Thomas v Romeo Lockleys Asset Partnership
[2022] FCA 1106
•19 September 2022
FEDERAL COURT OF AUSTRALIA
Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106
File numbers: SAD 105 of 2020
SAD 169 of 2020Judgment of: CHARLESWORTH J Date of judgment: 19 September 2022 Catchwords: PRACTICE AND PROCEDURE – application for approval of the settlement of two representative proceedings under s 33V of the Federal Court of Australia Act 1976 (Cth) – where lead applicants allege that they did not receive their full entitlements under the General Retail Industry Award 2010 for the hours worked in contravention of the Fair Work Act 2009 (Cth) – whether the proposed settlement is fair and reasonable in the interests of group members and as between them – respondents agreeing to pay lead applicants’ costs – whether legal costs proposed to be charged by lead applicants’ lawyers are in excess of that which may be lawfully claimed – lawyers’ retainer void – lawyers failing to comply with the Legal Profession Act 2006 (ACT) – desirability of transparency and accountability in asserted claims for legal costs for class actions whether under a retainer or otherwise – relevance of the statutory context under the Fair Work Act 2009 (Cth) – discretion of the Court to fix a lower costs amount consistent with the settlement agreement reached between the parties – rejection of claimed costs amount – lower sum fixed – settlement approved Legislation: Fair Work Act 2009 (Cth) ss 12, 539, 540, 557C, 570
Federal Court of Australia Act 1976 (Cth) ss 33X, 33V, 33ZJ, 37AE, 37AG, 54A
Judiciary Act 1903 (Cth) s 79
Legal Profession Act 2006 (ACT) ss 269, 271, 277, 279, 283, 284, 287, 293
Federal Court Rules 2011 (Cth) r 28.61
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
Bywater v Appco Group Australia Pty Ltd [2020] FCA 1877
Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527
Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468
Duck v Airservices Australia (No 3) [2021] FCA 304; 304 IR 99
Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433
Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70
Fair Work Ombudsman v Woolworths Group Limited (Case Management) [2022] FCA 376
Gall v Domino’s Pizza Enterprises Ltd (No 2) [2021] FCA 345; 391 ALR 675
Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439
Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626
Mutch v ISG Management Pty Ltd [2020] FCA 362
Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; 132 ACSR 258
Prygodicz v Commonwealth of Australia (No 2) (2021) 173 ALD 277
Sheehan v Thiess Pty Ltd [2019] FCA 1762
Stanford v DePuy International Ltd (No 6) [2016] FCA 1452
Turner v Tesa Mining (NSW) Pty Limited [2019] FCA 1644; 290 IR 388
Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; 180 ALR 459
Division: Fair Work Division Registry: South Australia National Practice Area: Employment and Industrial Relations Number of paragraphs: 155 Date of last submission: SAD 105 of 2020: Applicant: 14 June 2022
SAD 169 of 2020: Applicant: 14 June 2022Date of hearing: 8, 30 March 2022
14 June 2022SAD 105 of 2020 Counsel for the Applicant: Mr M Whitbread Solicitor for the Applicant: Adero Law Counsel for the Respondents: Mr T Duggan KC with Mr T Besanko Solicitor for the Respondents: Crawford Legal SAD 169 of 2020 Counsel for the Applicant: Mr M Whitbread Solicitor for the Applicant: Adero Law Counsel for the Respondents: Mr T Duggan KC with Mr T Besanko Solicitor for the Respondents: Crawford Legal ORDERS
SAD 105 of 2020 BETWEEN: CHRISTOPHER PETER THOMAS
Applicant
AND: ROMEO LOCKLEYS ASSET PARTNERSHIP, BEING THE PARTNERSHIP OPERATED BY LOCKLEYS FOODLAND PTY LTD & ROMEO LOCKLEYS HOLDINGS PTY LTD (ABN 12 244 067 815)
First Respondent
LOCKLEYS FOODLAND PTY LTD (ACN 108 166 276 )
Second Respondent
ROMEO LOCKLEYS HOLDINGS PTY LTD (ACN 108 157 928)
Third Respondent
ORDER MADE BY:
CHARLESWORTH J
DATE OF ORDER:
19 SEPTEMBER 2022
THE COURT ORDERS THAT:
Approval of settlement
1.Subject to these orders, pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the settlement recorded in the Deed of Settlement and Release and the Settlement Distribution Scheme forming annexures RMM1–1 and RMM1–2 to the affidavit of Mr Rory Michael Markham sworn 17 November 2021 is approved.
2.Pursuant to s 33ZB(a) of the FCA Act, the persons affected by these orders are the lead applicant and all group members (whether registered or not) who have not opted out of the proceedings.
