Ridge v Hays Specialist Recruitment (Australia) Pty Limited (No 2)
[2024] FCA 328
•4 April 2024
FEDERAL COURT OF AUSTRALIA
Ridge v Hays Specialist Recruitment (Australia) Pty Limited (No 2) [2024] FCA 328
File number(s): VID 1661 of 2018 Judgment of: MURPHY J Date of judgment: 4 April 2024 Catchwords: REPRESENTATIVE PROCEEDING – settlement approval application under s 33V of the Federal Court of Australia Act 1976 (Cth) – whether proposed settlement is fair and reasonable in the interests of group members and as between group members – costs recovery dispute between the solicitors for the applicant and the litigation funder – settlement approved Legislation: Fair Work Act 2009 (Cth) ss 15A, 545, 546, 570
Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Cth) s 15A
Federal Court of Australia Act 1976 (Cth) ss 33C, 33V
Black Coal Mining Industry Award 2020
Cases cited: Dyczynski v Gibson [2020] FCAFC 120; 280 FCR 583
Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323; 335 ALR 439
Matthews v SPI Electricity Pty Ltd (Ruling No 13) [2013] VSC 17; 39 VR 255
Parkin v Boral Ltd (Class Closure) [2022] FCAFC 47; 291 FCR 116
Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; (2019) 132 ACSR 258
Ridge v Hays Specialist Recruitment (Australia) Pty Limited [2022] FCA 1613
Turnerv TESA Mining (NSW) Pty Ltd (No 2) [2022] FCA 435; 314 IR 214
Webb v GetSwift Limited (No 7) [2023] FCA 90
WorkPac Pty Ltd v Rossato [2020] FCAFC 84; 278 FCR 179
WorkPac Pty Ltd vRossato [2021] HCA 23; 271 CLR 456
Division: Fair Work Division Registry: Victoria National Practice Area: Employment and Industrial Relations Number of paragraphs: 81 Date of hearing: 18 March 2024 Counsel for the Applicant: Mr P McCabe Solicitor for the Applicant: Adero Law Counsel for the Respondent: Mr J Kirkwood SC Solicitor for the Respondent: Corrs Chambers Westgarth Counsel for the Intervener: Ms T Epstein Solicitor for the Intervener: Morris Mennilli Solicitor for Adero Law: Mr R Markham of Adero Law ORDERS
VID 1661 of 2018 BETWEEN: LAWRENCE RIDGE
Applicant
AND: HAYS SPECIALIST RECRUITMENT (AUSTRALIA) PTY LIMITED
Respondent
JUDGE:
MURPHY J
DATE OF ORDER:
18 MARCH 2024
THE COURT ORDERS THAT:
Settlement Approval
1.Pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (the Act), the settlement of these proceedings be approved on the terms set out in:
(a)the Deed of Settlement dated 31 October 2023 (the Deed) marked as Annexure RMM4-1 of the affidavit of Rory Markham dated 7 March 2024;
(b)the Deed of Variation dated 15 December 2023 marked as Annexure RMM4-2 of the affidavit of Mr Markham dated 7 March 2024; and
(c)the Settlement Distribution Scheme prepared by the Applicant’s solicitors (the SDS) in the form annexed hereto and marked “A”,
(together, the Settlement).
2.Pursuant to ss 33V and 33ZF of the Act, the Court authorises the Applicant, nunc pro tunc, to enter into and give effect to the Deed for and on behalf of all class members who did not file an opt out notice in accordance with s 33J of the Act (the Bound Class Members).
3.Pursuant to s 33ZB of the Act, the persons affected and bound by the Settlement are the Applicant, the Respondent and Bound Class Members.
4.Pursuant to s 33V(2) of the Act, Adero Law be appointed as Administrator of the SDS to act in accordance with the SDS and be given the powers and immunities contained in the SDS.
5.Adero Law as Administrator under the SDS have liberty to apply in relation to any matter arising under the SDS.
Consequential matters
6.Pursuant to ss 22, 23 or 33ZF of the Act, r 1.32 of the Federal Court Rules 2011 and/or the Court’s implied jurisdiction and upon the date that the Administrator of the Scheme files the certificate in accordance with the SDS:
(a)all remaining claims of the Applicant and all Bound Class Members in these proceedings be dismissed (without the need for any further order); and
(b)these proceedings be dismissed (without the need for any further order) on the basis that the dismissal is a defence and absolute bar to any claim (either directly or indirectly) or proceeding by the Applicant or any class member in respect of, or relating to, the subject matter of the proceedings, without prejudice to:
(i)any right of any party to the Deed to make an application to enforce the Deed in a new proceedings; or
(ii)the right of the Administrator of the SDS to refer to any issues relating to the SDS to the Court for direction and determination in accordance with the terms of the SDS; and
(c)there be no order as to costs between the Applicant and the Respondent.
Confidentiality
7.Until further order, pursuant to ss 37AF(1)(b)(iv) and 37AG(1)(a) of the Act, on the ground that it is necessary to prevent prejudice to the proper administration of justice:
(a)the unredacted version of the affidavit of Rory Markham dated 7 March 2024 be marked as confidential on the Court’s file and not be available for inspection by any person; and
(b)the confidential opinion of Ashley Borg dated 7 March 2024 which is Annexure RMM4-4 of the affidavit of Mr Markham dated 7 March 2024 be suppressed on the Court’s file.
For the avoidance of doubt, the redacted version of the affidavit of Mr Markham dated 7 March 2024 is not marked as confidential on the Court’s file and is available for inspection.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
ORDERS
VID 1661 of 2018 BETWEEN: LAWRENCE RIDGE
Applicant
AND: HAYS SPECIALIST RECRUITMENT (AUSTRALIA) PTY LIMITED
Respondent
ORDER MADE BY:
MURPHY J
DATE OF ORDER:
4 APRIL 2024
UPON THE UNDERTAKING BY COUNSEL FOR AUGUSTA 005 LIMITED (the Funder) that, upon the making of the orders below, the Appellant will not seek to enforce any contractual or other entitlement to any assignment or payment from the applicants and group members in the proceeding.
