McAlister v State of New South Wales (No 3)
[2018] FCA 636
•10 May 2018
FEDERAL COURT OF AUSTRALIA
McAlister v State of New South Wales (No 3) [2018] FCA 636
File number: NSD 1968 of 2013 Judge: MORTIMER J Date of judgment: 10 May 2018 Catchwords: REPRESENTATIVE PROCEEDING – application for final orders under s 33ZF of the Federal Court of Australia Act 1976 (Cth) relating to settlement approval – parties seeking Court approval of “costs balance payment” agreed between the parties – whether the proposed “costs balance payment” is fair and reasonable – approval granted – final orders made Legislation: Federal Court of Australia Act 1976 (Cth), ss 33V, 33X, 33ZF Cases cited: Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3) [2017] FCA 330
Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527
Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) [2006] FCA 1388; 236 ALR 322
McAlister v State of New South Wales (No 2) [2017] FCA 93
Date of hearing: Determined on the papers Date of last submissions: 3 April 2018 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Category: Catchwords Number of paragraphs: 28 Solicitor for the Applicant: Mr B Slade of Maurice Blackburn Lawyers Solicitor for the First Respondent NSW Crown Solicitor’s Office Solicitor for the Second and Third Respondent Norton Rose Fulbright Australia ORDERS
NSD 1968 of 2013 BETWEEN: PAUL LESLIE MCALISTER BY HIS LITIGATION REPRESENTATIVE THE NSW TRUSTEE & GUARDIAN
Applicant
AND: STATE OF NEW SOUTH WALES
First Respondent
AVIBIN PTY LTD
Second Respondent
ADRIAN ALAN POWELL
Third Respondent
AND BETWEEN: STATE OF NEW SOUTH WALES
First Cross-Claimant on First Cross-ClaimAND AVIBIN PTY LTD (ACN 002669267) (and another named in the Schedule)
First Cross-Respondent on First Cross-ClaimAND BETWEEN: AVIBIN PTY LTD (ACN 002669267) (and another named in the Schedule)
First Cross-Claimant on Second Cross-ClaimAND: STATE OF NEW SOUTH WALES
First Cross-Respondent on Second Cross-ClaimJUDGE:
MORTIMER J
DATE OF ORDER:
10 MAY 2018
THE COURT NOTES THAT:
A.The amounts referred to in orders 1 and 2 below have been paid by each respondent, and the Court’s orders relating to those payments have therefore been complied with.
B.The amounts referred to in order 3 below, relating to sub-clause 2.1(b) of the Settlement Deed, have been paid by the respondents and the Court’s order relating to that payment has therefore been complied with.
THE COURT ORDERS THAT:
1.There be judgment for the applicant against the first respondent, together with an award of damages in favour of the applicant and group members (as defined in [28] of the amended originating application) in the aggregate amount of $2,000,000.
2.There be judgment for the applicant against the second and third respondents, together with an award of damages in favour of the applicant and group members (as defined in [28] of the amended originating application) in the aggregate amount of $2,050,000.
3.The respondents pay the costs of the applicant, as agreed between the parties in accordance with sub-clauses 2.1(b) and (c) of the Settlement Deed executed by the parties on 8 September 2016, including the amount of $2,970,000.00, being the amount approved by the Court as the Costs Balance Payment as defined in clause 2.1(c)(i) of the Settlement Deed.
4.The first respondent pay the sum of $2,970,000.00, being the Costs Balance Payment to the applicant’s solicitors, Maurice Blackburn Pty Ltd, within 28 days from the date of these orders.
5.The cross claims be dismissed with no order as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MORTIMER J
On 24 November 2016 the Court made orders approving the settlement proposed by the parties in this proceeding: see McAlister v State of New South Wales (No 2) [2017] FCA 93. At [4]–[8] of those reasons I set out a summary of the nature of the proceeding, and the claim made. Essentially it concerned the treatment of people living at a place called Grand Western Lodge (GWL) in Millthorpe, in regional NSW between 1 January 2000 and 15 August 2011. What occurred at GWL during that period was the subject of several inquiries and investigations, and the end date of the period marked the date on which the last residents were removed from GWL pursuant to orders made by the NSW Guardianship Tribunal.