3.Pursuant to s 33ZF of the FCA Act, Adero Law be appointed as the Settlement Administrator of the Final Settlement Scheme and authorised to act in accordance with cl 3 of the Settlement Distribution Scheme, subject to any direction of the Court.
4.Adero Law as the Settlement Administrator of the Final Settlement Scheme has liberty to apply in relation to any matter arising under the Settlement Distribution Scheme.
Costs
5.For the purpose of the Deed of Settlement and Release, the Costs Amount is $560,893.52.
6.The applicant, the respondent and Adero Law (interested non-party) have liberty to apply to vary the amount fixed by paragraph 5, such liberty to be exercised on or before 11 October 2022.
7.In the event that a party or the interested non-party exercises the liberty in paragraph 6, the question be referred to a Registrar for inquiry and report pursuant to s 54A of the FCA Act and r 28.61 and r 28.66 of the Federal Court Rules 2011 (Cth), on terms of reference and subject to conditions to be fixed by the Court.
8.In the event that the liberty in paragraph 6 is exercised by the interested non-party, the interested non-party is to bear its own costs of the application, including the costs of participating in the inquiry.
9.All outstanding costs orders otherwise be vacated.
Confidentiality and public access
10.For the purposes of sub-clause 16.1 of the Deed of Settlement and Release:
(a)subclause 16.1.2 is approved only to the extent that it refers to the Calculation Principles;
(b)subclause 16.1.3 is approved;
(c)clause 16 is not otherwise approved.
11.Nothing in paragraph 10 excuses non-compliance by any person with the order in paragraph 12.
12.Pursuant to s 37AF and s 37AG(1)(a) of the FCA Act, in order to prevent prejudice to the proper administration of justice, the following documentary material (suppressed material) is to remain confidential and its publication is prohibited:
(a)the opinion of Ms Bronwyn Byrnes of Counsel, forming annexure RMM2–7 to the affidavit of Mr Markham sworn 22 February 2022;
(b)the Calculation Principles set out in Schedule 1 to the Deed of Settlement and Release, forming pages 53 to 57 of the affidavit of Mr Markham sworn 17 November 2021;
(c)paragraphs 35 and 36 of the applicant’s written submissions filed on 22 February 2022;
(d)page 15 of the affidavit of Mr Markham sworn on 22 February 2022 containing the table of Group Member eligibility;
(e)pages 18 and 23 of the affidavit of Mr Cutchie affirmed on 22 February 2022;
(f)paragraphs 13, 15, 16, 20, 21, 23, 25, 27, 34, 37, 38, 39, 42, 43, 45, 47, 50, 52, 56, 57, 58, 59, 60, 61 and the table titled “Figure 1” of the affidavit of Mr Cutchie affirmed on 22 February 2022.
13.All previous suppression, non-publication and confidentiality orders are revoked.
14.On or before 26 September 2022 the applicant is to upload to the Court file the materials referred to in paragraph 12, with supressed material redacted in accordance with the order.
15.A request by any non-party for access to a document on the Court file is, by this order, allowed to the extent that the document is not the subject of a suppression order and, to that end, a person requesting a copy of a document referred to in paragraph 12 shall (upon payment of any applicable fee) be provided with a copy of the redacted version of the document filed in accordance with paragraph 14.
Other orders
16.The parties have liberty to apply for ancillary and consequential orders.
17.The order in paragraph 13 is to operate as and from 4:00pm (ACST) on 20 September 2022.
18.Pursuant to s 37AF of the FCA Act, and on the grounds specified in s 37AG(1)(a), the name in paragraphs 16 and 17 of the orders in SAD 169 of 2020 provided to the parties today (and as pronounced in Court upon the delivery of judgment) is suppressed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ORDERS
SAD 169 of 2020 BETWEEN: MARTIN SHINA
Applicant
AND: “ROMEO NSW PARTNERSHIP”, BEING THE PARTNERSHIP OPERATED BY ROMEO NSW INVESTMENTS PTY LTD AND THE TRUSTEE FOR ROMEO NSW HOLDING TRUST (ABN 11 807 080 683)
First Respondent
ROMEO NSW INVESTMENTS PTY LTD (ACN 156 756 544)
Second Respondent
ROMEO NSW HOLDINGS PTY LTD (ACN 156 757 809)
Third Respondent
ORDER MADE BY:
CHARLESWORTH J
DATE OF ORDER:
19 SEPTEMBER 2022
THE COURT ORDERS THAT:
Approval of settlement
1.Subject to these orders, pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the settlement recorded in the Deed of Settlement and Release and the Settlement Distribution Scheme forming annexures RMM1-1 and RMM1-2 to the affidavit of Mr Rory Michael Markham sworn 17 November 2021 is approved.
2.Pursuant to s 33ZB(a) of the FCA Act, the persons affected by these orders are the lead applicant and all group members (whether registered or not) who have not opted out of the proceedings.