THE COURT ORDERS THAT:
Costs of the proceedings
1.Pursuant to s 33V(2) and s 33ZF of the Federal Court of Australia Act 1976 (Cth), the Applicant’s costs referred to in clause 13 of the Deed of Settlement dated 31 October 2023, be approved in the amount of $465,500 to be payable out of the Settlement Sum. Of that amount:
(a)$215,000 is payable to Adero Law for the costs incurred by the firm in acting for the applicant on a conditional fee basis;
(b)$68,000 is payable to Adero Law for settlement administration costs to be incurred by the firm; and
(c)$182,500 is payable to the Funder in full reimbursement of any amounts due under litigation funding agreements it entered into with the applicant and some group members.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MURPHY J:
The applicant, Lawrence Ridge, seeks orders for Court approval of the proposed settlement of this wages underpayment class action under s 33V of the Federal Court of Australia Act 1976 (Cth) (FCA Act). As amended, the proceeding alleges that during the period 21 December 2012 to 29 September 2022 (Claim Period) the respondent, Hays Specialist Recruitment (Australia) Pty Ltd, contravened the Black Coal Mining Industry Award 2020 (Award) by engaging the applicant and group members as casual employees when that was not permitted by the Award, and further, contravened the Award by not paying them their annual leave entitlement on the termination of their employment.
The parties have reached an in-principle settlement pursuant to which, if approved by the Court, the respondent will pay the applicant and group members $1.325 million inclusive of costs (Settlement Sum), without admission of liability, in full and final settlement of the proceeding.
For the reasons I explain, I am satisfied that the proposed settlement is fair and reasonable as between the applicant and the group members on the one hand and the respondent on the other. I am also satisfied that it is fair and reasonable as between the group members.
Much of the settlement approval hearing was concerned with a dispute regarding recovery of legal costs between the solicitors for the applicant, Adero Law (Adero) and the litigation funder, Augusta 005 Limited (Funder), which previously funded the proceeding but terminated funding in or around February 2022. For the reasons I explain, I have concluded that it is “just” under s 33V(2) of the FCA Act to order that the applicant’s costs be approved in the amount of $465,500 and paid out of the Settlement Sum. Of that amount:
(a)$215,000 is payable to Adero for the costs incurred by the firm in acting for the applicant on a conditional fee basis;
(b)$68,000 is payable to Adero for the settlement administration costs to be incurred by the firm; and
(c)$182,500 is payable to the Funder in full reimbursement of any amounts due to it under litigation funding agreements (LFAs) it entered into with the applicant and some group members.
OVERVIEW OF THE PROCEEDING
The applicant commenced the class action on 31 December 2018 by way of an Originating Application and Statement of Claim. At that point the proceeding made three claims
(a)the “Loaded Rates Claim”, which alleged that insofar as the Award required shift work, weekend and public holiday work, and overtime, to be paid at “double time” (or similar), the respondent had underpaid the applicant and group members because it treated the sum to be doubled (or similar) at the Award rate, rather than the agreed or actual rate of pay;
(b)the “Award-based Annual Leave Claim”, which alleged that the applicant and group members had an entitlement to be paid annual leave under cl 24 of the Award; and
(c)the “National Employment Standards Claim”, which alleged that (although engaged under Terms of Engagement as casuals) the applicant and group members were not, in fact, “casuals” within the meaning of the Fair Work Act 2009 (Cth) (FW Act) and were entitled to all of the benefits that non-casuals receive under the National Employment Standards, including paid annual leave and paid personal leave.
By an interlocutory application dated 23 June 2022 the applicant sought leave to file an Amended Statement of Claim (ASOC) which discontinued the Loaded Rates Claim and the National Employment Standards Claim. The proposed amended proceeding continued the Award-based Annual Leave Claim although reformulating that claim to more closely conform with the Award; narrowed the group definition to exclude any “staff employees” from the group; to exclude from the group those “production employees” who worked continuously through the original claim period; and expanded the Claim Period to include in the group persons who entered employment with the respondent after the Originating Application was filed in December 2018 up to the date of the amended pleading. By orders made on 4 August 2022 the Court granted leave for those amendments: Ridge v Hays Specialist Recruitment (Australia) Pty Limited [2022] FCA 1613 (Murphy J). On 5 August 2022 the applicant filed an Amended Statement of Claim incorporating those amendments.
The applicant abandoned the National Employment Standards Claim because the cumulative effect of the introduction of s 15A into the FW Act by the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Cth) (FW Amendment Act) with retrospective effect, and the decision in WorkPac Pty Ltd vRossato [2021] HCA 23; 271 CLR 456 meant that claim no longer enjoyed reasonable prospects of success: see Turnerv TESA Mining (NSW) Pty Ltd (No 2) [2022] FCA 435; 314 IR 214 at [50]-[53] (Murphy J).
The proceeding alleged the Award-based Annual Leave Claim as follows. Clause 10.1 of the Award provides:
10.1An employer may employ an employees in any classification included in this award in any of the following types of employment:
(a)full-time;
(b)part-time; or
(c)in the case of classifications in Schedule B – Staff Employees, casual.
It is alleged that cl 10.1 prohibits casual employment under the Award, except in relation to those employees whose classifications of work are specified in Schedule B of the Award (Schedule B Employees). The applicant and group members are defined in the ASOC as having performed the work of Production and Engineering Employees (Production and Engineering Employees) under Schedule A to the Award. On that basis it is alleged that the Award did not permit the respondent to employ the applicant and group members as casuals, and by doing so the respondent contravened the Award.
It is further alleged that under cll 25.1-25.3 of the Award, a Production and Engineering Employee who may be rostered to work shift on any day of the week during a roster cycle (a Seven Day Roster Employee) is entitled to accrue annual leave at the rate of 4.0385 hours for each completed week of employment. It is alleged that when the employment of a Seven Day Roster Employee ends with a period of accrued but untaken annual leave the employee is entitled to be paid the untaken annual leave calculated either at the rate under his or her contract of employment or under the Award.
