAI Home Security Pty Ltd (No 4),[12] Goldberg J listed factors which will often require consideration in cases such as the present:[13]

(a) the amount offered to each group member;

(b) the prospects of success in the proceeding;

(c) the likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer;

(d) the terms of any advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding;

(e) the likely duration and cost of the proceeding if it continued to judgment; and

(f) the attitude of the group members to the settlement.

The facts

The events that occurred giving rise to the group proceeding can be shortly stated.

The 2015 season was from 1 July 2015 to 30 June 2016.

In late June 2015, just before the beginning of the 2015 season, Fonterra informed farmers who had agreed to supply it with milk pursuant to either the Fonterra Australia Milk Supply Handbook or the Fonterra Australia Exclusive Milk Supply Agreement that the opening FMP for the coming season (expressed as ‘dollars per kilogram milk solids’ or ‘$kg/MS’) (‘Opening Price’) was $5.60.

The information provided by Fonterra in relation to the Opening Price of $5.60 was accompanied by a forecast range of the predicted average annual price at the end of the season of $5.80-$6.00 (‘Closing Range’).

The plaintiffs allege that the Opening Price was calculated by Fonterra as a weighted average of the aggregate of the farmer specific FMPs that Fonterra expected to pay to all farmers over the course of the coming season and that, pursuant to the terms of the agreement with the farmers, the Opening Price was to be Fonterra’s considered estimate for the season. They allege that it was a term of the agreement that prices paid from time to time during the season may be increased as a result of Fonterra’s bi‑monthly reviews (‘Step‑ups’), but that increases were not guaranteed. They allege that it was also a term that any price decreases would be implemented only where warranted, with prospective effect, upon reasonable notice, further or alternatively in reasonable amounts.

Fonterra’s Opening Price was the same as that of one of its major competitors, Murray Goulburn. On 27 April 2016, Murray Goulburn announced it was revising its forecast FMP price from $5.60 to a range between $4.75 and $5.00.

On 5 May 2016, Fonterra announced the May 2016 Price Decrease with immediate effect. Fonterra cut its weighted average annual 2015 season price to $5.00.

Although the May 2016 Price Decrease was a reduction in price from $5.60 to $5.00, because the price reduction operated as an average price across the season as a whole, to achieve that outcome meant that Fonterra would cut the actual price paid to farmers for the supply of milk in May and June 2016, the last two months of the 2015 season, to around $1.91 (comprising $1.16 fat and $2.89 protein).

The timing of the May 2016 Price Decrease meant that it impacted disproportionately upon farmers with autumn calving cows (’autumn calvers’) whose milk production peaked in the final two months of the season.

Anticipating the impact on farmers with autumn calvers; at the same time it announced the May 2016 Price Decrease, Fonterra announced a loan program — the Fonterra Australia Support Loans or FASLs. Under the FASL program, farmers could apply for loans of up to 60c/kg/MS based on actual milk supplied to Fonterra in May and June for the 2015 season. The FASL scheme operated as a loan to individual farmers who took out the loans which were repayable over three years from the start of the 2017/2018 season.

On 13 May 2016, Fonterra announced additional support measures for farmers with autumn calvers, the effect of which Fonterra alleged was to pay those farmers an additional $2.50kg/MS for milk supplied in May and June 2016 (‘Autumn Offset Payments’).

On 10 May 2017, Fonterra announced that it would make an additional payment of 40c/kg/MS to eligible suppliers (‘Additional 40c Payment’).

Fonterra alleges that the average FMP ultimately paid by it for the 2015 season was at least $5.66kg/MS or alternatively $5.36kg/MS, or in the further alternative $5.13kg/MS; the difference between $5.13 and $5.36 being accounted for by the Autumn Offset Payments, and the difference between $5.36 and $5.66 being accounted for by the Additional 40c Payment.

The proceeding

The plaintiffs commenced the proceeding on 17 June 2020. They did so following the entry by them into a litigation funding agreement (‘LFA’) with the funder and their solicitors and the entry into a costs agreement with their solicitors (‘CA’), both signed on 15 June 2020.

The Funding Information Summary Statement dated 17 July 2020 informed group members that, under the LFA:

(a)the funder would pay 70% of the solicitors’ time-based charges plus expenses properly incurred by them, such as barristers’ fees, witness costs and Court fees;
(b)the funder would provide any security for costs that might be ordered by the Court and pay any adverse costs orders; and
(c)if there was a settlement of claims covered by the class action or judgment resulting in compensation being payable to the plaintiffs and group members, then the plaintiffs, the solicitors and the funder would seek orders from the Court including for the payment of commission in favour of the funder.

On 28 May 2021, the Court made orders providing for an opt‑out process. The class notice provided group members with information about the funding arrangements and provided an opt‑out form for farmers to complete if they decided to opt‑out. 74 opt‑out notices were later received.

The pleadings for trial comprise the amended statement of claim dated 8 September 2020, Fonterra’s amended defence dated 16 June 2022, and the plaintiffs’ reply to the amended defence dated 17 August 2022. If the proceeding had not settled, the estimate was for a trial with a duration of approximately 20 days.

The plaintiffs plead three different causes of action. The first, a claim for breach of contract, relying on terms that are alleged to be express and to be implied in both the Fonterra Australia Milk Supply Handbook and the Exclusive Milk Supply Agreement. Fonterra denies that the terms alleged are either express or to be implied. The second cause of action, a claim for misleading or deceptive conduct in contravention of s 18 ACL. Fonterra denies engaging in misleading or deceptive conduct. The third, a claim for unconscionable conduct contrary to s 21 of the ACL. Fonterra denies the unconscionable conduct claim.

The settlement was negotiated shortly prior to the trial. It was arrived at following a mediation on 13 October 2022 by Mr Finkelstein AO KC as mediator. In principle settlement was reached on 20 October 2022 and was later documented in the Settlement Agreement.

The settlement was achieved after the expenditure by the funder of $3,206,736.31 on legal costs and disbursements up to 30 November 2022. There was additional legal worked carried out by the plaintiffs’ solicitors, Adley Burstyner, which was unfunded. The funder was required to provide security for costs throughout the course of the proceeding which it did via the provision of a series of undertakings. The first undertaking on 27 August 2020 in the amount of $200,000; the second undertaking on 13 August 2021 in the amount $900,000; the third undertaking on 14 February 2022 in the amount of $240,000; and the fourth undertaking on 28 July 2022 in the amount of $700,000.

On 18 November 2022, the Court appointed the referee, Catherine Mary Dealehr, to report on:
(a)the amount of legal costs that the Court should approve as fair, reasonable and proportionately incurred, to be deducted from the settlement sum; and
(b)an estimate as to the costs that would reasonably be incurred during the Settlement Administration process.

On 2 December 2022, group members were sent a Court approved notice of the proposed settlement. The notice was also published in a number of regional newspapers. The notice provided details of the settlement and of each of the proposed deductions from the settlement sum.

Objections to the Settlement

The class is identified as comprising approximately 1,000 dairy farmers. As at 28 February 2023, almost 600 farmers had registered to participate in the settlement. None of the group members who had registered and whose registration has been accepted prior to 28 February 2023 lodged objection to any aspect of the proposed settlement.

During the hearing of the approval application, which was livestreamed, I directed that persons who are group members be afforded another 14 days to register to participate. That is because the settlement effects a release in favour of Fonterra by all group members but only confers an entitlement to share in the benefits of the settlement upon those who register.

During the approval hearing, senior counsel for the lead plaintiffs urged those who had not yet registered to take up the extended opportunity to do so. I endorsed those remarks.

The only objection to the proposed settlement was from Mr and Mrs Comben whose registration as a group member had not been accepted. Mr Comben swore two affidavits. Mr Comben and his wife both attended the approval hearing.

At the outset of the approval hearing, there was a dispute as to whether Mr and Mrs Comben, who last supplied milk to Fonterra in early January 2016, meet the criteria for a group member. As the definition of group members includes farmers who not only supplied but had committed to supply milk to Fonterra after 5 May 2016, and as Mr and Mrs Comben had changed their herd to autumn calvers, whether or not they qualify to be group members is not clear cut.

During the hearing, discussions between the Combens and the legal practitioners for the parties resulted in a practical procedure being agreed to so as to deal with the unresolved issue of the Combens’ eligibility to participate in and be bound by the settlement. A regime for the exchange of factual information, an assessment of eligibility by the plaintiffs’ solicitor, Mr Burstyner, the proposed scheme administrator, and a right to appeal his decision if not favourable to Mr and Mrs Comben provides a fair and practical way of dealing with the position of Mr and Mrs Comben.

Evidence in support of the approval application

At the approval hearing on 28 February 2023, the plaintiffs relied on the following documents:

(a) Affidavit of David Burstyner affirmed 4 November 2022 (‘First Burstyner Affidavit’);

(b) Affidavit of Natasha Monique Vassallo sworn 9 December 2022;

(c) Affidavit of David Burstyner affirmed 16 December 2022 (‘Second Burstyner Affidavit’);

(d) Plaintiffs’ submissions dated 31 January 2023;

(e) Affidavit of Geoffrey Kenneth Iddles sworn 23 February 2023;

(f) Affidavit of Lynden Iddles sworn 23 February 2023;

(g) Affidavit of David Burstyner affirmed 27 February 2023 (‘Third Burstyner Affidavit’);

(h) Affidavit of David Burstyner affirmed 27 February 2023 (‘Fourth Burstyner Affidavit’); and

(i) Plaintiffs’ supplementary submissions dated 27 February 2023.

The defendants relied on their submissions dated 17 February 2023 and the affidavit of Matthew David Lees sworn 17 February 2023.

The funder relied on their submissions dated 15 February 2023 and the affidavit of Stephen James Conrad affirmed 16 February 2023, as well as submissions and affidavits filed by the plaintiffs. Following the hearing, the Court received further submissions from the funder dated 25 March 2023 in relation to ATE insurance costs.

Prior to the approval hearing, the Court also received two reports from the referee; the first dated 24 February 2023, the second dated 27 February 2023.