3.Pursuant to s 33ZF of the FCA Act, Adero Law be appointed as the Settlement Administrator of the Final Settlement Scheme and authorised to act in accordance with cl 3 of the Settlement Distribution Scheme, subject to any direction of the Court.
4.Adero Law as the Settlement Administrator of the Final Settlement Scheme has liberty to apply in relation to any matter arising under the Settlement Distribution Scheme.
Costs
5.For the purpose of the Deed of Settlement and Release, the Costs Amount is $560,893.52.
6.The applicant, the respondent and Adero Law (interested non-party) have liberty to apply to vary the amount fixed by paragraph 5, such liberty to be exercised on or before 11 October 2022.
7.In the event that a party or the interested non-party exercises the liberty in paragraph 6, the question be referred to a Registrar for inquiry and report pursuant to s 54A of the FCA Act and r 28.61 and r 28.66 of the Federal Court Rules 2011 (Cth), on terms of reference and subject to conditions to be fixed by the Court.
8.In the event that the liberty in paragraph 6 is exercised by the interested non-party, the interested non-party is to bear its own costs of the application, including the costs of participating in the inquiry.
9.All outstanding costs orders otherwise be vacated.
Confidentiality and public access
10.For the purposes of sub-clause 16.1 of the Deed of Settlement and Release:
(a)subclause 16.1.2 is approved only to the extent that it refers to the Calculation Principles;
(b)subclause 16.1.3 is approved;
(c)clause 16 is not otherwise approved.
11.Nothing in paragraph 10 excuses non-compliance by any person with the order in paragraph 12.
12.Pursuant to s 37AF and s 37AG(1)(a) of the FCA Act, in order to prevent prejudice to the proper administration of justice, the following documentary material (suppressed material) is to remain confidential and its publication is prohibited:
(a)the opinion of Ms Bronwyn Byrnes of Counsel, forming annexure RMM2-7 to the affidavit of Mr Markham sworn 22 February 2022;
(b)the Calculation Principles set out in Schedule 1 to the Deed of Settlement and Release, forming pages 53 to 57 of the affidavit of Mr Markham sworn 17 November 2021;
(c)paragraphs 35 and 36 of the applicant’s written submissions filed on 22 February 2022;
(d)page 15 of the affidavit of Mr Markham sworn on 22 February 2022 containing the table of Group Member eligibility;
(e)pages 18 and 23 of the affidavit of Mr Cutchie affirmed on 22 February 2022;
(f)paragraphs 13, 15, 16, 20, 21, 23, 25, 27, 34, 37, 38, 39, 42, 43, 45, 47, 50, 52, 56, 57, 58, 59, 60, 61 and the table titled “Figure 1” of the affidavit of Mr Cutchie affirmed on 22 February 2022.
13.All previous suppression, non-publication and confidentiality orders are revoked.
14.On or before 26 September 2022 the applicant is to upload to the Court file the materials referred to in paragraph 12, with supressed material redacted in accordance with the order.
15.A request by any non-party for access to a document on the Court file is, by this order, allowed to the extent that the document is not the subject of a suppression order and, to that end, a person requesting a copy of a document referred to in paragraph 12 shall (upon payment of any applicable fee) be provided with a copy of the redacted version of the document filed in accordance with paragraph 14.
Further time to opt out
16.Pursuant to s 33J(3) of the FCA Act, the time and date for the objector referred to at paragraph 146 of the reasons for judgment published today to opt out of this proceeding is extended to 5pm on 10 October 2022.
17.On or before 23 September 2022, the applicant is to serve on the objector a copy of the orders made today and a copy of the reasons for judgment.
Other orders
18.The parties have liberty to apply for ancillary and consequential orders.
19.The order referred to in paragraph 13 is to operate as and from 4:00pm (ACST) on 20 September 2022.
20.Pursuant to s 37AF of the FCA Act 1976, and on the grounds specified in s 37AG(1)(a), the name in paragraphs 16 and 17 of the orders provided to the parties today (and as pronounced in Court upon the delivery of judgment) is suppressed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
CHARLESWORTH J:
These reasons relate to two representative proceedings commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The first has Mr Christopher Thomas as the lead applicant and will be referred to as the Thomas Proceeding. The second has Mr Martin Shina as the lead applicant and will be referred to as the Shina Proceeding. The primary claim against the respondents is the same in each proceeding. An order has been made for them to be heard and determined concurrently.
Mr Thomas and Mr Shina (together the lead applicants) each brought claims on behalf of themselves and others (the Group Members) against two related partnerships. The partnerships respectively operate 15 supermarkets in South Australia and 14 supermarkets in New South Wales. The respondents are represented by the same solicitors and adopt the same position on the application.