The settlement scheme for which the Settlement Deed provided was complicated, addressing as it needed to the range of damages suffered by the class members, but also needing to deal with their individual needs and abilities, and their particular personal and financial circumstances.
By an interlocutory application made on 14 February 2018, the applicant has applied for orders pursuant to s 33ZF of the Federal Court of Australia Act 1976 (Cth) to finalise the settlement of this proceeding. As contemplated by the terms of the Settlement Deed, orders for judgment against the first, second and third respondents are sought, together with orders for damages, recognising that those damages have in fact already been paid. The respondents consent to the orders proposed. I am satisfied the Court has power to make those orders under s 33ZF, and that they are appropriate.
Evidence relied upon
The application is supported by the following affidavit material:
(1)An affidavit of Ms Kerry Palmer, a solicitor employed by Maurice Blackburn sworn and filed on 14 February 2018. Ms Palmer reports on the settlement administration and compliance with the Settlement Deed;
(2)An affidavit of Ms Lydia Fogl, sworn 9 November 2017 and filed 14 February 2018. Ms Fogl is a solicitor, who was briefed as an independent legal costs expert to provide an opinion whether the sum of $2,970,000.00 including GST is a reasonable sum in the circumstances for what is described in the Settlement Deed as the Costs Balance Payment; and
(3)A further affidavit of Ms Palmer in support of the interlocutory application, sworn and filed on 3 April 2018.
Ms Palmer’s second affidavit was requested by the Court, after consideration of the existing evidence. The Court sought further evidence relating to:
(1)clarification of the period during which the claimed fees of $2,970,000 were incurred. These fees are described in the Settlement Deed as the “Costs Balance Payment”; and
(2)further evidence to support the total costs payment of more than $6,500,000, despite the fact the group members received total compensation in the amount of $4,050,000.
The “Costs Balance Payment” is a payment identified in clause 2.1(c)(i) of the Settlement Deed. At the time the Deed was signed, it was an unknown sum, and yet to be agreed. It comprises a component of the applicant’s overall costs on a solicitor/own client basis, being costs “incurred from 2 September 2011 and still to be incurred on [the applicant’s] own behalf and on behalf of all Group Members in the Proceeding, including (but not limited to) any costs and disbursements incurred in obtaining approval of the Settlement, and implementing and administering the Settlement” (quoting from the definition of “Applicant’s Costs” in Sch 1 to the Settlement Deed).
In her second affidavit, Ms Palmer deposes (at [10]-[11]) that at the date of settlement approval by the Court (namely 24 November 2016) the applicant’s costs were “substantially higher” than the combined value of the costs already agreed in the Settlement Deed ($3 million) and the proposed Costs Balance Payment ($2,970,000). She then deposes, in substance, that Maurice Blackburn have elected to treat as “unrecoverable” certain costs incurred in administering the settlement scheme and fulfilling obligations imposed by the Settlement Deed, and therefore she contends in her affidavit that the Costs Balance Payment relates only to the period prior to the approval of the settlement by the Court. It would appear the respondents have consented to this arrangement and it is not necessary for the Court to review how or why Maurice Blackburn have decided to treat certain costs as recoverable or non-recoverable, where the Court is simply asked to determine whether the sum of $2,970,000 is a reasonable amount in the circumstances set out in the evidence as it stands.
I return to the matter of reasonableness at [14]-[27] below.
In her principal affidavit, Ms Palmer sets out the course the administration of the scheme has taken. Amongst other matters, she deposes that:
(1)The administrator received only one request by a class member for review of a compensation estimate provided to class members in October 2016, which resulted in an “immaterial adjustment” to the benefits payable to all class members.
(2)With the exception of one matter (about which orders are sought), all amounts required to be paid by the respondents under the Settlement Deed were paid by the respondents in accordance with that Deed. The outstanding matter is the “Costs Balance Payment”. The Administrator made final compensation payments to class members (or their financial managers where relevant) by early February 2017. These payments were approximately 25% above the compensation estimates provided in October 2016, so class members received significantly more than first estimated.