At the 23 June 2023 costs hearing, the plaintiffs and the funder relied on the following additional materials:

(a) Costs Report of Suzanne Maree Ward dated 20 April 2023 (‘Ms Ward’s report);

(b) Affidavit of David Burstyner affirmed 20 April 2023 (‘Fifth Burstyner Affidavit’);

(c) Affidavit of Geoffrey Kenneth Iddles sworn 20 April 2023;

(d) Third Report of Catherine Mary Dealehr dated 8 May 2023;

(e) Intervener’s submissions dated 15 June 2023;

(f) Plaintiffs’ submissions dated 15 June 2023;

(g) Affidavit of David Burstyner affirmed 16 June 2023 (‘Sixth Burstyner Affidavit’); and

(h) Affidavit of David Burstyner affirmed 23 June 2023 (‘Seventh Burstyner Affidavit’).

On 8 September 2023, David Burstyner affirmed a further affidavit in support of an amendment to the calculation annexure to the SDS to correct a minor error that had been identified. That issue and an application to amend the Scheme to correct the error was foreshadowed in the course of the 23 June 2023 hearing. As indicated at the time, that matter is appropriately determined on the papers.

Confidentiality

There is no controversy about the need to make confidentiality orders in relation to parts of the evidence filed in support of the approval application.

As was agreed by the parties, the confidential opinion of counsel in support of the approval application is to be the subject of a confidentiality order. Parts of the Second Burstyner Affidavit identified in a draft order prepared on behalf of the plaintiffs which, unless the subject of a confidentiality order, would reveal legally privileged information or information which is confidential are also to be the subject of a confidentiality order.

Separately, the details of the defendants’ bank account, contained in the exhibit bundle to the First Burstyner Affidavit, are agreed to be kept confidential, as are certain parts of the affidavit of Mr Lees, Fonterra’s solicitor. Exhibit MDL‑1 to the affidavit of Mr Lees contains confidential information in relation to FASL loan balances in the names of individual group members derived from Fonterra’s records. The parties are also agreed that the entire exhibit bundle MDL‑2 to the affidavit of Mr Lees should be kept confidential as it contains private and sensitive information in respect of suppliers.

Finally, parts of the affidavit of Stephen James Conrad of 14 February 2023, filed on behalf of the funder, are confidential. The relevant parts of the affidavit primarily deal with confidential deliberations by and on behalf of the funder which, if not the subject of confidentiality orders, would disclose commercially sensitive information relevant to the calculation of commission rates and the funder’s internal deliberations.

Assessment of the settlement as between the parties

Having read the confidential opinion of counsel having the conduct of the proceeding on behalf of the lead plaintiffs and having reviewed the pleadings, I have no doubt that the Settlement Agreement, which provides for the payment of $25m inclusive of costs to the lead plaintiffs and group members in exchange for releases by all group members, is a fair and reasonable settlement.

In evaluating the reasonableness of the settlement, and evaluating the critical question of prospects of success on liability, I take into account that none of the three causes of action relied upon by the plaintiffs, the liability for each of which is denied by Fonterra, are without their difficulties and complexities.

The primary claim for breach of contract is one which depends upon a contest as to whether or not there are the express terms alleged and whether or not terms alleged to be implied are to be implied.

The first implied term, the ‘Overall Price Match Term’, is an implied term that Fonterra’s average season price would match that of its biggest competitor, Murray Goulburn. The so‑called ‘Considered Estimates Term’ is alleged to be an express term that required Fonterra to set its Opening Price by reference to ‘four variables’; market returns, operating costs, business performance and exchange rates, and as an outcome of bi‑monthly reviews. Fonterra denies the existence of such a term. The second implied term, the ‘Reasonable Step‑downs Term’, is an implied term which required as a matter of contract that any price decreases were to be justified by reference to changes in the four variables, with prospective effect be effected on reasonable notice, alternatively, in reasonable amounts, so as not to cause uncalled for significant financial difficulty.

It is only necessary to identify the contest as to the existence of the express term alleged and to consider each of the implied terms to appreciate the significance of the burden on the plaintiffs. At trial they would be required to satisfy the Court that the express term alleged exists, and as to the terms alleged to be implied, that the criteria for the implication of each such term in accordance with the decision in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[14] is met. The discharge of that burden at trial would not be without its challenges.

The second cause of action is a claim for misleading or deceptive conduct, including in relation to pricing representations being representations as to future matters within the meaning of s 4 of the ACL. While the future matters element of the conduct alleged facilitates proof, there are separate issues with this cause of action. Assuming misleading or deceptive conduct to be made out at trial, for the lead plaintiffs and group members to recover would have required that each individual group member establish reliance or change of position as a result of the representations alleged. Proof of reliance or change of position can be difficult. There are many cases where claims for breach of s 18 and its predecessor have failed at the reliance stage. Importantly in a group proceeding of this nature, proof of reliance is a matter for each group member to establish. To do so would be time‑consuming and costly. Some group members would succeed in proving the necessary causal link between the misleading conduct and losses sustained, others would not.

The third cause of action, unconscionable conduct contrary to s 21 of the ACL, is not a cause of action which is easy to establish. Section 21 contains the statutory prohibition against ‘unconscionable conduct’. Section 22 contains a non‑exhaustive list of matters to which the Court may have regard in determining whether or not there has been a contravention of s 21.

In Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd,[15] the Full Federal Court undertook an analysis of the High Court’s reasoning in Australian Securities and Investments Commission v Kobelt (‘Kobelt’).[16] The Court concluded that Kobelt does not require that there must be found to be some form of pre‑existing disability, vulnerability or disadvantage of which advantage was taken in order for statutory unconscionability to be made out.[17] However, the task for the Court in determining such a claim was described by Gageler J in Kobelt in the context of the mirror provision in s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth):[18][19]

87.… The correct perspective is that s 12CB operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services. The function of a court exercising jurisdiction in a matter arising under the section is to recognise and administer that normative standard of conduct. The court needs to administer that standard in the totality of the circumstances taking account of each of the considerations identified in s 12CC if and to the extent that those considerations are applicable in the circumstances.

As that description demonstrates, there remain a number of factors that may need to be considered in any given case in order to determine whether or not there has been a contravention. The reference by Gageler J to the ‘totality of the circumstances’ highlights the uncertainty of an unconscionable conduct claim contrary to statute.[20]

Considerations such as those to which I have referred concerning liability, combined with a dispute as to the basis of calculation of damages, including whether the Autumn Offset Payments are to be brought to account in calculating damages, means that the certainty of a settlement which takes into account the risks is highly desirable in the interests of group members as a whole.

The confidential opinion of counsel discusses these and other issues relevant to the assessment of the risks of succeeding on liability and quantum in a careful and considered manner. The likely best case scenario for the lead plaintiffs and group members, if each of the causes of action is made out, is identified and the sum of $25m being the settlement sum, is identified as a percentage of the best case scenario. The advice is thorough, comprehensive and, most importantly in my opinion, realistic.

Adopting the approach to reasonableness to which John Dixon J referred in Murillo, I consider that the settlement is fair and reasonable as between the plaintiffs and group members on the one hand and Fonterra on the other.

Assessment of the settlement as between group members

I am also satisfied that the SDS, as amended following Mr Burstyner’s 8 September 2023 email, makes appropriate arrangements for the sharing of the settlement sum between the lead plaintiffs and group members in a manner that is fair and reasonable having regard to the interests of the group members as a whole.

The mechanism for the calculation of group members’ losses upon which their respective entitlements to share in the net amount of the settlement sum after deductions (the ‘Calculation Protocol’) is a simple one. The simplicity of the method does not in any way detract from its appropriateness.

The Calculation Protocol estimates the milk revenue net of fees and levies that each participating claimant would have received from between 4 May 2016 to 30 June 2016 (defined in the SDS as the ‘Step‑Down Period’) were it not for the May 2016 Price Decrease, at the fat and protein production volumes in the most recent income estimate made by Fonterra prior to the Step‑Down Period (‘Counterfactual Revenue’). As originally devised and in place as at 28 February 2023, the estimated volume information relied on as the starting point for the calculation relied on information available to the plaintiffs and their lawyers from Fonterra’s records. From that amount the actual milk revenue received by each claimant during the Step‑Down Period is to be deducted. That is the case regardless of the processor or processors that the participating claimant supplied during that period.

To elaborate briefly, some participating claimants may have elected to supply another processor, such as Murray Goulburn or Bega, after the May 2016 Price Decrease, perhaps in the last month of the 2015 season. Whatever income they derived from that supply is brought to account in calculating that group member’s earnings after the May 2016 Price Decrease. That is the case just as income received by other group members from Fonterra in the Step‑Down Period is to be brought to account.

In the course of the scheme administration, it emerged that, in the case of 320 of 597 group members, the volume of milk actually produced in May and June 2016 exceeded the Fonterra estimates relied upon as at 28 February 2023 as the starting point for the calculation of loss. A number of group members identified this as an issue in their Claim Contribution Notices, contending that the use of Fonterra’s estimates as the starting point unfairly understated their losses. Mr Burstyner, in his capacity as scheme administrator, proposed an amendment to the SDS to meet this issue. That is, to provide that the counterfactual revenue is to be defined as follows:

Counterfactual Revenue = milk revenue for May and June 2016 in the most recent income estimate made by Fonterra prior to the Step‑Down Period, or based on actual production for either or both months if greater for that month than what was estimated, net of fees and levies.

I agree the proposed amendment to the SDS is appropriate and necessary to ensure the settlement is fair and reasonable as between the group members.

The Calculation Protocol as amended operates fairly as between group members in relation to the settlement sum. That is achieved by calculating each participating claimant’s notional share of the net distribution sum as the proportion that each participating claimant’s revenue difference bears to the sum of all participating claimants’ revenue differences.

No doubt in addition to loss of revenue referable to the Step‑Down Period from direct milk revenue losses, farmers across the group would have experienced their own idiosyncratic losses as a result of the May 2016 Price Decrease. Some farmers may have experienced losses from selling stock at reduced prices, others may have incurred additional interest costs as a result of lost revenue, others again may have incurred expenses in the form of continuing obligations in respect of machinery purchases or other commitments entered into in anticipation of the opening price being maintained that they would not otherwise have entered into were it not for the representations made by Fonterra. Recognising that the SDS does not differentiate between those individual losses and circumstances, I nevertheless consider that the uniformity of approach which the scheme reflects is both reasonable and in the interests of group members as a whole.