The lead applicants were full-time employees of the respondents working as managers during the relevant periods and covered by the General Retail Industry Award 2010. They allege that they did not receive their full entitlements under the Award with respect to the hours they worked, that they were expected or required to work in excess of rostered hours and that they were not lawfully remunerated for those additional hours. They further allege that the respondents wrongfully deducted sums from their wages to cover the costs of their uniforms. The lead applicants seek declarations that the respondents have contravened the Fair Work Act 2009 (Cth) (FW Act) as well as orders for the payment of compensation and the imposition of civil penalties in unspecified amounts.
Save for the claim with respect to uniform costs, the respondents deny liability.
Section 33V(1) of the FCA Act relevantly provides that a representative proceeding may not be settled without the approval of the Court. If the Court grants approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court: FCA Act, s 33V(2).
The parties seek the Court’s approval to settle the proceedings on the terms set out in a Deed of Settlement and Release dated 15 November 2021 and in accordance with an agreed distribution model (Proposed Settlement).
I have concluded that the Proposed Settlement should be approved, notwithstanding the misgivings set out in these reasons.
However, I am not satisfied that the Group Members should be bound in contract by a broadly expressed confidentiality clause contained in the Deed. That issue was raised with the parties and they have since acknowledged that the confidentiality clause should not operate, except to the extent that it is consistent with confidentiality or suppression orders made in each action. I consider there to be a public interest in the disclosure of such parts of the Deed that would not satisfy the requirements for suppression or non-publication orders under s 37AG(1) of the FCA Act.
The approval hearing was adjourned after the Court expressed concerns about (among other things) a sum of money sought to be paid to the lead applicants’ solicitors (Adero Law). The parties were provided with opportunities to furnish additional evidence and to make additional submissions to address that and other issues.
The Deed itself contemplates that the Court may fix the sum to be paid to Adero Law and that will be done. The amount to be fixed is lower than that sought on the approval application, but that does not mean that the Proposed Settlement cannot be approved.
The Court’s orders will provide a mechanism by which a party (or Adero Law as a non-party) may apply to the Court to fix a higher amount. In that event, the question will be referred to a Registrar for inquiry and report, subject to conditions discussed at the conclusion of these reasons.
GROUP MEMBERS
The Thomas Proceeding was commenced by originating application and statement of claim filed on 24 July 2020. The group members in that proceeding are those full-time employees of the respondents who:
(1)worked within the period of 28 July 2014 to 27 July 2020;
(2)worked in a role which was, or included the word, “Manager”, including the positions of store manager, assistant store manager, department manager and assistant department manager;
(3)were paid an annual salary in weekly instalments;
(4)by virtue of their pattern of work, were entitled to overtime, penalty rates, loadings and allowances; and
(5)received weekly salary instalments that were insufficient to discharge their alleged entitlements.
The Shina Proceeding was commenced by originating application and statement of claim filed on 18 November 2020. The criteria for group membership in that proceeding largely mirrors the criteria in the Thomas Proceeding. I will use the phrase Group Members to describe the membership in both proceedings.
The Thomas Proceeding and the Shina Proceeding have been jointly case managed since February 2021. Amended pleadings were filed in each proceeding on 26 March 2021.
In accordance with the Court’s orders, the applicants published approved notices informing Group Members of the steps they may take in the proceedings. The Court’s orders have defined:
(1)registered Group Members as those individuals who had at the time of the orders entered into a written retainer with Adero Law; and
(2)unregistered Group Members as those individuals who at the time of the orders had not entered into a written retainer with Adero Law or who had not otherwise registered for the proceeding with Adero Law.
The deadline for a group member to opt out from the proceedings was fixed for 2 June 2021 (the opt-out deadline).