(3)There were no recoverable benefits owed by any class members (under the Medicare or Centrelink schemes, or any other schemes), save for one very small amount payable by one class member.
(4)All taxation liabilities (whether in relation to the trust established for the purpose of the settlement distribution or to individual class members), have been satisfied.
(5)The fees approved by the Court on 24 November 2016 have been paid.
The costs balance payment
Ms Palmer deposes to negotiations between November 2016 and February 2018 about the amount of the Costs Balance Payment pursuant to clause 2.1(c)(i) of the Settlement Deed. As part of that process, Maurice Blackburn and the State jointly briefed Ms Lydia Fogl, an independent costs expert to provide an opinion whether the sum of $2,970,000 including GST was a reasonable sum in the circumstances for the Costs Balance Payment. In an affidavit sworn on 9 November 2017 and filed on 14 February 2018, Ms Fogl confirmed her opinion that the sum was reasonable. The sum was agreed between Maurice Blackburn and the State on 14 February 2018.
The Court’s opinion
The settlement having been approved, there are only two matters outstanding.
First, the Court must be satisfied that the obligations under the Settlement Deed relating to the payment of damages and costs have been performed, so that the final orders sought can be made.
I accept the evidence of Ms Palmer that this is the case. The respondents consent to the orders sought. Orders for judgment can be made.
The second matter is for the Court to determine whether the amount sought as the Costs Balance Payment is fair and reasonable.
In Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) [2006] FCA 1388; 236 ALR 322, Jessup J made orders under s 33V and s 33ZF approving the amount of costs claimed as part of the settlement approval, finding at [101]-[102] that:
(1)the amount to be paid to the applicants’ solicitors by way of costs was both transparent and explicit;
(2)the amount paid in costs had been announced in the notice of settlement published pursuant to s 33X of the Federal Court Act;
(3)the settlement sum was fair and reasonable and in the interests of group members as a whole by reference to the settlement sum;
(4)the applicants had sought to justify the costs sum in a thorough and professional way, and had done so through the affidavit of an independent and experienced costs consultant; and
(5)in the circumstances, his Honour had no reason to go behind the expert’s opinion that the costs figure claimed by the applicants was fair and reasonable.
In Blairgowrie Trading Ltd v Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No 3) [2017] FCA 330, Beach J stated at [180]–[181]:
180.Generally, let me say that my role is not that of a taxing registrar or master. Further, subject to the question of proportionality, if unchallenged expert opinion is put before the Court which sets out a commercial and reasonable methodology consistent with the terms of any retainer and which demonstrates that it has been accurately and thoroughly applied to sufficient and probative source records of the solicitors, then it is no part of my function to:
(a)reject that evidence as to whole or part without very good reason; or
(b)apply one’s own subjective view of what the legal work is “really worth”, divorced from the reality of the commercial context within which the work was carried out and the expenses incurred.
181.But what is claimed for legal costs should not be disproportionate to the nature of the context, the litigation involved and the expected benefit. The Court should not approve an amount that is disproportionate. But such an assessment cannot be made on the simplistic basis that the costs claimed are high in absolute dollar terms or high as a percentage of the total recovery. In the latter case, spending $0.50 to recover an expected $1.00 may be proportionate if it is necessary to spend the $0.50. In the former case, the absolute dollar amount as a free-standing figure is an irrelevant metric. The question is to compare it with the benefit sought to be gained from the litigation. Moreover, one should be careful not to use hindsight bias. The question is the benefit reasonably expected to be achieved, not the benefit actually achieved. Proportionality looks to the expected realistic return at the time the work being charged for was performed, not the known return at a time remote from when the work was performed; at the later time, circumstances may have changed to alter the calculus, but that would not deny that the work performed and its cost was proportionate at the time it was performed. Perhaps the costs claimed can be compared with the known return, but such a comparison ought not to be confused with a true proportionality analysis. Nevertheless, any disparity with the known return may invite the question whether the costs were disproportionate, but would not sufficiently answer that question.
In Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527 at [148], Murphy J referred to Beach J’s observations with approval, agreeing that the appropriate question is what benefit the solicitors reasonably expected the applicant and class members would achieve, not the benefit they actually achieved.