One of the reasons the SDS is in the interests of group members as a whole is that it relies upon an appropriate starting point and brings to account revenue received which is consistent in terms of its composition with the Fonterra records based counterfactual revenue or actual production for the two months, whichever is the greater, as the starting point. It is, in effect, a before and after Step‑Down Period calculation. It has the benefit of simplicity and reliability in the sense that both the Fonterra opening position (or the actual milk production of the group member) and the after position of individual group members reflected in their income from milk production is readily and easily ascertainable. To seek to bring into account the individual circumstances of group members, including losses referrable to matters such as those to which I have referred, would be cumbersome, would likely not be cost‑effective, and would be very time‑consuming. To do so would also be to move away from a common basis of calculation of entitlement across the group which is one of the significant advantages of the SDS.

The SDS provides that if a group member is dissatisfied with the calculation of their notional share of the net distribution sum, then they may deliver to the administrator a ‘Dispute Notice’ and the administrator shall conduct a review and, if the administrator declines to adjust the assessment, he shall refer his decision for review by junior counsel. That is, junior counsel who has been involved throughout this proceeding and is familiar not simply with the legal issues, but also with the types of factual issues that may arise. In his affidavit dated 8 September 2023, Mr Burstyner reported that no Dispute Notice or review under the SDS has been pursued.

There is one aspect of the Settlement Agreement and SDS that requires specific consideration. That concerns the FASLs. To the extent group members have outstanding loans to Fonterra as part of the FASL scheme, those debts are to be repaid out of that group member’s entitlement. That is not controversial. What might be regarded as controversial is the fact that if a group member’s entitlement is less than the sum that the group member owes to Fonterra pursuant to a FASL, as part of the settlement, that group member’s loan will be treated as having been discharged. There are approximately 28 suppliers, including the lead plaintiffs, with an outstanding balance on their FASL. Confidential information was presented in an exhibit to the affidavit of Mr Lees concerning both the average level of the FASL debts and also concerning the lead plaintiffs.

The group of persons, including the lead plaintiffs, who have outstanding balances on their FASLs, will receive an additional benefit from the settlement. Given the circumstances of the FASLs which directly arise out of and came into being as a response to the May 2016 Price Decrease, I do not consider that the additional benefit received by those group members means that the settlement is other than fair and reasonable as between group members. I am fortified in that view by the fact that while some disquiet has been expressed in relation to this issue, none of the group members lodged a formal objection to this aspect of the SDS.

What allowance should be made in favour of the lead plaintiffs?

It is important to recognise the importance of the role undertaken by Lynden and Geoffrey Iddles as the lead plaintiffs and to be aware of the significant toll the performance of that role has taken upon them.

To assume the burden of lead plaintiffs must not have been an easy decision for Mr and Mrs Iddles. Neither of them had previously been involved in any court proceedings anything like this proceeding.

On 5 May 2016, when Fonterra gave notice of the May 2016 Price Decrease, Mr and Mrs Iddles were multi‑generational dairy farmers, both aged 63. They had supplied Fonterra and its predecessors with milk for approximately four decades.

In Mr Iddles’ affidavit, he describes how, on 17 June 2016, he first became aware of a potential case against Fonterra when he met with Mr Burstyner at a farmers’ meeting at Shepparton, held to discuss the impact of the May 2016 Price Decrease. He attended two further meetings with the solicitors in Melbourne in 2017. Prior to the second such meeting, he and his wife agreed they would be willing to be the lead plaintiffs for the class action. They attended further meetings between 2018 and February 2020 with solicitors, a litigation funder and junior counsel. On each occasion, a round trip of approximately six hours was involved from their home at Strathmerton. Generally on those visits they stayed at their daughter’s home.

As part of performing their role as the lead plaintiffs, Mr and Mrs Iddles were involved in providing details of their losses and expenses arising from the May 2016 Price Decrease. They were required to work with their farm adviser to complete loss information and to provide information about their financial records, cattle sales, tax returns and general farming business. They spent many hours in this type of preparatory work before the proceeding was issued. They were involved in collating documents and making an affidavit of documents. They were required to respond to requests for further discovery from Fonterra’s lawyers and to work with lawyers to prepare and then finalise witness statements for filing with the Court. Mr Iddles estimates that, including attending mediation, he spent approximately 156 hours directly involved in meetings, work and travel concerning the proceeding.

There was, in addition, a personal element which took its emotional toll on both Mr and Mrs Iddles. Mr Iddles participated in a four hour video session and other communications with a forensic psychologist retained as the plaintiffs’ expert witness. In September 2022, Mr Iddles was required to meet with an expert psychiatrist retained on behalf of Fonterra.

Mr Iddles has given evidence that he found the driving to and from Melbourne and attending meetings with the legal advisers quite exhausting. He found the demands from Fonterra’s lawyers regarding his medical history, personal financial planning and succession planning, and the conference with Fonterra’s forensic psychologist to be stressful. At times it wore him down, and at times the impact of acting as one of the two lead plaintiffs caused Mr Iddles to become emotional, particularly when preparing his witness statement. He also felt responsible for the other farmers who had registered for the class action and he ruminated about whether he and his wife were doing enough for the case.

I am not surprised that Mr Iddles found the litigation process very stressful.

I accept Mrs Iddles’ evidence that for the last five and a half years the Iddles’ family life has revolved around this case. The May 2016 Price Decrease impacted not only Mr and Mrs Iddles, but also their sons who took over the farm, one of whom prepared a witness statement. I accept that the prospect of attending court and being required to give evidence and to be cross‑examined caused a great deal of anxiety to Mrs Iddles, who had never previously been in a courtroom.

The notice of proposed settlement to group members informed them that Mr and Mrs Iddles would ask the Court to approve payment of $30,000 for the time, inconvenience and stress that they incurred in bringing the action on behalf of the group members. There has been no objection to the approval of that amount. I am confident that if group members had read the detail of the involvement of Mr and Mrs Iddles in the proceeding, the work that they performed and understood the emotional burden that Mr and Mrs Iddles took upon themselves in the interests of the group members, they would appreciate that the amount of $30,000 is a modest sum indeed to compensate them personally.

I have no hesitation in determining that $30,000 is an appropriate allowance in favour of Mr and Mrs Iddles.

Can and should a Common Fund Order be made?

The notice of the proposed settlement advised group members that a 27.5% deduction for funding commission would be sought on a ‘common fund’ basis. That is so that all group members pay a share, regardless of whether they have signed a litigation funding agreement.

The most direct consideration of the question of power to make a CFO at the point of settlement is found in Botsman. Botsman was an appeal against an order approving settlement of a group proceeding. The unanimous judgment of the Court confirms the power in s 33V to approve a CFO for funder’s commission. The Court of Appeal held that the settlement sum as a whole was fair and reasonable.[21] However, the approval of the funder’s commission and legal costs payable from the settlement sum was not permitted to stand.

Given the recent controversy that has arisen in the Federal Court where the relevant legislation is not in identical terms to s 33V, it is appropriate to set out the reasoning of the Court of Appeal in Botsman concerning the power to make a CFO at some length:[22]

210.Group proceedings exist to avoid a multiplicity of actions and are attractive to group members because it may not be feasible, for economic or other reasons, for a putative plaintiff to run his or her claim as a single proceeding. Many group proceedings will only be brought and prosecuted with the underwriting of a funder engaged in a commercial enterprise.
…
214.Unless bound by a funding agreement, and in the absence of a Court order under s 33V(2), a group member will have no obligation to pay any share of the costs or litigation funding charges in bringing the proceeding to completion by settlement or judgment. The inevitable scope for group members to ‘free ride’ leads to the potential for unfairness and injustice.
215.The injustice exists because some group members will stand to obtain windfall gains, that is, benefit from the litigation without meeting the costs of bringing the proceeding or bearing the risks of failure. Further, the funder may not recover its outgoing, let alone return a profit, if it is limited to recovering from funded members.
216.In order to overcome that potential unfairness, and because a funder may regard its contractual entitlements from funded group members as inadequate or inappropriate, the courts have approved payments to funders out of the settlement sum. As mentioned above, two models have been deployed: fund equalisation and common fund orders. In every case, the court must have an eye on the quantum of any commission and how it is to be borne.
…

The statutory provisions
…
371.As already observed, s 33V(1) contemplates that the Court will make an order approving the settlement of the claims brought in the group proceeding. Subsection 33V(2) deals with the Court’s power to approve the distribution of money paid under the settlement. The two provisions confer two distinct powers.
372.The power in s 33V(2) given to the Court to make such orders ‘as it thinks fit’ with respect to the distribution of any money, including interest, paid under a settlement is a broad one. It logically succeeds the approval of the settlement under s 33V(1) and has a different focus.

…
374.In some cases, the funder may seek no more than the payment of its contractual entitlements under a funding agreement. In other cases, and the present is an example, the funder will seek a payment in the form of a common fund order and the source of any right in the funder for payment will be the terms of the court order. …
…
379.It is important to add that, under s 33V of the Supreme Court Act, a group proceeding may not be settled without the approval of the Court. It follows that any agreement to settle is not enforceable without the approval of the Court. Further, it will often be the case that the funder is not seeking to rely on the funding agreement (especially where not all group members have subscribed to a funding agreement) but rather seeks the intervention of the court to make a common fund order or a fund equalisation order to overcome the problems that may arise if a funder is confined to relying on the contractual terms of the funding agreements into which it has entered. In those circumstances, references to the freedom to contract and the difficulties of the court altering contractual promises needs to be qualified.
380.It may readily be accepted that the determination by a court of an appropriate level of commission to be paid to a funder raises significant issues of policy and power. In respect of power, Lee J has noted the difficulty in finding within the general powers of ss 33Z and 33ZF a power to interfere with and vary funding agreements. Central to his Honour’s concern is the difficulty in a court altering a litigation funding agreement which reflects a common enterprise with a shared economic purpose.
381.Those concerns do not arise in circumstances where the funder is not seeking to enforce or obtain the benefit of the funding agreement and the relevant deed of settlement for which approval is sought is couched in terms which impose an obligation to pay the amount approved by the court. In our view, ss 33V(2) and 33ZF provide the necessary power.
…
389.The construction of s 33V that we favour, which permits the Court to approve the settlement by making the approval orders but declining to approve payment of the commission or legal costs in the amounts sought, better reflects the statutory scheme.
…
391.Whether this Court can or should approve a settlement before considering whether it should approve, under s 33V(2), the distribution of any money paid under a settlement depends on a number of factors which are informed by the organising principle that underpins s 33V. Important to the resolution of that question will be the terms of the funding agreement and the terms of settlement. However, it must be remembered that what is being sought is the exercise of two statutory powers.