ISSUES ARISING OUT OF THE DEED
The parties engaged in a private mediation after the opt-out deadline passed. The outcome of the mediation was the agreement recorded in the Deed. It is relevantly to the effect that:
(1)the respondents deny liability;
(2)the respondents will make a payment in full and final settlement of the claims of the registered Group Members not exceeding $1,550,000.00 inclusive of interest (subcl 8.2);
(3)the respondents will make an additional payment in full and final settlement of the claims of Additional Registered Group Members defined in subcl 1.3 to be calculated in accordance with the terms of the Deed;
(4)payments to individual Group Members are to be calculated under an agreed model (explained in part in a document titled “Calculation Principles”) incorporated as Schedule 1 to the Deed and referred to as the Settlement Distribution Scheme;
(5)under the Settlement Distribution Scheme the Group Members (referred to in [17(2)] and [17(3)] (Registered Group Members)) receive a share of the total payments (Settlement Sum) in proportions that reflect the estimated value of their respective claims;
(6)unregistered group members will not participate in the distribution;
(7)the respondents will make a further payment (referred to as the Costs Amount) to Adero Law, the purpose of which is described in subcl 10.1 of the Deed:
10. Payment of the Other Amounts
10.1Adero Law and the Romeos acknowledge and agree that:
10.1.1by virtue of s 570 of the Fair Work Act legal costs are not recoverable by Group Members except in limited circumstances, which have not been established and which the Group Members will not be able to establish;
10.1.2Registered Group Members and Additional Registered Group Members have, or may have, a liability to contribute to and pay Adero Costs that have been incurred up to the date of this Settlement Deed and which will be incurred in the discharge and performance of obligations under this Settlement Deed and the Scheme, which contributions would ordinarily be deducted from Settlement Entitlements that Registered Group Members and Additional Registered Group Members will receive as Eligible Group Members under the Scheme;
10.1.3as an expression of goodwill and in recognition that Group Members should not be disadvantaged financially in the context of raising the issues or concerns that are the subject of the Romeo Class Actions, the Romeos have agreed to pay the Costs Amount to fully compensate Adero Law for the Adero Costs and so as to ensure that Eligible Group Members receive the full value of their Settlement Entitlements; and
10.1.4notwithstanding that the Romeos continue to deny that there is any, or any proper, basis for the civil penalty provision set out in s 546 of the Fair Work Act to apply in the context of the Romeo Class Actions, the Romeos also agree to pay the Costs Amount to fully compensate Adero Law for the Adero Costs because the Romeos:
(a)are cognisant that Group Members had concerns that resulted in the Romeo Class Actions being instituted; and
(b)wish to demonstrate that the Romeos are contrite for any inconvenience or detriment that any Group Members may have suffered or incurred in connection with the matters and issues raised in the Romeo Class Actions.
(8)for the purposes of that clause, the expressions “Adero Costs” and “Costs Amount” are defined as follows:
1.3 Adero Costs means the:
1.3.1legal costs and disbursements of and incidental to the Romeo Class Actions (including solicitor, counsel and expert fees) incurred by the Applicants on behalf of themselves or Group Members;
1.3.2any other amount payable to Adero Law in connection with its services for and on behalf of the Applicants and Group Members;
1.3.3costs and disbursements incurred by Adero Law in carrying out its duties and obligations as Administrator under and incidental to this Scheme; and
1.3.4costs and disbursements of the Verifier in carrying out its duties and obligations under this Scheme.
…
1.16Costs Amount means the amount of $825,000.00 (inclusive of GST), or such other reasonable amount as ordered and approved by the Court.
(9)subclause 10.2 provides for the payment of the Costs Amount in instalments. Subclause 10.4 provides:
Adero Law acknowledges and agrees that if the Costs Amount endorsed by the Court is for an amount less than $825,000.00 (inclusive of GST), then Adero Law will issue tax invoices in the form required under clause 10.3 for the amount endorsed by the Court and such reduced Costs Amount will be payable in the same percentage instalments set out at clause 10.2 above by each of the Effective Date, the Second Costs Payment Date and the Final Costs Payment Date.
(10)clause 16 imposes confidentiality obligations in very broad terms including a requirement to keep confidential the whole of the Deed;
The total payments to be made to the lead applicants and those Group Members referred to in [17(2)] and [17(3)] above will be referred to as the Settlement Sum.
The structure of the Deed is such that the Settlement Sum is attributable to those Group Members who participate in the Distribution Scheme without any deduction for legal fees that may be owing by any particular lead applicant or Group Member to Adero Law. That structure has the benefit of certainty when viewed from the perspective of the respondents and the lead applicants. The relevant certainty is that the Settlement Sum will not be diminished by costs.
It may also be observed that the amount of $825,000.00 represents the maximum amount agreed to be paid by the respondents to Adero Law. The Deed provides that the Court may fix a lower amount. As discussed below, the intention of the parties is that Adero Law be paid such money as it is entitled in law to claim from the lead applicants. In considering whether to approve the amount of $825,000.00 or any alternate amount, the Court may proceed on the basis that if the matter were to proceed to trial there may be orders providing for the burden of any costs liability owed by the lead applicants (and others who are represented by Adero Law) be shared by Group Members who are not represented: FCA Act, s 33ZJ(2).
The Court has before it copies of cost agreements entered into by Mr Shina and Mr Thomas with Adero Law. They are in relevantly identical terms and will be referred to simply as the Cost Agreement.
Subclause 5.1 of the Cost Agreement provides that Adero Law will be entitled to be paid for “the Work” (as defined) in accordance with its terms. Under the heading “Conditional Costs Agreement” there relevantly appears the following:
5.3Adero will conduct the Claim on a speculative, no-win no-fee basis. Legal fees, costs or disbursements for the Work carried out by Adero are payable only if Success is achieved.