The respondent denied that the Award prohibited the engagement of the applicant and group members as casual employees during the Claim Period and said that they were properly engaged as casual employees within the meaning of s 15A of the FW Act, which has retrospective effect. The respondent alleged that cl 10.1 of the Award, read together with cl 10.4, permitted the employment of Production and Engineering Employees on a casual basis, meaning that no annual leave entitlement arose.
In the alternative the respondent alleged that, if the applicant and group members were not lawfully engaged as casuals and the respondent was obliged to pay them annual leave under the Award, their entitlement to annual leave would be satisfied by way of statutory and contractual set off under their contracts of employment (Terms of Engagement) which included a casual loading and an over-Award payment per hour of work. The respondent said that the casual loading was an identifiable amount to compensate employees for not having annual leave paid out on termination. In those circumstances, the respondent argued that the Court must reduce any amount payable to the applicant and group members for non-payment of annual leave by the amount that they were paid by way of casual loading and over-Award payments during the period of their employment.
THE PROPOSED SETTLEMENT
The parties agreed to an in-principle settlement subject to the Court’s approval by executing a Deed of Settlement and Release dated 31 October 2023 (Settlement Deed) which they later varied by a Deed of Variation dated 15 December 2023 (Variation Deed) (together, the Deeds). In summary, the Deeds reflect the following terms:
(a)without any admission of liability, the respondent will pay the sum of $825,000 and a sum representing $6,329.11 per additional group member up to a total further amount of $500,000 totalling $1.325 million inclusive of costs and interest, to settle the claims of those eligible group members who registered for the proposed settlement in accordance with the orders of 18 December 2023;
(b)the applicant shall prepare a proposed SDS for approval by the Court as part of the settlement approval application with any objections to the proposed scheme raised by the respondent to be considered in good faith;
(c)the applicant and all group members shall release and discharge the respondent and its related entities from the Claims (as defined) and to the extent permitted by law, all claims that are in respect of, or arise out of, directly or indirectly, the same, similar or related circumstances to the Claims made in the proceeding (whether known or unknown). For the avoidance of doubt, the release in relation to group members’ claims does not affect any group members’ individual claims which do not give rise to a substantial common issue of fact or law with the Claims made in the proceeding; and
(d)there be no order as to costs in respect of the proceedings.
Sufficient group members registered for the proposed settlement that the settlement amount reached the cap of $1.325 million.
WHETHER THE PROPOSED SETTLEMENT IS FAIR AND REASONABLE
The relevant principles
The applicable principles in relation to settlement approval under s 33V of the FCA Act are well-established. I recently summarised them, in brief terms, in Webb v GetSwift Limited (No 7) [2023] FCA 90 at [15]-[17]. The organising principle of s 33V(1) is whether the proposed settlement is fair and reasonable and in the interests of the group members to be bound by the settlement, including as between the group members. Upon the Court deciding to approve the proposed settlement s 33V(2) empowers the Court to make such orders as are just with respect to the distribution of any money paid under a settlement.
The Confidential Opinion
I have had the benefit of considering the confidential opinion of Ashley Borg, Special Counsel with Adero, dated 7 March 2024 (Confidential Opinion). Because of its confidentiality I cannot go to the detail of that opinion and it must suffice to note that it is thorough and it addresses the risks the applicant faced in establishing the liability; the risks and variables in relation to establishing the quantum of the applicant’s and group members’ claims and how those risks and variables might affect quantum if the applicant is successful on liability, the availability of penalties under s 546 of the FW Act, and the position with regard to costs under s 570 of the FW Act.
Mr Borg has the title of “Special Counsel” with Adero Law. However, the legal position is that he is an employed solicitor with Adero. In those circumstances his Confidential Opinion cannot properly be described as independent. Even so, I am prepared to treat his opinion as adequate given that Mr Borg has substantial experience in employment law, the opinion is thorough, the claim is straightforward and the case is small. I did, though, inform Mr Markham, the principal of Adero, that in future settlement approval applications the firm is required to obtain the opinion of independent counsel.
The Confidential Opinion concluded that the proposed settlement is fair and reasonable in the interests of group members to be bound by it and as between group members. I have given weight to that opinion.
The scope of the proposed releases
Arguably, the release contained in the Settlement Deed went beyond the applicant’s authority. Acting on his own behalf the applicant could provide the respondent with whatever release he likes, but there are limits to his capacity to release the claims of group members. In Dyczynski v Gibson [2020] FCAFC 120; 280 FCR 583 at [250]-[251] (Murphy and Colvin JJ) and [395]-[396] (Lee J), the Full Court explained that the authority of the representative applicant in a class action does not extend to settling individual or idiosyncratic claims of group members (as opposed to ‘common claims’ recognised under s 33C of the FCA Act), subject to the qualifications expressed by Lee J (at [398]).
The applicant is only entitled to deal with group members’ rights to the extent that the applicant is representing those rights, and the applicant only does so in respect of common claims recognised under s 33C of the FCA Act. Having said that, in my view the authority of the applicant to provide a release in relation to group members’ claim extends to common claims that are not pleaded but which could have been pleaded in the proceeding: see Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; (2019) 132 ACSR 258 at [28] (Murphy J).
I raised the difficulty with the proposed release at a case management hearing on 16 November 2023. To address that difficulty the parties agreed to vary the release and entered into the Variation Deed. As varied, the release in relation to group members’ claims expressly states that it does not affect any group members’ individual claims which do not give rise to a substantial common issue of fact or law with the Claims made in the proceeding. Having regard to that change I consider the scope of the releases of group members’ rights are within the applicant’s authority and they do not stand in the way of settlement approval.
The preclusion of unregistered group members
The proceeding was initiated and has continued as an ‘open’ class action. Thus, unless they have opted out, all persons who fall within the group definition in the ASOC are group members and will be bound by the settlement.