Section 33V(2) of the Victorian legislation is in slightly different terms to s 173 of the Civil Procedure Act 2005 (NSW) and s 33V of the Federal Court of Australia Act 1976 (Cth). Section 33V(2) provides that, if the Court gives approval, it may make such orders ‘as it thinks fit’ with respect to the distribution of any money. The other two statutes provide that the Court may make such orders ‘as are just’. I agree with the observations of Ward P in Augusta Pool 1 Uk Ltd v Williamson,[23] that the distinction between the two statutory provisions ‘may be more seeming than real’.[24]

At the time of the original approval hearing, there was thought to be uncertainty about whether or not this Court had power to make a CFO. The uncertainty arose from a decision of the Federal Court in Davaria Pty Ltd v 7‑Eleven Stores Pty Ltd (No 13) (‘Davaria’).[25] In Davaria, O’Callaghan J held that the reasoning of the majority of the High Court in BMW Australia Ltd v Brewster (‘BMW’),[26] where it was held that s 33ZF did not support the making of a CFO at a preliminary stage of proceedings, pointed ‘clearly enough to the conclusion that there is similarly no power to make a common fund order upon settlement under s 33V(2)’ of the Federal legislation.[27]

The decision in Davaria is at odds with other decisions of single judges of the Federal Court, including in Asirifi‑Otchere v Swann Insurance (Aust) Pty Ltd (No 3)[28] and Hall v Arnold Bloch Leibler (a firm) (No 2).[29] The decision in Davaria is inconsistent with dicta in the earlier decision of the full Federal Court in the same proceeding,[30] and with views expressed by the New South Wales Court of Appeal in Brewster v BMW Australia Ltd (‘Brewster’)[31] concerning the effect of the decision in BMW on the question of power to make a CFO.

In Brewster, Bell P, with whom Bathurst CJ and Payne JA agreed, made the following observations:[32]

38.The factual context of a settlement being presented to the Court for approval is very different to the situation, at the commencement or an early stage of litigation, where the Court is asked to approve an order nominating a particular percentage or commission which a funder may extract from any settlement ultimately reached or judgment ultimately given, when that sum is not known and the attitude of group members towards the settlement is also unknown. Moreover, at the point of settlement, ex hypothesi, the Court making the order will not be concerned with whether the litigation will be funded going forward or the risks which may be entailed in providing funding. Those risks will have been taken and be spent. The Court will be armed with “hard” information rather than speculative possibilities as to key integers, by reference to which its discretion may be exercised to approve a settlement and make any orders with respect to distribution (including to third parties such as solicitors administering any settlement fund): cf BMW (HC) at [68].

…
41.The majority judgments in BMW (HC) do not say expressly that s 173 precludes a court from making an order of the kind contemplated by the separate question and, on my analysis, with the possible exception of the judgment of Gordon J at [141], do not by implication or necessary inference require such a conclusion to be reached. Whether or not a majority of the High Court would reach such a conclusion is a matter of speculation which is not appropriate for this Court to engage in, especially in the evidentiary vacuum which exists in the current case cf Cantor v Audi Australia Pty Ltd (No 5) [2020] FCA 637 at [419]. It should be noted in this context that the decision in BMW (HC) was one made by reference to the terms of a notice of motion seeking an identified actual order that had been sought in the underlying proceedings. That is not so in this case.
…
43.To the extent that the plurality in BMW (HC) made observations at

[85]–[90] about “common fund orders” under a heading “Common fund orders and funding equalisation orders”, those observations are to be understood in the context of the common fund order that was being considered by the Court in that case and the different source of statutory power which it was contended authorised the making of such an order at the outset of the proceedings.

The approach to CFOs discussed by the Court of Appeal in Brewster has been adopted in later cases by single judges of the Supreme Court of New South Wales when making CFOs, of which Haselhurst v Toyota Motor Corporation Australia Ltd,[33] and Quirk v Suncorp Portfolio Services Ltd (No 2)[34] are recent examples.

As held by the Court of Appeal in Botsman, by which I am bound, I proceed on the basis that s 33V(2) confers power to make a CFO as part of the approval of a settlement. There is no uncertainty so far as the law of this State is concerned. I note that the decision of the Victorian Court of Appeal in Botsman is consistent with the analysis by the New South Wales Court of Appeal in Brewster.

I consider this to be an appropriate case to make a CFO pursuant to s 33V(2).

As observed by the Court of Appeal in Botsman, unless bound by a funding agreement, in the absence of an order under s 33V(2), a group member will have no obligation to pay any share of the costs or litigation funding charges in bringing the proceeding to completion by settlement or judgment.[35]

In this case if a CFO were not made, the whole of the burden of the costs and litigation funding would fall on Mr and Mrs Iddles, the only persons who have entered into a funding agreement.

The circumstances that gave rise to these proceedings and the nature and magnitude of the individual claims made by the lead plaintiffs on their own behalves and on behalf of the group members are such that, unless there was a funder prepared to fund the proceeding, I doubt there would have been a single proceeding. The costs would have been too high for individual group members and the potential adverse consequences too dire.

The funder has borne the risk that the proceedings would fail, in which event it would have had to bear the costs as well as meeting adverse costs orders in favour of Fonterra. For the reasons discussed below, I consider that in this case the commission rate sought by the funder of 27.5% of the settlement sum is appropriate.

It would be unfair on the lead plaintiffs for them to be required to bear the burden of the funder’s commission and the costs of the proceeding. It would be unrealistic for that to occur in circumstances where, were it not for the actions of Mr and Mrs Iddles, their solicitors, and the funder, there would be no settlement sum for group members to share.

To make a CFO ensures the unfairness and injustice of which the Court of Appeal in Botsman spoke, an unfairness from group members getting a ‘free ride’,[36] does not arise. Just as the benefits of the settlement sum are to be shared in a fair and reasonable way between group members, by making a CFO, the reasonable costs of obtaining those benefits are shared fairly and reasonably.

In this case the potential for orders for the payment of commission to the funder and for the reimbursement of costs to be made was notified to group members along the way. Those who did not wish to participate, whether on account of dissatisfaction with these arrangements or otherwise, had the opportunity to opt out and 74 persons did so. Of the approximately 600 group members who registered to participate as at 28 February 2023, none voiced their opposition to the making of a CFO.

The making of a CFO will have the consequence that, from the $25m settlement sum, which is inclusive of costs, the funder’s commission of $6,875,000 and legal costs of $3,984,264 as discussed below will be deducted, in addition to the allowance of $30,000 which I have determined is to be made in favour of the lead plaintiffs.

Taking the maximum amount claimed for legal costs from 21 February 2023 and of the administration of the scheme ($468,771) (which is to be the subject of further report by the referee or determination by the Costs Court as discussed below) into account and allowing a further $30,000 as a provisional sum to cover the cost of the further work by the referee (together with the amounts in paragraph 118, a total of $11,388,035) will leave an amount of no less than $13,611,965 available for distribution to group members. That sum represents a minimum of 54.4% of the $25m settlement sum which will be distributed amongst the group members, including the lead plaintiffs, giving comfort that in this case, which involves not insignificant risks, a CFO where all group members bear the commission and costs burden, irrespective of whether or not they have signed a funding agreement, is appropriate.

For the reasons discussed, I consider this an appropriate case to make a CFO.

The proposed deduction of 27.5% funder commission from the settlement sum

Group members have been on notice from an early stage about how the proceeding has been funded. The Funding Information Summary Statement dated 17 July 2020 informed group members that the LFA provided for a remuneration rate of 25% to 30%.

The notice of the proposed settlement informed the group members that an order would be sought that 27.5% of the settlement sum or $6.875m be paid as commission to the funder, reflecting the risks it took in supporting the litigation. The notice advised that the plaintiffs would not have been willing or able to run the class action without financial support from a litigation funder. I accept the accuracy of that statement.

While it is relevant that no group member has objected to the proposed 27.5% deduction for the funder’s commission, the fact no person has objected does not mean that the rate of commission sought must or should be allowed.

In accordance with the description of the Court’s role on an application of this type in Australian Securities and Investments Commission v Richards,[37] the Court has a duty to scrutinise all proposed deductions, including the funder’s commission.

In Botsman, the Court of Appeal said as follows concerning the commission rate:[38]

217.In Money Max, the Full Court of the Federal Court …
218.… identified a number of relevant, but not determinative, considerations to assess whether a proposed funding commission rate should be approved. It is important to recall that, in that case, the Court was being invited to determine a funding commission rate early in the proceeding and in advance of settlement. It was in that context that the Court identified the following matters as relevant.
(a)whether the funding commission rate had been agreed by sophisticated group members and the number of such group members who had agreed;
(b)the information provided to class members as to the commission;
(c)a comparison of the commission with commissions in other group proceedings and the broad parameters of the funding commission rates available in the market;
(d)the litigation risks of providing funding in the proceeding, to be assessed prospectively and avoiding ‘hindsight bias’;
(e)the adverse cost exposure that the funder assumed;
(f)the legal costs expended and to be expended, and the security for costs provided, by the funder;
(g)the amount of any settlement or judgment;
(h)any substantial objections made by class members in relation to any litigation funding charges; and
(i)the likely actual recovery for group members under any pre‑existing funding arrangements.