5.4Adero will not recover legal fees, costs or disbursements for the Work that exceed the Proceeds of the Claimant except if litigation funding is secured, in which case the legal costs will be funded in accordance with the terms of the applicable funding agreement.
5.5Legal fees, costs and disbursements for the Work carried out by Adero will be charged in accordance with the rates in Schedule 2, in addition to a 25% uplift, subject to any amendments to such hourly rates.
5.6If Success is achieved, from the Proceeds, the Claimant and Adero will cause:
(a)as first priority, any legal fees, costs or disbursements to be paid to Adero within 7 days of receipt of the Proceeds and before any other payment from the relevant trust account;
and
(b)as second priority, all remaining amounts to be paid to the Claimant.
By subcl 5.7 it is acknowledged that the legal fees calculated in accordance with the Cost Agreement may be higher than that chargeable under of the relevant court scale.
As will be seen, Adero Law has no entitlement to charge fees in excess of this Court’s scale of costs because (as discovered and disclosed by Adero Law in the course of the approval hearing) the Cost Agreement is void.
Against that background, a number of areas concern arose in the course of the approval hearing. They are briefly introduced below and will be expanded on in the pages that follow.
First, it appeared to the Court that granting the approval without qualification would have the effect of binding the Group Members to the confidentiality clause in circumstances where the public interest in ensuring confidentiality in the whole of the subject matter captured by that clause was not immediately apparent. As mentioned at the outset of these reasons that issue has been resolved by consent. The Court will make suppression and non-publication orders in respect of limited subject matter, where it is satisfied that the conditions for making those orders are met. The orders will be narrowly confined so as to safeguard the public interest in open justice within the meaning of s 37AE of the FCA Act.
Secondly, the Court was concerned to ensure that the structure of the Deed, including the provision for the payment of the Costs Amount to Adero Law, was appropriate in all of the circumstances. That question encompassed a number of issues, including what the Court’s preliminary view that the work of a cost consultant had not been sufficiently robust.
Thirdly, and relatedly, it was not apparent to the Court that the Group Members would regard the outcome as a “success” within the meaning of the “no win no fee” clause in the Cost Agreement, and the opt-out deadline had already passed. Among other things, that issue was relevant to the risk/benefit analysis to be undertaken on behalf of all of the Group Members having regard to costs provisions in the FW Act and the availability of other mechanisms to pursue claims for employee entitlements discussed below.
Fourthly, at least at the commencement of the hearing the Court was not satisfied that Group Members had been provided with sufficient information to enable them to make an informed decision as to whether to oppose the approval of the Proposed Settlement (assuming it was appropriate to extend the deadline for them to do so). As will be seen, that issue was resolved by the fragmentation of the hearing to enable the preparation of additional evidence and notices to Group Members and the extension of time by which Group Members may file notices of objection.
THE HEARING AND EVIDENCE
At the commencement of the hearing, the lead applicants relied on the affidavits of solicitors employed by Adero Law, namely two affidavits of Mr Rory Markham sworn on 17 November 2021 and 22 February 2022 and an affidavit of Mr Ashley Cutchie affirmed on 22 February 2022. Mr Markham’s affidavit of 17 November 2021 annexes the Deed and the Settlement Distribution Scheme. In his affidavit of 22 February 2022, Mr Markham addresses the steps that Adero Law had taken to advise the lead applicants about the prospects of the proceedings and he sets out his own assessment of the merits of the claim. He annexes to opinions of a costs consultant, Mr Kim Chapman, and Ms Byrnes of Counsel.
The focus of Mr Cutchie’s affidavit is the mechanics of the settlement incorporating a “model” that he developed on behalf of Adero Law in conjunction with accountants to estimate the value of claims in another representative proceeding. The model has apparently been used in the present proceedings to assist in the negotiations for the settlement of the claim, presumably by quantifying its total asserted value.
The respondents relied on an affidavit of a solicitor Ms Gemma Borrello, sworn on 1 March 2022. It largely addresses the steps the respondents have taken to notify Group Members of the Proposed Settlement.
When the hearing commenced, I ventured the preliminary opinion that I did not have sufficient evidence to consider the appropriateness of the Costs Amount. My initial concerns about the quantum of costs were caused in part by cost estimates contained on the face of the Retainer. Those estimates suggested that the lead applicants may incur legal fees in the amount of $400,000.00 (excluding GST) in each matter, only to the point of the first case management hearing. On the material then in evidence, the total estimate of $800,000.00 (excluding GST) for the two proceedings up to the first case management hearing was (and remains) surprising. The pleadings in each matter were substantively identical and the work encompassed in the estimate did not include the preparation of evidence, any interlocutory process or attendance at any other hearing. I made a number of additional observations concerning the methodology employed by the costs consultant Mr Chapman. I did not consider the opinion of Mr Chapman to be sufficiently rigorous to support the orders that were sought, and I remain of that view.