Mr Markham estimated that approximately 500-900 group members worked for the respondent during the Claim Period, but he could not ascertain which of those persons was a Production and Engineering Employee, nor whether any of those persons continued to be engaged as a “casual”.
Pursuant to orders made on 3 May 2023, group members were notified of their right to opt out of the proceeding, or to register to participate in any settlement of the proceeding. In that notice group members were informed that the applicant intended to later apply for an order that any group member who did not register prior to the deadline would remain a group member and be bound by the settlement, but would not be entitled to any share of any monetary compensation that was gained through any settlement. By that deadline 61 group members had registered, and two group members opted out.
Then, pursuant to orders made on 18 December 2023, group members were notified of the terms of the proposed settlement; given a further opportunity to register for the proposed settlement; and were informed of their right to object to the proposed settlement. Those orders provided that any group member who had not opted out and who had not registered, either by the deadline in the 3 May 2023 orders or by the new deadline in the 18 December 2023 orders, would remain a group member but would not be entitled to receive any payment as part of the proposed settlement in the event the settlement was approved by the Court.
Following the new registration deadline, 139 further group members had registered, and two group members filed notices of objection to the proposed settlement. There are therefore 209 registered group members.
Class closure orders are within the power of the Court: Parkin v Boral Ltd (Class Closure) [2022] FCAFC 47; 291 FCR 116 (Murphy, Beach and Lee JJ). In large part the legitimacy of such orders depends on the adequacy of the notice given to group members: Matthews v SPI Electricity Pty Ltd (Ruling No 13) [2013] VSC 17; 39 VR 255 at [79(c)] (Forrest J); Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323; 335 ALR 439 at [153]-[160] (Murphy J). Here the notice regime was sufficient. Group members were sent both notices by an email to their last known email address, and if that method failed the notice was sent to their last known postal address.
In the circumstances, the requirement for group members to register to be eligible to share in the settlement monies, and to bind group members who do not register into the settlement such that they lose their rights to sue the respondent but are not eligible to share in the settlement monies, does not stand in the way of settlement approval.
Other relevant considerations
The complexity and duration of the litigation
Contrary to the applicant’s submissions, the proceeding is not complex. It involves straightforward questions of award interpretation. The central legal issue is construing whether the Award prohibits casual employment for Production and Engineering classifications of work, and deciding the application of common law and statutory principles of set off to the facts of the case. There is a factual dispute in relation to whether the payments made to the applicant and group members included loadings or other amounts that can be relied upon by the respondent by way of set off which will require an analysis of the material regarding the payments made to the applicant and group members.
The litigation has been on foot since 2018, but for much of the time the case was in abeyance awaiting the result in WorkPac Pty Ltd v Rossato [2020] FCAFC 84; 278 FCR 179 (Workpac FCAFC) and then awaiting the result in the appeal in WorkPac.
The proceeding is still a long way from a hearing date. The pleadings closed in late 2022, but save for a Statement of Agreed Facts filed on 18 July 2023, no evidence has been filed. If the settlement is approved the SDS provides for settlement monies to be distributed within 90 days of settlement approval. Thus group members will receive compensation at a much earlier stage than they may receive if the proceeding continued to trial. That points in favour of settlement approval.
The stage of the proceedings
The parties reached the proposed settlement at a mediation on 7 September 2023, approximately 11 months after the filing of the ASOC. By that time the respondent had discovered the applicant’s employment records and the employment records in respect of group members that had registered. That provided sufficient information for the parties to reach an informed view as to the aggregate value of group members’ claims. The parties’ lawyers were then in a good position to make an informed assessment of the strengths and weaknesses of their respective cases on liability in the context of the aggregate value of the claims.
The risks of establishing liability
The respondent admitted that, for the Production and Engineering Employees who are Seven Day Roster Employees (as distinct from a casual employee), annual leave is payable at the rate of 4.0385 hours for each completed week of employment. The respondent also admitted that the Award provides that, when the employment of a Seven Day Roster Employee ended with a period of accrued but untaken annual leave, the employee was entitled to be paid a sum in respect of untaken annual leave calculated by reference to the number of hours accrued multiplied by the “base rate” of pay payable to the employee.
In my view the applicant has reasonable prospects of establishing that the Award did not permit casual employment of Production and Engineering Employees. Thus, the group members have reasonable prospects of establishing that they are entitled to accrued annual leave on termination of their employment.
The risks of establishing loss or damage
Although the applicant and group members have reasonable prospects of establishing that the respondent is liable to pay them any annual leave accrued but unpaid as at the date of their termination, in my view they face a real risk that the respondent will succeed in setting off the over-Award amounts and casual loading it paid to them.
The applicants Terms of Engagement provided as follows:
(a)clause 3.6 provided that the applicant’s hourly rate included “a casual loading which compensates you for the benefits of permanent employment, including annual leave… You understand and agree that you are not entitled to any separate or additional payment for these entitlements”; and
(b)clause 4.3 provided:
You understand and agree that where Hays pays you above the minimum terms and conditions of an applicable modern award, the monetary obligations imposed on Hays under that modern award may be absorbed into those over-award payments. You understand and agree that, except as specifically provided for in these Terms of Engagement or an Assignment Letter, the remuneration you receive each weekly period … that is greater than an entitlement you would otherwise have under any modern award or law satisfies and may be offset against that entitlement. This includes, but is not limited to, entitlement in relation to wages, shift allowances, travel and any other allowances, overtime payments, weekend and public holiday penalties, other penalty payments or rates and loading.
The respondent alleged that cll 3.6 and 4.3 show that the parties agreed that the casual loading and the over-Award rate of pay provided to the applicant and group members under the Terms of Engagement they entered into can be set off against their entitlement (if any) to accrued except unpaid annual leave. Having regard to the “Contractual Principle” and the “Designation Principle” identified in Workpac FCAFC at [865] (White J, with whom Wheelahan J agreed), the respondent has reasonable prospects of succeeding in that argument. The respondent also relied on statutory set off under s 545 of the FW Act, but that applies where the employment of the person is described as “casual employment” but where that person is not a casual employee. Here, the applicant admitted that he was a casual employee within the meaning of s 15A of the FW Act. In my view, statutory set off is unlikely to be available to the respondent.