There are a number of reasons why I consider the 27.5% rate of commission advocated for by the funder and supported by the lead plaintiffs is appropriate:

(a)first, I consider that 27.5% reflects a reasonable and realistic rate of return to the funder having regard to the risks which it accepted upon entry into the LFA, some of which are discussed above;
(b)second, it is relevant to have regard to the period of time over which the outlays funded by the funder, the funder’s investment, was at risk and to have regard to the level of funding required to have been outlaid, including so as to meet orders for the provision of security for costs;
(c)third, 27.5% is a rate within the range of commission which the Funding Information Summary Statement advised was provided for in the agreement between the funder and the plaintiffs;
(d)fourth, 27.5% is less than the rate of commission to which the funder was entitled pursuant to the LFA having regard to the timing of the settlement;
(e)fifth, evidence of commission rates charged by litigation funding entities in representative proceedings in 2020 shows a range of approximately 20%–29%. 27.5% is within that range but, more importantly, most of those actions were shareholder class actions and not ‘bespoke’ proceedings such as this proceeding where the risk profile is different;
(f)sixth, the confidential evidence of Mr Conrad and of Mr Burstyner concerning the lack of willingness on the part of other funders to share in the risk or to undertake to fund the proceeding supports the reasonableness of the rate of commission sought; and
(g)seventh, the confidential evidence of Mr Conrad concerning the funder’s process of evaluating the risk; its required and anticipated rate of return and its expected costs outlay at the time of agreeing to fund the proceeding supports the making of such an order.

Is after the event (ATE) insurance to be reimbursed in addition to the funder’s commission?

The funder submitted that the ATE insurance costs were contemplated in the LFA. It submitted that the amount of $1,045,000 paid by it as the premium for ATE insurance is a reasonable cost for it to have incurred and one for which it should be reimbursed in addition to commission of 27.5%. In support of that submission, it cited the lack of competition or willingness from other funders to take carriage of the litigation, the factual and legal complexity of the proceedings and the comparatively low group member registration. It submitted that, without the ATE insurance, it would have sought a higher commission because of the higher risk it would have assumed or ‘perhaps not have funded the proceeding at all’.

The Funding Information Summary Statement dated 17 July 2020 clearly stated that the funder would both provide security for costs and pay any costs order that might be made against the plaintiffs. It further stated that, in return, if compensation is payable, the funder would seek an order for the payment of a success fee for having carried the financial risk to conclusion. The Funding Information Summary Statement did not suggest that in addition an order would be sought for the cost of reimbursement of ATE insurance, the costs of a premium paid by the funder to secure indemnity against adverse costs orders that might be made.

The funder appropriately drew the Court’s attention to the decision in Court v Spotless Group Holdings Ltd (‘Spotless’).[39] In Spotless, Murphy J determined that, while the litigation funders were entitled to claim the costs of obtaining ATE insurance under the relevant funding terms,[40] doing so might reduce the appropriate rate of funding commission:[41]

During the settlement approval hearing I expressed a preliminary view that if Funders wished to recover the expenses associated with providing an adverse costs indemnity (the ATE premiums and stamp duty) and providing security for costs (the Deeds of Indemnity) by deduction from the Settlement Fund, they should not be permitted at the same time to rely upon the cost of putting up security for costs and their exposure to the risk of an adverse costs order to justify the percentage funding rate they sought. In my view the Funders should not be able to have it both ways. I considered that those aspects of the Funding Terms reduced the costs and risks which the Funders assumed, and pointed towards allowing a funding rate lower than the 22.5% funding rate the Funders’ seek.

The funder submitted that Spotless is distinguishable from this proceeding because:

[W]hile LLS seeks the reimbursement of the premiums paid and owing in respect of the ATE Policy separately from a funding commission of 27.5%, the evidence discloses that the funding commission was not set to absorb adverse costs risks or the costs of procurement of the ATE Policy, but rather to represent a reasonable return for the capital invested in the case. Thus, the risk associated with the setting of the funding commission was predominantly related to the general merits risks of the case, and (to a lesser extent) the difficulty in group member registration and uncertainty regarding CFOs… and was not inclusive of the adverse costs risk or costs of security. LLS is not seeking, contra the position in Spotless, to “have it both ways.”

Following the hearing, the funder drew the Court’s attention to the more recent decision in Eckardt v Sims Ltd (‘Sims’),[42] where the question of what allowance is appropriate for ATE insurance was considered in the context of funding equalisation orders. After considering the Federal Court cases involving both CFOs and funding equalisation orders, Wigney J expressed his agreement with the following statement by Black J in Williamson v Sydney Olympic Park Authority (‘Williamson’),[43] a funding equalisation order case:[44]

It seems to me that the question for the Court is not whether the ATE costs in isolation from the Funder Commission, or the Funder Commission in isolation from the ATE costs, are unduly high, but whether the totality of the Funder Commission and ATE costs are so high that the settlement documented by the Settlement Deed and SDS (as distinct from the HoA, which does not provide for their payment) are not reasonable unless they reduced.

The funder submitted that the task for this Court is unchanged following the decision in Sims:

[I]t continues to be necessary to consider the reimbursement of ATE insurance premiums in the proceeding on a case by case basis, and also separately consider proportionality of the sums sought to be deducted from the settlement sum as a whole, as is frequently and ordinarily the case in settlement approval applications in which a CFO is sought.

Although the remarks made by Black J in Williamson, and endorsed by Wigney J in Sims, are in the context of funding equalisation orders, I agree with Black J that a relevant consideration is whether the overall amount to be received by the funder is not reasonable. I also agree with the funder’s submission that the cost of ATE insurance and whether or not it should fall within the rate of commission or should be allowed in addition to commission must be determined on a case by case basis.

The rate of the funder’s commission, at 27.5%, which I have determined should be allowed, represents $6,875,000 in commission. If the cost of the ATE insurance premium were to be allowed, the percentage of the settlement sum to be paid to the funder would increase to 31.68%. To allow a further $1,045,000 to be deducted from the $25m settlement sum would be to permit a deduction in favour of the funder which, taken together with the $6,875,000 commission, is not reasonable.

I consider that an allowance of $6,875,000 as commission includes an appropriate allowance on the facts of this case for the funder’s costs of doing business and accepting the funding and adverse costs risks. The commission rate of 27.5% already reflects that other funders had determined not to fund these proceedings. I consider that ATE insurance premium costs are part of the ‘costs of doing business’. As the funder’s submissions accurately state, the premium was paid in respect of ‘adverse costs risk’. That risk is part of the risk agreed to be borne by the funder.

The funder chose to manage the adverse costs exposure aspect of the risk that it agreed to accept by paying a premium to a third party rather than by bearing that aspect of the risk itself. To allow the premium, in addition to the commission, would be to permit further compensation for the risk assumed for which 27.5% commission is fair and reasonable.

Particularly in light of the manner in which the funder’s commission was initially outlined to the group members, which made no reference to an additional claim for reimbursement of the cost of ATE insurance premiums, it would not be fair and reasonable to deduct a further amount from the settlement sum for ATE insurance. That is not to say the choice made by the funder to incur the premium for ATE insurance was other than a reasonable choice. However, it was the funder’s choice driven by its own view about how best to manage an aspect of the risk it agreed to assume.

