Schoneweiss v The Fourth Force Pty Ltd (No 2)

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FEDERAL COURT OF AUSTRALIA

Schoneweiss v The Fourth Force Pty Ltd (No 2) [2022] FCA 1489

File number: SAD 156 of 2020
Judgment of: CHARLESWORTH J
Date of judgment: 28 November 2022
Date of publication of reasons: 12 December 2022
Catchwords: REPRESENTATIVE PROCEEDINGS – approved settlement providing for the payment of lead applicant’s costs out of settlement sum before distribution of remainder – costs equalisation order – assessment of costs – opinion of independent cost consultant obtained – whether any weight should be afforded the lead applicant’s consent to the amount recommended by the consultant – Court not accepting opinion of consultant in several respects – value of opinion diminished by quality of materials and instructions provided to consultant – consequences for costs of breach by lead applicant’s lawyer of statutory obligations of disclosure
Legislation:

Fair Work Act 2009 (Cth) s 50

Federal Court of Australia Act 1976 (Cth) ss 33V, 33ZF

Judiciary Act 1903 (Cth) ss 79, 80

Legal Practitioners Act 1981 (SA)

Legal Profession Act 2006 (ACT) s 6, 266, 269, 271, 273, 277, 278, 279, 283, 284, 287, 290, 291, 292, 300, 300A, 302

Federal Court Rules 2011 (Cth) r 40.13

Cases cited:

Australian Securities and Investments Commission v Richards [2013] FCAFC 89

Baker v Woolworths Group Limited (No 2) [2022] FCA 534

Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs & mgrs apptd) (in liq) (No 3) [2017] FCA 330; 343 ALR 476

Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527

Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439

Rizeq v Western Australia (2017) 262 CLR 1

Schoneweiss v The Fourth Force Pty Ltd [2022] FCA 1236

Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106

Thomas v Romeo Lockleys Asset Partnership (No 2) [2022] FCA 1276
Division: Fair Work Division
Registry: South Australia
National Practice Area: Employment and Industrial Relations
Number of paragraphs: 159
Date of hearing: 28 November 2022
Counsel for the Applicant: Mr R Markham
Solicitor for the Applicant: Adero Law
Counsel for the Respondents: The Respondent did not appear
Counsel for Adero Law The non-party Adero Law appeared by its representative Mr R Markham

ORDERS

SAD 156 of 2020
BETWEEN:

CRAIG SCHONEWEISS

Applicant
AND:

THE FOURTH FORCE PTY LTD (ACN 084 438 773)

First Respondent

DRAMET PTY LTD (ACN 109 544 425)

Second Respondent

ORDER MADE BY:

CHARLESWORTH J

DATE OF ORDER:

28 NOVEMBER 2022

THE COURT ORDERS THAT:

1.For the purposes of the Deed of Settlement and Release dated 7 March 2022, the Assessed Adero Costs be fixed in the sum of $365,357.30 inclusive of GST.

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


REASONS FOR JUDGMENT
(Revised from transcript)

CHARLESWORTH J

  1. This representative proceeding was commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) by the lead applicant Mr Craig Schoneweiss against corporate entities operating supermarkets in South Australia (collectively, Drakes). The…

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Details
Case
[2022] FCA 1489
Decision Date

CaseChat Overview and Summary

In the matter of Schoneweiss v The Fourth Force Pty Ltd (No 2), the court was required to determine the amount of costs to be paid by Mr Schoneweiss and the group members. The Deed of Settlement and Release provided for the payment of costs from the settlement sum, with Adero Law's costs to be deducted before distribution to eligible group members. Adero Law engaged an independent cost consultant, Ms Catherine Dealehr, to assess the costs. However, the court found that Ms Dealehr's opinion was diminished by the quality of the materials and instructions provided to her by Adero Law, and the court did not accept her opinion in several respects.

The court also considered the apparent consent of Mr Schoneweiss to the amount recommended by Ms Dealehr, but ultimately placed no weight on it. The court found that Mr Schoneweiss' consent was not a reliable indicator of the reasonableness of the costs, as it was influenced by factors such as the quality of the materials and instructions provided to Ms Dealehr, and the consequences for costs of the breach by Adero Law of statutory obligations of disclosure.

The court fixed the Assessed Adero Costs at $365,357.30 inclusive of GST. The court found that Adero Law's costs were reasonable and necessary, but reduced the amount claimed by Adero Law by $109,789.50 based on Ms Dealehr's analysis. The court also found that the Administration Costs referred to in clause 1.3.3 of the Deed were fixed at $95,634.00. The court ordered that the Assessed Adero Costs be paid by Mr Schoneweiss and the group members before distribution of the settlement sum to eligible group members.

Orders

Orders of the court

1. For the purposes of the Deed of Settlement and Release dated 7 March 2022, the Assessed Adero Costs be fixed in the sum of $365,357.30 inclusive of GST.