In my view the quantum of the claim for annual leave entitlement is properly assessed by reference to the base rate of pay under the Award, rather than the contract rate of pay under the Terms of Engagement. That is so because the claim for unpaid annual leave is based in the Award.
Mr Markham estimated that the average loss per group member is $6,123 without interest, and $9,830 with interest. But if the respondent succeeds in setting off the casual loading and the over-Award pay paid to the applicant and group members the average loss per group member is substantially lower, and perhaps minimal.
The other substantial risk in relation to the quantum of the applicant and group members claims is that the claim value will be substantially consumed by legal costs. Pursuant to s 570 of the FW Act, absent an unreasonable act or omission by a party each party must bear its own costs. The most likely outcome is that the significant further work which the applicant must undertake to bring this matter on for hearing and for the initial trial will consume a very substantial part of the claim value.
The other matter relevant to quantum is that the proceeding seeks orders pursuant to ss 546(1) and 546(3) of the FW Act that the respondent pays pecuniary penalties to the applicant and group members. In my view, if the applicant succeeds on liability, a penalty is likely to be imposed on the respondent. But in circumstances where the respondent has reasonable prospects of showing that the applicant and group and members suffered little or no loss (because the loss was set off by a casual loading expressly directed to annual leave entitlements), it seems unlikely that any penalty would be substantial.
In my view, there is a real risk that the combination of the respondent’s set off claim and the costs incurred by the applicant in pursuing compensation will substantially reduce the recovery “in hand” by the group members, perhaps to a minimal amount. That points in favour of approving the proposed settlement.
The reasonableness of the proposed settlement in light of the best recovery
Mr Markham estimated the average loss per group member at $6,123 without interest, and $9,830 with interest. He therefore estimated the aggregate claim value for the 209 registered group members in a total of approximately $1.279 million without interest. The proposed settlement is for $1.325 million.
Importantly, he estimated that eligible group members will receive approximately 103.5% of their total claim value without interest, prior to deduction of legal costs. After deduction of costs he estimated group members will receive approximately 72% of their estimated claim value without interest, or 45% of their estimated claim value with interest. That points strongly in favour of settlement approval.
The reasonableness of the proposed settlement in light of the attendant costs and risks
As discussed above, the group members face low risks in relation to liability, but serious risks in relation to quantum. Given the risks the applicant and group members face, and given the substantial further costs that must be incurred if the matter is to proceed to trial (in circumstances where the applicant has no opportunity to recover those costs from the respondent), the proposed settlement is within the range of reasonableness appropriate for approval by the Court.
The reaction of the class
Two group members objected to the proposed settlement. One objector did not provide reasons and the other described the proposed settlement as representing substantially less than their entitlements under the Award, describing the proposed settlement as “an insult”.
But the amended proceeding only relates to accrued unpaid annual leave on termination, and group members will receive approximately:
(a)103.5% of their estimated total claim value without interest, before costs.
(b)72% of their estimated total claim value without interest, after costs; and
(c)45% of their estimated total claim value, with interest, after costs.
In my view it is inappropriate to describe such percentage recoveries as insulting, or unreasonable having regard to all the circumstances. I am not persuaded that the objections justify refusing to approve the proposed settlement.
Whether the proposed SDS is fair and reasonable
The SDS is attached to the settlement approval orders, and it is relatively straightforward. In the circumstances it is unnecessary to summarise its details. I will though briefly note the following matters:
(a)I am persuaded that it is appropriate to appoint Adero as Administrator. The firm has dealt with the group members over an extended period and has an intimate knowledge of the rostering system and the calculation of annual leave entitlements. And its proposed settlement administration costs have been approved as reasonable by an independent Court-appointed referee;
(b)the proposed method for calculating group members’ entitlements under the SDS does not involve “judgment calls” and requires relatively straightforward calculations;
(c)the settlement administration process is cumbersome, and is proposed to be completed on 90 days; and
(d)the SDS does not contain a mechanism for group members to review the assessment of their entitlements under the scheme. However, in circumstances where the method of calculation does not involve “judgment calls”, the sums involved are not large and the settlement administration process is efficient, I am satisfied that the scheme is nonetheless fair. It is also worth noting that, if there is a substantial dispute, the Administrator can refer that issue to the Court for determination.
In my view the proposed SDS achieves a fair and equitable distribution of the settlement sum (after Court-approved deductions) between group members.
Whether the applicant’s legal costs are reasonable
The SDS provides that, prior to distribution to eligible group members, the Administrator shall deduct from the settlement sum any Court-approved legal costs and settlement administration costs.
By orders made on 18 December 2023 Kerrie-Ann Rosati was appointed as a referee under s 54A of the FCA Act (Costs Referee) to conduct an inquiry and provide a report in writing to the Court stating her opinion in relation to:
(a)the reasonableness of the applicant’s legal costs for work done to the date of the settlement approval hearing, including costs anticipated and yet to be incurred as at the date of the report; and
(b)the lump sum of reasonable legal costs that the Court should approve as fair and reasonable and allow to be deducted from the settlement sum to be applied to payment of the legal costs of the applicant and group members incurred in conducting the class action.
The Costs Referee provided a report to the Court dated 15 February 2024. The report is thorough and comprehensive. There was no objection to its adoption and it is appropriate to do so.
Having regard to the Costs Referee’s report, I am satisfied that Adero’s reasonable costs for conducting the proceeding up to and including the settlement approval application are $666,991, and the firm’s reasonable costs for undertaking the settlement administration work are $68,000. The firm’s reasonable costs, both before and after settlement approval, therefore total $734,991. The Cost Referee concluded that the applicant’s reasonable legal costs totalled $746,646, but (as the Funder noted) that was slightly incorrect and the correct total is $734,991.