It is clear from the foregoing extract that the referee did not disallow the costs of the debt recovery proceeding because she has construed the CA and the LFA separately, or because she overlooked the budget and the definition of Common Benefit Work. These matters are addressed in her third report. The plaintiffs have not addressed the reasoning in the referee’s third report. Nor have they made any submissions as to why it ought not be adopted.
I am not satisfied that the referee’s approach concerning this issue was flawed as submitted by the plaintiffs. I am not satisfied that her reports reveal some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding. The definition of Common Benefit Work in the LFA directs attention to the budget. Stage 0 of the budget includes a reference to the ‘costs to 25 May 2020 of defending the County Court Action’, but no separate budgetary amount representing the costs of the debt recovery proceeding is identified, whether up to that date or otherwise. I adopt the referee’s reports as to the issue of the costs of the debt recovery proceeding. The costs of the debt recovery proceeding are not to be deducted from the settlement sum.
Harwood Andrews employee costs
As earlier mentioned, Adley Burstyner charged out employees ‘seconded’ from Harwood Andrews at rates higher than those charged by Harwood Andrews to Adley Burstyner.
The referee opined that the higher hourly rates charged by Adley Burstyner for the Harwood Andrews personnel were reasonable, but she nevertheless reduced those rates to the lower rates charged by Harwood Andrews to Adley Burstyner.
The plaintiffs submitted that the referee reduced the rates because she considered that:
(a)the secondment was an informal arrangement without a costs agreement or contract;
(b)the CA did not make it clear that Mr Fullerton was ‘seconded’ from Harwood Andrews but instead suggested he was a senior associate with Adley Burstyner;
(c)Adley Burstyner did not comply with s 174(1)(a) of the Uniform Law when disclosing its basis for charging to include legal services provided by Mr Fullerton in a way that implied he was part of Adley Burstyner and charging at its hourly rates rather than Harwood Andrews’ hourly rates;
(d)the disclosure requirements under s 175(2) of the Uniform Law in relation to the engagement of a second law practice were not complied with; and
(e)there was a potential breach of the indemnity principle.
As to the first of these matters, although the referee observed that Adley Burstyner and Harwood Andrews ‘informally reached the agreement without entering into a costs agreement or contract’, it does not appear to me that this was a basis for the referee’s disallowance of the higher fees charged for Harwood Andrews personnel.
As to the second, third and fourth of these matters, the referee did not identify non‑compliance with the Uniform Law as a basis for disallowing the higher charge out rates. Rather, she opined that the consequence of non‑compliance is that Adley Burstyner can only recover fair and reasonable costs, which would not include Adley Burstyner’s uplift (dealt with elsewhere in these reasons). However, to the extent that alleged non‑compliance with ss 174 and 175 forms part of the referee’s reasons for disallowing the higher charge out rates, I have found earlier that s 174 was not contravened and s 175 did not apply. These provisions therefore do not provide a basis for disallowing the higher charge out rates.
The real issue is whether there was some error of principle on the part of the referee when she concluded that the higher amounts ought not be allowed because:
(a)‘it is not fair, reasonable or proportionate for AB to charge out employees of HA at rates other than those upon which they were charged’; and/or
(b)‘there may be a possible breach of the indemnity principle’.
The referee considered that there may be a possible breach of the indemnity principle because the hourly rates charged by Adley Burstyner are higher than the rates charged by Harwood Andrews. She concluded that the rates can be no more than the rates agreed to between Adley Burstyner and Harwood Andrews and, accordingly, the amount claimed must be reduced to those lesser amounts, irrespective of what was stated in the CA or what might otherwise be considered reasonable.
The indemnity principle was described in Wentworth v Rogers:[69]
[I]t is beyond dispute that the purpose of an adverse costs order is to compensate or partly indemnify one party to litigation (usually the successful party) for the legal costs incurred in the course of the proceedings. The [indemnity] principle does not require that the costs have been paid, but it does require that there be a legal liability to pay costs.
Similarly, in Mainieri v Cirillo,[70] the Victorian Court of Appeal observed that:[71]
In broad terms, the indemnity principle is that, as between party and party, the party ordered to pay the other party’s costs is obliged to pay only those costs which the other party is legally obliged to pay to his or her solicitor.
I accept the plaintiffs’ submission that the indemnity principle only applies in the context of party/party costs. It does not apply in the present context. I am not, however, persuaded that the plaintiffs have established that the referee erred in disallowing the higher charge out rates for the Harwood Andrews personnel. That is because the overriding consideration is whether the costs contended for are fair, reasonable and proportionate as provided for in the Uniform Law and in s 24 of the CPA.
The plaintiffs submitted that law firms are entitled to charge rates which incorporate their various costs, including salaries, rent and biscuits in the canteen, and to make a profit. They submitted that the rates charged by Harwood Andrews to Adley Burstyner are akin to salaries. Mr Burstyner arranged and paid for infrastructure and overheads in respect of Harwood Andrews personnel including Adley Burstyner email addresses, accounts and login credentials for Adley Burstyner’s Office 365 account and user accounts in Adley Burstyner’s practice management software. Mr Burstyner said that he accounted for the fees charged in respect of Harwood Andrews personnel in the ‘Gross Fee Income’ (being the figure used as the basis for Adley Burstyner’s insurance premium) provided to the Legal Practitioners’ Liability Committee. However, it is not clear whether the Harwood Andrews personnel were covered by Adley Burstyner’s or Harwood Andrews’ professional indemnity insurance during this period. It is also unclear which firm is displayed as the law practice on their practising certificates.
The plaintiffs relied on the decision in Byrne v Marles (‘Byrne’)[72] in support of the proposition that secondment is recognised as having the effect of transferring, albeit temporarily, a person’s employment from one employer to another. In that case, Kaye J observed that:[73]
[A]ccording to her affidavit, at all times she has been remunerated by the Commissioner for her services, and she has taken direction from and been answerable to the Commissioner. Each of those factors are important indications of the existence of a relationship of employment between Ms Cohen and the Commissioner. On the other hand, the fact that Ms Cohen was on secondment from the Department of Justice to the Commissioner does not disturb that conclusion. The Macquarie Dictionary meaning of the verb “second”, in this context, is to “transfer … temporarily to another post, organisation or responsibility”. That definition accords with the normal every day use of the word in this context. In other words, during the period of her secondment, the employment of Ms Cohen was transferred, albeit temporarily, to the Commissioner. For that period she was not in the employment of the Department of Justice, but of the Commissioner.
Although the decision of Kaye J was overturned on appeal, this aspect of it was upheld.[74]
However, it is not, in my view, a forgone conclusion that because there was a secondment arrangement in place, Harwood Andrews personnel became employees of Adley Burstyner. Secondment arrangements can take all sorts of different shapes and forms. It is necessary to look to the actual arrangement in place to determine whether the employment of certain individuals was transferred to Adley Burstyner.
In Byrne, the critical factors to finding that the secondment amounted to an employment relationship were the fact that the secondee was remunerated by the Commissioner and took direction from and was answerable to the Commissioner.
As to the second of the features identified by Kaye J, Mr Burstyner’s evidence is that he supervised all work performed on behalf of Harwood Andrews’ personnel. Although it is unclear whether the personnel took direction from and were answerable to Mr Burstyner, I accept that the fact that they worked under his supervision is a matter which supports a conclusion that they were ‘employed’ by Adley Burstyner.
However, unlike the facts in Byrne, based on Mr Burstyner’s evidence, Harwood Andrews billed Adley Burstyner for the staff. Just as Adley Burstyner was liable to pay Harwood Andrews for fees charged for Harwood Andrews’ personnel, it appears that it was Harwood Andrews and not Adley Burstyner, who paid seconded personnel. It also appears likely that the other costs of employment, such as holiday pay, workers compensation and superannuation, were met by Harwood Andrews.
In addition, the fact that the personnel were seconded on an ‘as needs’ basis indicates that they were not ‘employed’ by Adley Burstyner.
In light of these matters discussed, I consider that it is more likely than not that the Harwood Andrews personnel remained employees of Harwood Andrews. The arrangement was more akin to a labour hire arrangement than a secondment. Although categorised as professional fees, the costs associated with Harwood Andrews’ staff, engaged on an ‘as needs’ basis, are, in my view, more appropriately categorised as disbursements.
I have not been directed to any authority to the effect that a law practice may charge an uplift on disbursements. Section 182 of the Uniform Law which deals with uplifts explicitly excludes disbursements from the calculation of an uplift. I am not satisfied that there is any basis for Adley Burstyner to recover either a profit or an uplift on Harwood Andrews’ personnel.
I am not satisfied that the higher charge out rates, beyond the ‘pass through’ of the Harwood Andrews personnel costs incurred, are fair, reasonable and proportionate. The amounts paid to Harwood Andrew are disallowed as a deduction from the settlement sum. Those amounts are to be dealt with as proposed by the referee. There is no reason not to adopt her report concerning this contested item.
25% discount for multiple activities
The referee applied a 25% discount to ‘multiple activities’, described in her first report as ‘time entries where multiple activities were present in a single entry’.
In applying a 25% reduction, the referee explained:
These entries were difficult to translate into a single activity code. I have concluded that a reduction should occur relying on the Seven Network Case in which Justice Sackville identified the difficulties experienced in translating the lawyer’s time recording into a form acceptable for taxation purposes. This also accords with my experience at taxations where the Costs Court or Taxing Officer typically would reduce the claims where there are multiple activities. I have therefore applied a 25% discount to these entries.
The same discount was applied by the referee to ‘multiple activities’ by counsel.
Ms Ward considered that a multiple activities discount was appropriate, but was of the opinion that 25% is ‘unreasonably high’, akin to the size of a discount that would be applied when assessing costs on a party/party basis. Ms Ward concluded that, if any reduction is to be applied, it should not be greater than 5%.
The plaintiffs submitted that the Court should not adopt the referee’s report in this regard and should instead apply a lower discount (if any) of up to 5%.
The recognition by Ms Ward that a reduction on account of multiple activities is appropriate is significant. This is not a case where the Court is called upon to choose between two experts, one of whom says the appropriate reduction is 25% and the other of whom says the reduction should be between zero and 5%. The question is a different one: Should the referee’s report be adopted in this respect?
In circumstances where both experts agree that a reduction is appropriate and that all that is in issue is the appropriateness of the percentage to be adjusted it cannot be said that the referee’s report reveals ‘some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding’. I adopt the referee’s report in this regard.
Costs of settlement administration
The plaintiffs seek an order approving all costs incurred in the settlement administration to date (professional fees of $61,888.00 and disbursements of $41,747.00), and for the prospective approval of an estimate of the future administration costs (professional fees of $41,228.00 and disbursements of $42,426.00), reserving liberty to apply to seek approval if the estimate is too low. It is submitted that if the estimate is too high, the difference will go to group members or a nominated charity.
When the referee provided her second report, she allowed professional fees of $62,647.34 and disbursements of $18,249.00 relating to scheme administration, a total of $80,896.34. That allowance was based on instructions provided by Adley Burstyner in relation to its estimated professional fees and disbursements for administering the settlement scheme. The referee largely allowed the estimated professional fees, except that she disallowed time allocated to liaising with the referee, reduced Mr Fullerton’s rate to $385 (inclusive of GST) for the reasons set out earlier, and disallowed the buffer of 10%. In relation to the estimated disbursements, the referee disallowed the engagement of junior counsel, disallowed costs relating to engagement with the referee and disallowed the 10% buffer.
Because of the passage of time since the second report, certain of the estimated costs of scheme administration have been replaced with actual costs. The evidence filed shortly prior to the June 2023 hearing shows that Adley Burstyner’s professional fees and disbursements have, or will shortly, exceed the estimates provided to the referee for the completion of scheme administration.
In his sixth affidavit, Mr Burstyner explained the reason for the increase in professional fees:
16This increase in the estimate since 27 February 2023 is largely due to Adley Burstyner having to communicate with approximately 270 famers via telephone and email between 27 April and 26 May 2023 to obtain the following information in order to be able to process payments in accordance with the Settlement Agreement:
(a)Complete and accurate supplier numbers from farmers which were previously provided in an incomplete format (preventing crucial steps in determining percentage stakeholdings in farm income, necessary to allocate payouts in respect of farms);
(b)Correct bank account details, which in some cases, were previously provided incorrectly; and
(c)Ascertaining the portion of milk production that was subject to the price decrease (as opposed to the portion of milk supply that was subject to a fixed price and therefore unaffected by the price decrease).
17I had not anticipated this additional work, as I had assumed that complete information would be provided by group members upfront without Adley Burstyner having to go back to them with multiple information requests.
In his seventh affidavit, Mr Burstyner explained the reason for the increase in disbursements relating to work in progress undertaken by the accounting firm Vincents during the period 2 November 2022 to date:
i.work involved in performing the calculations protocol set out in clauses 3 and 4 of the SDS (pages 1028 and 1029 of the supplementary application book). In order to perform the calculations under the protocol in the SDS, it was necessary to manipulate the data in the two databases provided by the Defendants and convert that data (which had been provided on a volume basis) to a revenue basis. This required Vincents to build a separate claimant database with the relevant information to be able to perform the calculations pursuant to the protocol set out in the SDS, which was required in order to complete the claim calculation notices in the amount of $28,858.50 (including GST). This compared favourably with a quote I had obtained from another accounting firm;
ii. Assisting Adley Burstyner to obtain complete and accurate information from fanners in order to be able to process payments in accordance with the SDS and engaging with Group Members in relation to queries they had, in the amount of $3,697.65 (including GST); and
iii. Preparation of the claim calculation notices and sending the notices to 569 Group Members, in the amount of $7,045.5 (including GST). This compared favourably with a quote I had obtained from a litigation support provider.
The test in relation to adoption in Wenco speaks to an error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding as reasons for rejecting a referee’s report. However, a further reason for not adopting a referee’s report, or part thereof, in a situation such as the present, is where the subject matter of the report has been overtaken by subsequent events. Rule 50.03(2) of the Rules contemplates that in circumstances such as the present, one option is to refer the matter back to the referee to provide a further report or for further consideration.
Where new factual information is available, the allowable costs should be based on whether the actual, rather than estimated, amounts are fair, reasonable and proportionate.
However, rather than referring the question of the fair and reasonable costs of scheme administration now to the referee, when the scheme administration remains incomplete, the preferable course is to proceed as contemplated by cl 10.6 of the SDS:
Upon the Administrator determining that he is in a position to complete the distribution of funds from the Settlement Distribution Fund:
(a) obtain a final Supplementary Report from the Costs Referee; and
(b) deliver to the Associate to her Honour Justice Nichols (or as the Court may direct) the final Supplementary Report together with such materials as the Administrator may deem appropriate in support of any application for the payment to the solicitors for the plaintiffs any costs or disbursement not yet paid.