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

Background

Background to the litigation

In the reasons that follow I will explain why I have placed no weight on the apparent consent of Mr Schoneweiss.BACKGROUND On 30 March 2022, Adero Law filed an interlocutory application on Mr Schoneweiss’ behalf, later amended on 11 April 2022 (Approval Application) by which Mr Schoneweiss sought orders under s 33V and s 33ZF(1) of the FCA Act approving the settlement on the terms contained in the Deed and retrospectively authorising him to enter into and give effect to the Deed on behalf of all group members who had not opted out of the proceedings. He sought a further order that the Assessed Adero Costs as defined in the Deed be “approved in the amount as endorsed by the Court”. The Deed contains the following provisions relating costs:(1)by clause 10, the parties to the Deed make the following acknowledgments:10 Costs Generally10.1 Adero Law and Drakes acknowledge and agree that:…10.1.2Registered Group Members and Additional Registered Group members have a liability to contribute to and pay the Assessed Adero Costs and the Administration Costs.10.1.3Contributions for such costs will be deducted from the Settlement Entitlements that Registered Group Members and Additional Registered Group Members will receive as Eligible Group Members under the Scheme, following an assessment, and determination by the Court of such costs.(emphasis added)(2)the expressions “Adero Costs” and “Assessed Adero Costs” are defined as follows:1.3 Adero Costs means the:1.3.1legal costs and disbursements of and incidental to the Drakes Class Action (including solicitor, counsel and expert fees) incurred by the Applicant on behalf of themselves and Group Members;1.3.2any other amount payable to Adero Law in connection with its services for and on behalf of the Applicant and Group Members; and1.3.3costs and disbursements incurred by Adero Law in carrying out its duties and obligations as Administrator under and incidental to the Scheme; …1.10Assessed Adero Costs means Adero Costs as assessed and ordered by the Court at the time of entering the Approval Orders, or such Adero Costs as assessed and determined by way of a formal assessment and subsequently ordered by the Court.(emphasis added)(3)Adero Law will be paid the Assessed Adero Costs following prior to distribution of the Settlement Sum to the eligible Registered Group Members and Additional Registered Group Members. By an order made on 6 October 2022, the Administration Costs referred to in clause 1.3.3 of the Deed were fixed at $95,634.00. The orders made on 28 November 2022 do not affect that sum.Cost consultant On 31 May 2022, Adero Law filed an affidavit (again on behalf of Mr Schoneweiss) in support of the Approval Application in which Mr Markham referred to the engagement of an independent costs consultant, Ms Catherine Dealehr, for the purposes of obtaining her opinion in relation to the amount of (relevantly) the Assessed Adero Costs. Annexed to that affidavit is a copy of a report of Ms Dealehr dated 30 May 2022 (First Report). The First Report discloses correspondence passing between Adero Law and Ms Dealehr, by which Adero Law urged her to reconsider a number of opinions she had expressed in a draft report apparently provided to Adero Law before the First Report was finalised. Ms Dealehr revised her opinion in light of some corrected facts, but otherwise stood by the opinions she expressed in the draft.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The assessment is otherwise concerned with the amount that Adero Law may lawfully charge Mr Schoneweiss and the group members in light of the Court’s order that the group members are bound by the Deed. It is akin to a solicitor-client assessment, albeit one to be undertaken in accordance with the Scale.MS DEALEHR’S METHODOLOGY AND CONCLUSIONS Ms Dealehr considered Adero Law’s professional fees and disbursements in two parts. Part A relates to the period up to 22 April 2022 (around the time that she was first retained). Part B relates to costs from 23 April 2022 through to the approval hearing on 14 June 2022. The conclusions relating to Part B were necessarily based on estimates of the expenses that Adero Law expected to incur in the lead up to and including the approval hearing. For the purposes of her reports, Ms Dealehr relied upon data extracted from Adero Law’s time-keeping systems. It appears that Adero Law did not conduct its own review of that data to remove non-claimable items before providing it to Ms Dealehr. So much is apparent from its extraordinary inclusion of charges for the preparation of its own costs agreements. Ms Dealehr utilised a method referred to as Rate And Time Timekeeper And Narrative (RATTAN), and Phase Task Activities coding (PTA coding), which she described in the First Report as follows (at [21]):… My reports summarise the value of the legal work by coding each time recording entry by reference to List 1 categories which are later grouped together into various aspects of the litigation (Phases). It also identifies the nature of the work done (Tasks). Each time recording is simultaneously coded using List 2 codes to identify the form of the work done (Activities). I have developed this method to better understand the nature of the legal work undertaken by the law practice and, in particular, to identify non-claimable work or work where a discount ought to be applied. … In considering the Part A costs, Ms Dealehr employed a methodology involving six steps. In steps 1 and 2, she determined the positions of “operators” with reference to the dates upon which they were admitted to practice and applied the hourly rates applicable to each operator in accordance with the Scale. That exercise resulted in a reduction of $109,789.50 of the amount originally claimed by Adero Law. I accept that aspect of her opinion. At step 3 of her analysis, Ms Dealehr describes how Adero Law’s time entries were allocated to “Phases”. The “Phases” do not follow each other in time but are rather categories of work undertaken over concurrent or overlapping periods. The method of categorising the tasks involves interpretation of the time entries considered in the context of other information. Eight “Phases” were identified: pre-action work, pleadings, case management, lay witness evidence, mediation/settlement negotiations, settlement approval, large scale litigation management and miscellaneous. The time attributed to the “pleadings” phase was 185.7 hours.

Ratio Decidendi

Legal Principle Established

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