Allowing Adero’s reasonable costs of the proceeding in the amount of $666,991 will mean that approximately 50% of the settlement will taken up by legal costs, which might be seen to indicate that the costs are disproportionate. But more than half of those costs were incurred when Adero had reasonable grounds to believe that the aggregate value of the applicant’s and group members’ claims would be much greater. The result in Rossato and the retrospective amendments to the FW Act meant that the applicant’s and group members’ claims were worth substantially less. In my view the costs were proportionate at the time they were incurred.
It is material to my decision that Adero volunteered to cap its legal costs (exclusive of settlement administration costs) at 30% of the Settlement Sum. The Court-approved notice of proposed settlement sent to group members pursuant to orders made on 18 December 2023 relevantly stated:
10.If the Court approves the Proposed Settlement, the Settlement Sum will be in full and final satisfaction of all costs. The legal costs incurred by the Applicant in pursuing the Class Action, in an amount approved by the Court, will be paid from the Settlement Sum prior to the distribution of any Settlement Payments to Group Members. This ensures that all Group Members who benefit will contribute to the legal costs and are treated equally.
11.The Applicant’s costs are capped at a maximum of 30% of the Settlement Sum, and subject to a costs assessment by an independent Court-appointed costs referee. The Applicant’s costs are exclusive of any costs of administering the settlement under the Settlement Distribution Scheme. The Applicant will seek the Court’s approval to deduct the costs of administering the settlement from the Settlement Sum.
12.You will not otherwise be required to pay any legal costs for the Class Action, regardless of whether you receive a Settlement Payment.
The appropriate split of costs between Adero and the Funder
At a case management hearing on 8 March 2024, well after the notice of proposed settlement had been sent to group members, the Funder was granted leave to intervene in the proceeding. The Funder informed the Court that it had previously provided litigation funding for the case and had paid a total of approximately $495,510 in legal costs to Adero. The Funder said that it had terminated funding in February 2022, and that, under the terms of the LFAs, it continued to be entitled to recover the costs it had paid to Adero from any successful resolution in the proceeding. The Funder said that it had been negotiating with Adero Law about recovery of the amounts it had paid, but had been unable to reach agreement.
That was the first time the Court was made aware that the Funder had an entitlement to recover from the Settlement Sum amounts it had paid in pursuing the proceeding. Up to that point the only deduction proposed to be made from the Settlement Sum was $397,500 for Adero’s costs for pursuing the proceeding capped at 30% of the Settlement Sum, and $68,000 for settlement administration costs. That was also the first time the Court was told that Adero had been paid $495,510 for costs incurred in conducting the proceeding.
Adero’s failure to inform the Court of those matters was a significant error, and showed a real lack of care by Adero. However, I accept Mr Markham’s assurances that he was not seeking to mislead the Court. First, because of Adero’s error the notice of proposed settlement did not inform group members that the Funder sought a distribution from the settlement sum, which might reduce the amount available for group members. Second, when Adero Law proposed a costs cap of $397,500, representing 30% of the Settlement Sum, I saw it as a reasonable, perhaps even generous, approach for group members. \.
But, as I came to understand, given that Adero has already been paid $495,510 for its costs, capping its costs for conducting the proceeding at $397,500 was not generous to group members. On one view, it would mean Adero’s costs in the proceeding would be $893,010, which is $226,019 more than the Costs Referee’s assessment of reasonable costs of the proceeding at $666,991. But in part that depends upon the correct treatment of what were described as the “Unpresented Invoices”.
By orders made on 8 March 2024, the Funder was granted leave to intervene in the proceeding in respect to any entitlements it asserted under the LFAs it had entered into with registered group members. By orders made on 12 March 2024, Adero was required to urgently send a notice to each registered group member informing them of the contractual claims made by the Funder, and advising them that in light of the Funder’s intervention they had another opportunity to object to the proposed settlement should they wish to do so.
In relation to the dispute between Adero and the Funder:
(a)Adero relied on affidavits by Mr Markham affirmed 7 March 2024, 17 March 2024 and 18 March 2024; and
(b)the Funder relied on affidavits by Simon Morris, a partner at Morris Menilli Pty Ltd, the solicitors for the Funder, sworn 15 March 2024 and 18 March 2024.
Both also filed written submissions.
The salient facts include that:
(a)in October 2018 the applicant entered into a LFA with the Funder in relation to the proceeding. Adero then undertook book building activities for the Funder, and a number of group members entered into LFAs with the Funder which Adero stored on a third-party online portal hosted by Sky Discovery;
(b)that online portal no longer operates and, as a result of some abysmal record keeping by Adero and the Funder, it is now not clear how many group members entered into LFAs at that time. It is, however, agreed between the parties that only 42 of the registered group members have LFAs with the Funder (funded group members);
(c)on 23 February 2022 the Funder terminated the LFAs pursuant to cl 12.2 on the basis that it considered that pursuing the proceeding was no longer commercially viable;
(d)up to the date it terminated the LFAs the Funder had paid $495,510 in Project Costs to Adero for the purpose of funding the proceeding;
(e)it is a term of the LFAs that the Funder’s entitlement to an assignment and payment of a funded group member’s share of the Project Costs incurred up to the date of termination of the LFA by the Funder under cl 12.2, survives termination. Thus, if there is a successful “Resolution” (as defined) after termination of the LFAs, the Funder continues to be entitled to recover the Project Costs it incurred, although it is not entitled to any funding commission;
(f)from 23 February 2022 to the present Adero conducted the case on a No Win-No Fee (NWNF) basis. The evidence is not clear as to the costs reasonably incurred by Adero in this period ;
(g)the proposed settlement is a Resolution under the LFAs and the Funder therefore has contractual entitlements against 42 registered group members. The Funder does not, however, seek to enforce its contractual entitlements. Rather, the Funder seeks an order for payment to it of the amount which the Court considers to be “just” having regard to all the circumstances;
(h)although it is agreed that 42 registered group members entered into LFAs with the Funder, both Adero and the Funder made their calculations on the basis that the Funder had LFAs with 44 group members. Because they both took that approach I have assumed 44 is the appropriate multiplier, but the difference is not material. On the basis that there 44 funded group members the Funder’s maximum contractual entitlement under the LFAs is approximately $269,415 ($6,123 x 44 funded group members);
(i)Adero claimed to the Costs Referee that its costs for conducting the proceeding up to that point totalled $643,870, but it did not provide the Costs Referee with a series of invoices that the Funder had paid, totalling $90,355, which contained substantial work in progress (Unpresented Invoices). Mr Markham deposed that Adero did not provide those invoices to the Costs Referee because it considered it unlikely that the Costs Referee would consider them to be “reasonable” when:
(i)a large percentage of that work was performed in connection with a due diligence phase required by the Funder at the direction of the Funder’s employees as part of the Funder’s due diligence process;
(ii)the costs related to attempts to book build and to obtain sufficient expressions of interest to justify a common fund order, which was abandoned once the LFAs were terminated; and
(iii)the costs involved the development and prosecution of claims that were ultimately found to be without merit by reason of the High Court decision in Rossato and having regard to the retrospective amendment to s 15A of the FW Act; and
(j)the Costs Referee assessed Adero’s reasonable costs for conducting the proceeding to 16 January 2024 at $607,192. The Costs Referee also assessed Adero’s reasonable costs up to the settlement approval hearing in the amount of $59,798. Thus, Adero’s reasonable costs of conducting the proceeding (without taking account of the Unpresented Invoices) total $666,991. Mr Markham accepted that Adero was paid an amount of $495,510 by the Funder but said that $90,000 of that amount (the Unpresented Invoices) was not costs of conducting the proceeding, it instead being costs incurred for the Funder’s benefit.