Once the scheme administration is complete, there should be a single reference to the referee pursuant to r 50.03(2)(b)(ii) to assess the reasonableness of the administration costs claimed based on the work actually done. I will order that, if the referee is unwilling or unable to perform that task, the fair, reasonable and proportionate administration costs of the scheme administration be determined by the Costs Court. I will include a direction that such a determination be on a gross sum basis or on such other basis as the Costs Court determines appropriate and otherwise having regard to these reasons concerning contested costs issues.

Costs: 1 December 2022 – 20 February 2023

In relation to the professional fees for the period 1 December 2022 to 20 February 2023, the referee applied the six‑step process detailed at paragraph 158 of these reasons. The referee reduced the rates of Harwood Andrews personnel, disallowed administrative / not claimable costs, including the costs of engaging Ms Ward which the referee described as ‘costs incurred by AB for its own benefit’, and applied a 25% reduction to entries identified as ‘multiple activities’. The referee calculated the reasonable fees as $90,864.06, plus an uplift of $22,716.01 if allowable.

The plaintiffs submitted that professional fees of $99,873 ought to be allowed. For the reasons set out earlier, I do not agree. There is no reason not to adopt the allowance of $90,864.06 as assessed by the referee.
Regarding disbursements for the period 1 December 2022 to 20 February 2023, the referee reduced disbursements for the period 1 December 2022 to 20 February 2023 by $198.00 to account for GST on an invoice which was inadvertently claimed twice. The referee calculated the reasonable disbursements for this period as $97,816.97. The plaintiffs do not take issue with the amount of disbursements allowed.
Costs: 21 February 2023 – 28 February 2023
Prior to the preparation of her second report, Adley Burstyner provided the referee with an estimate of its professional fees from 21 February 2023 to 28 February 2023 totalling $32,845.16. The estimate included a 15% reduction, which the referee did not consider to be necessary. The referee did, however, reduce the rates of Harwood Andrews personnel for the reasons set out earlier. The referee concluded that the reasonable estimated professional fees relating to this period were $34,818.85.
Regarding estimated disbursements for the period 21 February 2023 to 28 February 2023, the referee disallowed the costs of a second junior counsel attending the approval hearing, but allowed their fees in relation to assisting other counsel in preparation for the hearing. The referee also disallowed $21,725 of estimated general disbursements associated with a second hearing. The referee calculated the reasonable disbursements for this period as $171,435, including the referee’s costs of $55,000.
For the period 21 February 2023 to 28 February 2023, the plaintiffs claim professional fees of $26,288 and disbursements of $122,500. These amounts are lower than the amounts allowed by the referee. Although not explicitly addressed by counsel, I expect this discrepancy arises because the referee’s allowances for the period 21 February 2023 to 28 February 2023 were based on estimates provided to her by Adley Burstyner. To the extent that the amounts actually incurred were less than the estimates, only the actual professional fees and disbursements incurred ought to be allowed.
It is convenient to remit the matter back to the referee pursuant to r 50.03(2)(b)(ii) to consider whether the actual amounts of professional fees and disbursements incurred for the period 21 February 2023 to 28 February 2023 are fair, reasonable and proportionate, noting that the referee previously disallowed certain amounts when assessing the reasonable costs for this period based on estimates. If the referee is unwilling or unable to undertake the reference then I will make orders for referral to the Costs Court in default of the availability of the reference to determine costs for this period.
Costs of the further hearing: 1 March 2023 – 23 June 2023
For the period 1 March 2023 to the second hearing, the plaintiffs claim professional fees of $100,852 and disbursements of $86,842. Mr Burstyner’s evidence is that most of these increased amounts is attributable to considering and responding to the three reports prepared by the referee.
Adley Burstyner provided the referee with an estimate of costs for a second hearing, but the referee excluded the costs from her second report ‘[i]n the absence of cogent reasons why there would be a need for a second hearing’.
In her third report, prepared once it was known that a second hearing would be required, the referee observed that:
I have now been provided with further information from AB regarding the further disbursements sought in emails from AB to my office on 26 April 2023 and 28 April 2023 which include fees for counsel and the costs expert but not AB’s costs which are not being sought as part of the approval of legal costs.
The referee allowed nil professional fees and $36,987.50 for disbursements for the period up to and including the further hearing. The referee disallowed the costs of Ms Ward. She disallowed costs of counsel relating to advice to Adley Burstyner regarding the referee’s reports and the engagement of Ms Ward to respond to those reports. The referee acknowledged that:
If the Court were to accept the SW report or that it was reasonable for AB to have engaged a costs lawyer (even if her report is not accepted) then I acknowledge the hourly rate of Suzanne Ward as an experienced costs lawyer is reasonable.
The plaintiffs claim the amount of $100,852 for the period 1 March 2023 to the second hearing. However, it appears from the referee’s third report either that no information was provided to her regarding professional fees for the period 1 March 2023 to the further hearing and/or that Adley Burstyner informed the referee that it was not seeking approval of its costs.
So far as Adley Burstyner’s professional fees for the period 1 March 2023 to the further hearing relate to quantification of their costs for the purpose of the referee’s reports, I consider that it is reasonable to make a further allowance. There is, however, insufficient information available to determine whether the professional fees sought are fair, reasonable and proportionate and whether they relate to that work or other work.
There is a further discrete issue that requires consideration. The plaintiffs submitted that the Court should not adopt the referee’s reports to the extent of her disallowance of the costs of advising, obtaining evidence on and making submissions about costs claims with which the referee disagrees or which the Court ultimately disallows.
Relying on authorities concerned with the quantification of costs of other fiduciaries such as trustees and insolvency practitioners, the plaintiffs submit the amounts incurred by fiduciaries in the quantification of their costs (both professional fees and disbursements) are properly allowable out of the relevant fund.[75] Further, that the allowance does not depend on the substantive merits of the fiduciary’s argument as to quantification. Rather, the costs of quantification are allowed regardless of whether the fiduciary succeeds in their arguments on costs, because the issue is one which concerns the administration of the fund.[76]
The authorities relied on by the plaintiffs include Re Reiter Brothers Exploratory Drilling Pty Ltd (‘Re Reiter Brothers’),[77] where Zeeman J observed, in the context of an application by a former provisional liquidator for determination of his remuneration, that:
A very large proportion of the remuneration claimed relates to the work done by the applicant to prepare his claim for remuneration. On my assessment, in excess of $11,000 is claimed for such work. Counsel for the Company submitted that no part of it, whether done before or after the termination of the applicant’s appointment, ought to form part of the remuneration to be fixed by me but that it ought to be treated as being part of the costs of the application. I do not accept that submission. The dictum from Day v Mount (supra) to which I have referred would suggest the contrary to be the case. It is difficult to see how remuneration of such work would form part of the costs of the application in the normal sense. In my view work properly done by the applicant by way of preparing his claim for remuneration falls to be dealt with as part of his remuneration.
Re Reiter Brothers was cited by Davies J in Thackray v Gunns Plantations Ltd (No 2)[78] in approving allowances for receivers’ legal costs of calculating their lien and their remuneration relating to the calculation of the value of their indemnity and lien. The reasoning in Re Reiter Brothers was endorsed by Gardiner AsJ in Re P.P.I Corp Pty Ltd (‘Re P.P.I’)[79] in the context of an application by a former administrator for determination of their remuneration. Both Re Reiter Brothers and Re P.P.I were subsequently cited by Matthews JR, as her Honour then was, in Re Custometal Engineering Pty Ltd (in liquidation)[80] in a case concerning remuneration of former administrators.
The cases relied on by the plaintiffs involved work of a different nature to the work associated with the further hearing.
Each of the decisions relied on by the plaintiffs must be seen in context. They all involved applications to the Court for the determination or approval of an insolvency practitioner’s remuneration. The analogous step in the present situation was the collation of documents and preparation of material for the referee. The costs of contesting the referee are in a different category. The task that the referee was entrusted with upon being provided with documents and information by the solicitors is akin to the role of the Court in remuneration applications by insolvency practitioners. That is, to express an opinion for adoption or otherwise by the Court as to the reasonable costs and disbursements which ought be allowed based on the material provided. The contested costs concern the solicitors’ costs of embarking on a contested hearing concerning the adoption of the referee’s report following the referee’s review of the material previously provided.
Separately, in support of rejection of this aspect of the referee’s reports, the plaintiffs referred to decisions concerning trusts disputes. In Sons of Gwalia Ltd v Margaretic (‘Sons of Gwalia’),[81] Finkelstein J observed that:[82]
In a trust dispute the costs of all parties are treated as necessarily incurred for the benefit of the estate and are ordered to be paid out of the fund either on a solicitor and client or indemnity basis.
In Shao v One Funds Management Ltd (‘Shao’),[83] Derham AsJ, citing Kekewich J in Re Buckton, Buckton v Buckton,[84] identified three classes of litigation regarding the construction of trust instruments equally applicable to proceedings for judicial advice generally, where it was determined appropriate, in two of the three classes of case, that the costs come out of the estate because they were incurred for the benefit of the estate.[85]
I do not consider the passages in Sons of Gwalia and in Shao relied on by the plaintiffs show error on the part of the referee or that her report should not be adopted in this respect. This case does not fall within the category of trust dispute identified by Finkelstein J, nor within the first two categories identified by Derham AsJ. The further hearing did not involve disputed questions between group members. It was concerned with what allowance should be made for Adley Burstyner’s costs, and the true moving party in the further hearing was Adley Burstyner. The costs associated with the unsuccessful disputation of the referee’s reports, urging that parts of the report not be adopted and seeking higher professional fees, are not costs necessarily incurred for the benefit of the group members. They are costs incurred for the benefit of Adley Burstyner.
For the foregoing reasons, I do not consider that Adley Burstyner’s professional fees associated with engaging Ms Ward and disputing the conclusions of the referee ought to be allowed out of the settlement sum.
Finally, concerning disbursements during this period, the plaintiffs contended that $86,842 should be allowed for the period 1 March 2023 to 23 June 2023, rather than the $36,987.50 allowed by the referee. For the reasons set out above, insofar as the claimed disbursements relate to advising, obtaining evidence on and making submissions about the costs claim, they are not properly allowed as a deduction from the settlement sum.
For the same reasons, the costs of Ms Ward’s report should not be allowed.
It is appropriate that the question of what fair, reasonable and proportionate costs relating to the period 1 March 2023 to 23 June 2023 should be allowed as a deduction from the settlement sum should be referred back to the referee for consideration and report in accordance with these reasons. To minimise unnecessary costs, I expect this issue to be dealt with in the same report as concerns the further costs of the administration. Once again, if the referee is unwilling or unable to undertake that work I will refer the questions for determination by the Costs Court on the same basis as the scheme administration costs.
The Referee’s Costs