A sum for costs which exceeds the sum paid by way of damages or compensation to the class members will not, on that basis alone, be unfair or unreasonable. Although the circumstances of each proceeding will differ, a discrepancy such as this is, in my opinion, something of a signpost, requiring the proportionality of the costs payments to be justified in the evidence.
For that reason, it was my view there was a need for further evidence to address this apparent discrepancy, before any conclusion could be reached about whether the Costs Balance Payment, added to the costs already paid to Maurice Blackburn, was fair and reasonable.
Ms Palmer’s supplementary affidavit has addressed the Court’s concerns about the discrepancy between the legal costs and the total sum of compensation agreed. In that supplementary affidavit, she deposes to five factors that contributed to the large amount of legal costs:
(1)the scope and complexity of the claims and each respondent’s defence;
(2)the respondents’ approach to conduct of the proceedings;
(3)that genuine, repeated earlier attempts to settle the claims were unsuccessful;
(4)the third respondent’s destruction of evidence, which led to a “long and costly process of subpoenaing records of service providers and reconstructing Grand Western Lodge’s accounts for the purpose of substantiating the applicant’s and class members’ financial claims”; and
(5)the special needs, disabilities and vulnerabilities of the applicant and class members.
Ms Palmer emphasises that the matter settled less than 3 weeks before trial, which was listed for 12 weeks, so that the applicant had incurred the vast majority of the costs required to prepare for trial. By reference to evidence already before the Court, she describes the complexities of the proceeding, both as to the causes of action, the characteristics of the class members, the period over which the allegations in the proceeding ranged, and the respondents’ approach to the proceeding, which was to contest each and every plank of the applicant’s case. I do not refer to the last matter in any critical way at all – but rather to indicate, as Ms Palmer does, that the number of matters in dispute contributed to the level of costs incurred. This was a proceeding in which many substantive parts of the evidentiary foundation for the applicant’s claims were in dispute on the pleadings.
Ms Palmer also deposes:
Maurice Blackburn conducted this proceeding on a conditional fee basis, funded the considerable disbursements during the course of the proceeding, did not increase our fee rates at any time from the matter's inception in 2012, did not apply interest or any uplift to our fees at any point, and incurred substantial unrecoverable costs as referred to in paragraph 11 above.
As I have noted, Ms Palmer’s reference to paragraph [11] of her affidavit is a reference to the election made by Maurice Blackburn to treat some costs as unrecoverable.
The respondents object to one paragraph of Ms Palmer’s further affidavit (paragraph [21]). That objection was understandable, at this stage of the proceeding, given the content of that paragraph, which put forward a particular perspective on the respondents’ approach to a number of pre-trial steps. I have treated that paragraph as not read in support of the application.
The remainder of the evidence is sufficient to satisfy me that the Costs Balance Payment is fair and reasonable. I otherwise accept the evidence of Ms Palmer, and Ms Fogl.
I have taken into account the nature and complexities involved in dealing with the group members and in particular in preparing a large number of witnesses (around 48), including a large number with disabilities and particular needs, for trial. There was to be significant expert evidence. There were considerable logistical arrangements being undertaken to have evidence taken over at least one week in locations in regional New South Wales. These kinds of factors made the preparation for this trial somewhat unusual. The settlement occurred shortly before the long and complicated trial was to commence, and therefore at a time when substantial trial preparation had been completed.
My conclusion is reinforced by the fact that the State joined the applicant in retaining the costs consultant (Ms Fogl), and all respondents have consented to the orders sought. Finally, the structure of the settlement means that the amounts to be paid for costs are separate from the compensation payable to class members, and do not diminish the funds that were available to compensate class members.
The orders sought in the interlocutory application will be made.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mortimer. Associate:
Dated: 10 May 2018 ; ;
SCHEDULE OF PARTIES
NSD 1968 of 2013 First Cross-Claim
Second Cross-Respondent on First Cross-Claim:
ADRIAN ALAN POWELL
Second Cross-Claim
Second Cross-Claimant on Second Cross-Claim:
ADRIAN ALAN POWELL
; ; ; ;
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