The Funder submitted that:
(a)Adero had been paid 100% of the costs it had incurred prior to the termination of funding, being an amount of $495,510;
(b)Adero asserted to the Costs Referee that its costs for conducting the proceeding totalled $643,870, but that did not include $90,355 in Unpresented Invoices. Including that further amount (which Adero had been paid) would bring the Adero’s total costs for conducting the proceeding to $734,225; and
(c)the Costs Referee assessed reasonable costs to 16 January 2024 at $607,192 and reasonable costs up to the settlement approval hearing in the amount of $59,798, being a total of $666,991 for Adero’s work in conducting the proceeding, and that Adero had already been paid $495,510 of that amount.
The Funder noted that pursuant to Adero’s offer to cap its costs at 30% of the settlement sum (while also allowing a further $68,000 for settlement administration costs) $397,500 was proposed to be deducted from the settlement sum for Adero’s costs.
The Funder submitted that the Court should consider the proposed deduction from the settlement sum by first taking into account its contractual entitlements under the LFAs it entered into with the applicant and some group members. It contended that the $397,500 to be deducted from the settlement sum should be distributed equally between the Funder and Adero, such that each would receive $198,750. The Funder, apparently in reliance on Mr Morris’s calculations, said that such a distribution would mean that:
(a)the Funder will recover only 40% of the costs it had paid to Adero in the proceeding ($198,750 of $495,510);
(b)the Funder will recover approximately 73% of its contractual entitlements under the LFAs. That calculation was slightly incorrect. By my calculations, it will recover 77% of its contractual entitlements ($198,750 of $257,169);
(c)not accounting for the reduction in costs that the Costs Referee considered was appropriate, Adero will receive a total of $694,260 for costs in the proceeding (inclusive of $495,510 already paid by the Funder plus $68,000 in settlement administration costs). On my calculations, that total is incorrect. The total of $495,510 plus $68,000 plus $198,750 is $762,260. The Funder said its figure represents approximately 81% of Adero’s past and future estimate of legal costs plus settlement administration costs of $68,000, which totals $862,024;
(d)by reference only to the invoices provided by Adero to the Costs Referee, and the legal costs the Costs Referee considered reasonable, Adero will receive $603,905 in costs in the proceeding (inclusive of $405,155 already paid by the Funder and $68,000 in settlement administration costs), which represents approximately 82% of the Costs Referee’s assessment of Adero’s reasonable past and future costs and settlement administration costs, which total $734,991.
Adero submitted that:
(a)it was appropriate to increase the amount set aside for costs from 30% to 35% of the settlement sum, bringing it to a total of $475,000;
(b)the Funder be paid $175,000 from that amount; and
(c)the remaining $300,000 be paid to Adero (inclusive of $68,000 in settlement administration costs).
Adero contended that proposal was appropriate because:
(a)that meant the difference between Adero and the Funder as to the amount to be distributed to the Funder was just $23,750, being the difference between a distribution of $175,000 or $198,750;
(b)the increase in the amount set aside for costs from 30% to 35% of the settlement sum ensured proportionality and reflected the fact that group members may have received a benefit from the claim being funded by the Funder in the period from October 2018 to February 2022;
(c)the increase in the amount set aside the costs fair and reasonable because it avoids 42 group members being saddled with a burdensome assignment right;
(d)the Funder’s proposal would require Adero Law to accept a 46% reduction in its fees for the period it conducted the case on a NWNF basis;
(e)the Funder’s proposal for a 50/50 split of the amount set aside for costs should be rejected as there is no evidence as to the dollar benefit received by group members as a result of the funding, and it makes no allowance for the risks undertaken by Adero in continuing the matter on a NWNF basis, ostensibly for the benefit of the Funder’s contractual rights as between limited group members;
(f)the Funder only has contractual rights against approximately 20% of the registered group members and seeking recovery of 50% of its contractual entitlements is not proportionate when other registered group members (who did not enter into LFAs) will be required to contribute to those costs;
(g)the Funder’s argument suggests that there is a commonality between the period the litigation was funded by it and the period it was funded by Adero on a NWNF basis (the NWNF Period). That position is untenable because the Funder and Adero are not co-venturers in the proceeding. The Funder freely entered into its commercial arrangements with the applicant for its own commercial advantage, and a necessary risk of that bargain was that the Funder was liable to pay Adero’s costs for the period that the Funder funded the litigation (the Funded Period);
(h)by comparison, the NWNF retainer agreement Adero entered into with the applicant was a wholly separate retainer in which Adero took on all the risks of continuing to litigate the matter and accepted that no payment would be made unless or until a successful outcome was achieved. Thus, there is no basis to suggest that Adero should share the costs it incurred in that period with the Funder; and
(i)it is not appropriate to approach the split on the basis that the Funder is contractually entitled to receive an assignment of all the benefits the 44 funded group members will receive under the proposed settlement.