It appears that some of the referee’s costs have been paid out of the settlement sum. The amount of the referee’s costs to date, according to the plaintiffs’ cost table, are $55,000 and $17,500, totalling $72,500. Her costs that are either unpaid or relate to further work to be performed should also be paid out of the settlement sum. If there is any dispute about whether those costs are fair, reasonable and proportionate, any such dispute shall be referred to the Costs Court for determination.

Orders

I direct the solicitors for the lead plaintiffs to prepare a draft order that gives effect to these reasons to the extent the reasons are not reflected in orders previously made. A draft order should be provided to my chambers by no later than 4:00pm on 4 October 2023.

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SCHEDULE

LYNDEN IDDLES First Plaintiff

and

GEOFFREY IDDLES Second Plaintiff

and

FONTERRA AUSTRALIA PTY LTD (ACN 006 483 665) First Defendant

And

FONTERRA MILK AUSTRALIA PTY LTD (ACN 114 326 448) Second Defendant

And

FONTERRA BRANDS (AUSTRALIA) PTY LTD (ACN 095 181 669) Third Defendant

[1]Fonterra Australia Pty Ltd, Fonterra Milk Australia Pty Ltd and Fonterra Brands (Australia) Pty Ltd (together, ‘Fonterra’).

[2]This is also referred to as the ‘Stepdown’ in the settlement distribution scheme.

[3]Damian Grave, Ken Adams, and Jason Betts, Class Actions in Australia (Thomson Reuters, 3^rd ed, 2022) 660, [14.140].

[4][2018] VSCA 278; (2018) 57 VR 68, 111 [200] (Tate, Whelan and Niall JJA).

[5][2013] FCAFC 89.

[6]Ibid [8] (citations omitted).

[7][2022] NSWSC 1457.

[8]Ibid [18].

[9]Ibid, quoting Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289, [2] (Lee J).

[10][2019] VSC 663.

[11]Ibid [32] (citations omitted).

[12][2000] FCA 1925; (2000) 180 ALR 459.

[13]Ibid 465, [19].

[14](1977) 180 CLR 266, 283.

[15][2021] FCAFC 40; (2021) 285 FCR 133.

[16][2019] HCA 18; (2019) 267 CLR 1.

[17]Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40; (2021) 285 FCR 133, 152 [78].

[18]Section 12CB of the ASIC Act concerns the supply of financial services. Section 21 of the ACL concerns the supply of goods or services. The provisions are otherwise identical.

[19]Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1, 38 [87].

[20]See also more recently AHG (WA) (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd [2023] FCA 1022, including at [48] (Beach J).

[21]Botsman v Bolitho [2018] VSCA 278; (2018) 57 VR 68, 73 [6], 137–138 [341]–[347] (Tate, Whelan and Niall JJA).

[22]Ibid 113 [210], 113–114 [214]–[216], 141–142 [371]–[372], 142 [374], 143 [379]–[381], 144–145 [389], 145 [391] (citations omitted).

[23][2023] NSWCA 93.

[24]Ibid [77].

[25][2023] FCA 84.

[26][2019] HCA 45; (2019) 269 CLR 574.

[27]Davaria Pty Ltd v 7-Eleven Stores Pty Ltd (No 13) [2023] FCA 84, [183].

[28][2020] FCA 1885; (2020) 385 ALR 625, 629 [15] (Lee J).

[29][2022] FCA 163, [24] (Beach J).

Davaria Pty Ltd v 7-Eleven Stores Pty Ltd [2020] FCAFC 183; (2020) 281 FCR 501, 504 [11], 509–512

[31]–[42] (Lee J, Middleton J agreeing at 502 [1], Moshinsky J agreeing at 503 [4]).

[31][2020] NSWCA 272.

[32]Ibid [38], [41], [43].

[33][2022] NSWSC 1076, [50]–[51] (Rees J).

[34][2022] NSWSC 1457, [43]–[44] (Stevenson J).

[35]Botsman v Bolitho [2018] VSCA 278; (2018) 57 VR 68, 113 [214] (Tate, Whelan and Niall JJA).

[36]Ibid.

[37][2013] FCAFC 89, [8].

[38]Botsman v Bolitho [2018] VSCA 278; (2018) 57 VR 68, 114–115 [217]–[218] (Tate, Whelan and Niall JJA) (citations omitted).

[39][2020] FCA 1730.

[40]Ibid [89].

[41]Ibid [96].

[42][2022] FCA 1609.

[43][2022] NSWSC 1618.

[44]Ibid [83], quoted with approval in Eckardt v Sims Ltd [2022] FCA 1609, [38].

[45][2016] FCA 1433, [91] (citations omitted).

[46]Uniform Law, s 169.

[47][2009] VSCA 191; (2009) 25 VR 119, 126–127 [17] (Redlich and Bongiorno JJA and Beach AJA) (citations omitted).

[48][2016] VSC 731.

[49]Ibid [5].

[50][2007] FCA 2059.

[51][2000] FCA 187; (2000) 278 ALR 429.

[52]Ibid 438 [30].

[53][2022] VSC 547.

[54]Ibid [39] (citations omitted).

[55]Castaway Avenue Pty Ltd v CSC1957 Investments Pty Ltd [2023] VSCA 30, [53].

[56]Ibid [54], [57]–[60].

[57]Pursuant to ss 178(1) and 185(1) of the Uniform Law.

[58]Uniform Law, s 6.

[59][2014] VSC 287.

[60][2014] VSC 287, [79]–[80].

[61]Ibid [5]–[7], [10]–[11], [75]–[77] (citations omitted).

[62]Ibid [77].

[63]Ibid [79]–[80].

[64]Ibid [88].

[65][2022] FCA 1545.

[66]Ibid [33], [68]–[69].

[67]Russells v McCardel [2014] VSC 287, [39].

[68]Wenco Industrial Pty Ltd v WW Industries Pty Ltd [2009] VSCA 191; (2009) 25 VR 119, [17(e)].

[69][2006] NSWCA 145; (2006) 66 NSWLR 474, 504 [126] (Basten JA, Hislop JA agreeing at [215]).

[70][2014] VSCA 227; (2014) 47 VR 127.

[71]Ibid 144 [43] (Nettle AP, Hansen and Santamaria JJA).

[72][2007] VSC 63.

[73]Ibid [34].

[74]Byrne v Marles [2008] VSCA 78; (2008) 19 VR 612, [33] (Nettle JA, Dodds‑Streeton JA agreeing at [94], Coghlan AJA agreeing at [95]).

[75]Relying on Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430 (provisional liquidator); Thackray v Gunns Plantations Ltd (No 2) [2011] VSC 417, [3] (receivers); Re PPI Corporation Pty Ltd [2014] VSC 366, [46]–[47] (administrators); Re Custometal Engineering Pty Ltd [2018] VSC 726, [42] (liquidators).

[76]Relying on Sons of Gwalia Ltd v Margaretic (2006) 232 ALR 119; [2006] FCAFC 9, [5]–[7]; Shao v One Funds Management Limited [2023] VSC 251, [52]–[58].

[77](1994) 12 ACLC 430.

[78][2011] VSC 417.

[79][2014] VSC 366, [46]–[47].

[80][2018] VSC 726, [42].

[81][2006] FCAFC 92; (2006) 232 ALR 119.

[82]Ibid 121 [7].

[83][2023] VSC 251.

[84][1907] 2 Ch 406.

[85]Shao v One Funds Management Ltd [2023] VSC 251, [52].

LYNDEN IDDLES	First Plaintiff
and
GEOFFREY IDDLES	Second Plaintiff
and
FONTERRA AUSTRALIA PTY LTD (ACN 006 483 665)	First Defendant
And
FONTERRA MILK AUSTRALIA PTY LTD (ACN 114 326 448)	Second Defendant
And
FONTERRA BRANDS (AUSTRALIA) PTY LTD (ACN 095 181 669)	Third Defendant

[2023] VSC 566

20 September 2023