The hearing was adjourned to 30 March 2022 to enable further steps to be taken and evidence to be adduced. In advance of that date, the Court received a further affidavit of Mr Markham together with minutes of order sought by consent. On 12 April 2022 consent orders were entered in each of the proceedings, relevantly to the following effect:
(1)a further approved notice was to be given to eligible Group Members informing them of their right to inspect unredacted copies of documents, pursuant to s 33X of the FCA Act,
(2)Group Members were given a further opportunity to file a notice of objection by 2 June 2022;
(3)Adero Law was granted leave to file and serve any further evidence with respect to the reasonableness of its costs and disbursements;
(4)unredacted copies of those documents were to be provided to Registered Group Members at their request; and
(5)the approval hearing was set down to resume on 14 June 2022.
On 22 May 2022 Adero Law received a notice of objection containing brief written submissions. No other notices of objection were received. The objector was provided an opportunity to make oral submissions at the resumption of the hearing but declined. The position of the objector will be addressed in due course.
At the resumption of the hearing, the lead applicants relied on a further affidavit of Mr Cutchie affirmed on 21 April 2022 (deposing to compliance with the more recent orders) and two further affidavits of Mr Markham sworn on 6 May 2022 and 9 June 2022. Mr Markham’s affidavit of 9 June 2022 detailed the preparation and provision of a second costs review report by Mr Chapman and a third costs review report prepared by Ms Catherine Mary Dealehr (the Dealehr Report).
PRINCIPLES
The principles guiding the exercise of the discretion under s 33V of the FCA Act are well established. The Court should consider whether the compromise embodied in the Proposed Settlement is fair and reasonable, first, as between the lead applicants and Group Members and the respondents, and, secondly, as between the Group Members themselves: Evans v Davantage Group Pty Ltd (No 3) [2021] FCA 70, Beach J (at [17]); Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs & mgrs apptd) (in liq) (No 3) [2017] FCA 330; 343 ALR 476, Beach J (at [81]); Prygodicz v Commonwealth of Australia (No 2) (2021) 173 ALD 277 at [85].
The Court has a protective role in relation to the interests of group members who are not directly represented in the proceedings. It has been said that the role is not unlike the role the Court assumes when approving settlements on behalf of infants: Australian Securities and Investments Commission v Richards [2013] FCAFC 89, Jacobson, Middleton and Gordon JJ (at [8]); Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439, Murphy J (at [62]); Blairgowrie at [81] – [85]; Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527, Murphy J (at [12]); Bakerv Woolworths Group Limited (No 2) [2022] FCA 534, Murphy J (at [37]).
Federal Court Class Actions Practice Note (GPN-CA) sets out at [15.5] some of the relevant considerations in determining whether the Proposed Settlement is fair and reasonable. They include the:
(1)complexity and likely duration of the litigation;
(2)reaction of the class to the settlement;
(3)stage of the proceedings;
(4)risks of establishing liability;
(5)risks of establishing loss or damage;
(6)risks of maintaining a class action;
(7)ability of the respondent to withstand a greater judgment;
(8)range of reasonableness of the settlement in light of the best recovery;
(9)range of reasonableness of the settlement in light of all the attendant risks of litigation; and
(10)terms of any advice received from Counsel and/or from any independent expert in relation to the issues which arise in the proceeding.