There are arguments going both ways, but a number of matters are significant to my decision.
First, Adero volunteered to cap its costs for conducting the proceeding at 30% of the settlement sum, being $397,500. On top of that Adero sought payment of Court-approved settlement administration costs, which were independently assessed at $68,000. The Court-approved notice of proposed settlement sent to group members informed them that “[t]he Applicant’s costs are capped at a maximum of 30% of the Settlement Sum, and subject to a costs assessment by an independent Court-appointed costs referee… You will not otherwise be required to pay any legal costs for the Class Action…”.
Thus the information group members were given when deciding whether to register for the settlement and/or to object to it included that Adero had agreed to cap their costs at $397,500 (or at a lesser amount if insufficient group members registered such the settlement sum did not reach $1.325 million) plus settlement administration costs.
Adero subsequently proposed that $475,000 be deducted for legal costs from the settlement sum, without notice to group members. I cannot know whether there would have been more, or more cogent, objections had group members been informed in a timely way that Adero would seek costs of $475,000 and that (initially) Adero had failed to tell them of the Funder’s claim. Insofar as Adero now suggests that the amount of $397,500 is insufficient to cover its costs and a reimbursement to the Funder, that is a problem of Adero’s making.
In the circumstances I am not persuaded that it is “just” to increase the amount to be deducted from the settlement sum as Adero proposed.
Second, the Funder decided to terminate the funding agreement because it considered the case was no longer commercially viable. Notwithstanding the difficulties likely to be associated with continuing the litigation (and there were some indications in the submissions that senior counsel had advised against continuing with the case) Adero amended the applicant's case and pushed forward with it. Adero carved off those parts of the case which were unlikely to be successful, and was ultimately able to achieve a successful resolution of the case.
I have no difficult in accepting that the provision of litigation funding was important to the commencement of the case. But following those amendments the case was materially different from the case funded by the Funder. And the main reason why there are now settlement monies for Adero and the Funder to argue about is because Adero took on the risks that it did. It is not the case that the Funder’s funding of the proceeding caused the creation of the $1.325 million Settlement Sum. Yet it remains the case that it paid $495,510 for the case to get off the ground.
Third, during the Funded Period Adero was entitled to be paid its costs whether or not the case was successful. The Funder was obliged to meet those costs and in return, if the case succeeded, the Funder was contractually entitled to a funding commission of between 20%-25% of the gross settlement. That points away from significantly discounting Adero’s costs in relation to that period.
Then, for the period that Adero acted in the case on a NWNF basis it assumed the risks of the case and it was only entitled to be paid its fees and disbursements upon success, with a 25% uplift on the fee component upon success. Adero is not seeking an uplift. That points away from significantly discounting Adero’s costs in relation to the NWNF period.
Fourth, the Funder’s maximum contractual entitlement under the LFAs is approximately $269,415 ($6,123 x 44 funded registered group members), and the Funder relies upon that to support the proposal it advances. But the Funder was never going to be able to recover $269,415 from so few funded group members, when doing so would consume the entirety of their recoveries. That would be disproportionate, and the Court would be unlikely to approve it. It is not appropriate to treat the Funder’s maximum contractual entitlement under the LFAs as the starting point for the consideration as to what amount would be “just” to allow the Funder in the exercise of the discretion under s 33V(2) of the FCA Act. Yet it remains the case that the Funder paid $495,510 for the case to get off the ground.
Fifth, Adero submitted that it should receive $300,000 for its costs for the NWNF Period, inclusive of $68,000 in settlement administration costs, which meant that Adero would be paid $232,000 for its legal work in conducting the case during the NWNF period (as distinct from its settlement administration work).
Viewed one way, if Adero is paid $232,000 for its work in conducting the case during the NWNF Period that will mean it will be paid $727,510 for its past and future legal work except for settlement administration work ($495,510 plus $232,000) when the Costs Referee assessed Adero’s reasonable past and future costs of the proceeding at $666,991. Viewed in this way, a payment of $232,000 would mean that Adero will receive approximately $60,000 more than the Cost Referee’s assessment of reasonable costs, which would not be “just”.
However, if Adero is paid $232,000 for its work in conducting the case during the NWNF Period and $90,000 of Unpresented Invoices is taken off the amount already paid to Adero by the Funder (on the basis it was work for the Funder’s benefit rather than for conducting the case) that will mean Adero will be paid $637,510 for its past and future legal work in conducting the case except for settlement administration work ($405,510 plus $232,000). Viewed in this way, a payment of $232,000 would mean that Adero will receive approximately $30,000 less than the Cost Referee’s assessment of reasonable past and future costs of the proceeding at $666,991. That too is undesirable, but on any view Adero has been well paid for its work on what has turned out to be a small class action.
Taking a broad brush approach I have concluded that it is “just” under s 33V(2) of the FCA Act to order that the applicant’s costs referred to in cl 13 of the Settlement Deed be approved in the amount of $465,500 to be payable out of the Settlement Sum. Of that amount:
(a)$215,000 is payable to Adero for the costs incurred by the firm in acting for the applicant during the NWNF period;
(b)$68,000 is payable to Adero for settlement administration costs to be incurred by the firm; and
(c)$182,500 is payable to the Funder in full reimbursement of any amounts due under LFAs it entered into with the applicant and group members.
CONCLUSION
I made orders on 18 March 2024 approving the proposed settlement under s 33V of the FCA Act. I have today made orders in respect of the appropriate split of costs between Adero and the Funder.
I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Murphy. Associate:
Dated: 4 April 2024
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