That reflects the considerations identified by Goldberg J in Williams v FAI Home Security Pty Ltd (No 4) [2000] FCA 1925; 180 ALR 459, (at [19]). The relevant principles were otherwise helpfully summarised by Moshinsky J in Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 (at [5]) in terms that I respectfully adopt:
(a)the central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole: Australian Competition and Consumer Commission v Chats House Investments Pty Limited (1996) 71 FCR 250 at 258; Williams v FAI Home Security Pty Ltd (No 4) (2000) 180 ALR 459 (Williams) at [19]; Wheelahan v City of Casey [2011] VSC 215 (Wheelahan) at [57]–[59]; and Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 (Matthews) at [34];
(b)there will rarely be one single or obvious way in which a settlement should be framed, either between the claimants and the defendants (inter partes aspects) or in relation to sharing the compensation among claimants (the inter se aspects) — reasonableness is a range, and the question is whether the proposed settlement falls within that range: Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) 236 ALR 322 (Darwalla) at [50];
(c)it is not the task of the Court to ‘second-guess’ or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the reasonable range of decisions, having regard to: the circumstances which are ‘knowable’ to the plaintiffs and their representatives; and a reasonable assessment of risks, based on those circumstances: Darwalla at [50]; Pharm-a-Care Laboratories Pty Ltd v Commonwealth (No 6) [2011] FCA 277 at [22]; Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 (Modtech) at [12];
(d)the list of factors typically relevant to an assessment of the reasonableness of a proposed settlement, set out in Williams at [19], is a useful guide but is neither mandatory nor necessarily exhaustive — it is just a guide (see Haslam v Money for Living (Aust) Pty Ltd (Administrators Appointed) [2007] FCA 897 at [19]–[20]; Taylor v Telstra Corporation Ltd [2007] FCA 2008 at [65]; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (No 9) [2013] FCA 1350 at [47]; Mercieca v SPI Electricity Pty Ltd [2012] VSC 204 (Mercieca) at [32]), and additional consideration needs to be given to factors relevant to the fairness of the settlement inter se;
(e)in relation to the inter se fairness, a particular concern of the Court is to confirm that the interests of the lead plaintiff, or signed-up clients of a given firm of solicitors, are not being preferred over the interests of other group members: see, eg, Rod Investments (Vic) Pty Ltd v Abeyratne [2010] VSC 457 (Abeyratne) at [19]. The arrangement should be framed to achieve a broadly fair division of the proceeds, treating like group members alike, as cost-effectively as possible: see, eg, Mercieca at [37]–[39];
(f)an important consideration will be whether group members were given timely notice of the critical elements, so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a highly relevant consideration in support of a settlement, and all its elements: see, eg, Abeyratne at [22]; and Mercieca at [38];
(g)where a group member does object to the settlement, an important further question is whether the objector is prepared to assume the role — and risks — of being lead plaintiff: cf Wong v Silkfield Pty Ltd [2000] FCA 1421 at [24]–[30];
(h)in relation to provisions for costs-sharing among the successful group members, again an important consideration is where the group members were alerted at an early stage to the potential costs-sharing consequences of subsequent participation in the action: cf Australian Securities and Investments Commission v Richards [2013] FCAFC 89 at [46]. It is not, thereafter, the role of the Court to go behind the costs agreements (see Wheelahan at [103]), but rather to satisfy itself that the agreements have been applied reasonably according to their terms;
(i)further, the level of detail which the Court will require in order to be satisfied that costs have been calculated in accordance with the applicable agreements will vary, depending on factors such as whether the group members are all clients, or include non-client claimants, and the proportion of the settlement funds to be applied to costs.
And as Murphy J said in Baker (at [37]):
… An applicant must demonstrate an entitlement to an order for approval of the proposed settlement even when the order is not opposed, and the Court should be alive to the possibility that the proposed settlement may reflect conflicts of interest or duty between the applicant or applicant’s solicitor and group members or between group members: Parkin v Boral Limited (Class Closure) [2022] FCAFC 47 at [130]–[131] (Murphy and Lee JJ with Beach J agreeing) citing Kelly at [63] and McKenzie v Cash Converters International Ltd (No 3) [2019] FCA 10 at [24] (Lee J).
Generally speaking, it is important to recognise that the parties and their legal advisors are in the best position to appreciate the risks of their respective cases. As such, the “settlement must be viewed as a pragmatic compromise to the relevant claims”; Stanford v DePuy International Ltd (No 6)[2016] FCA 1452, Wigney J (at [116]); see also Prygodicz at [87].
The legal context
In their respective Defences, the respondents denied that representative proceedings could be commenced under Pt IVA of the FCA Act alleging a contravention of the FW Act. The position was articulated in the Defence filed in the Shina Proceeding (and in the same terms in the Thomas Proceeding) as follows:
89.… the Applicant is prevented from seeking the relief sought at paragraphs 102 to 105 of the SOC on behalf of Group Members by reason of ss 539 and 540 of the FW Act.
Particulars
89.1. Sections 539 and 540 of the FW Act limit:
89.1.1.the persons who may apply for relief under Division 2 of Part 4-1 of Chapter 4 of the FW Act in relation to a contravention or proposed contravention of a civil remedy provision, as defined in s 539, to an employee, a prospective employee, an employer, an outworker and an outworker entity who is affected by the contravention or will be affected by the proposed contravention; and
89.1.2.those who may apply for relief under Division 2 of Part 4-1 of Chapter 4 of the FW Act on behalf of others to employee organisations, registered employee associations, employer organisations and industrial associations, as defined in the FW Act, and then only in the circumstances prescribed by ss 540(2)-(6).
89.2.The Applicant is not an employee organisation, a registered employee association, an employer organisation or an industrial association for the purposes of the FW Act.
89.3.Consequently, the Applicant may only seek relief under Division 2 of Part 4-1 of Chapter 4 of the FW Act in relation to a contravention of a civil remedy provision to the extent that he as a former employee of the Partnership is affected by that contravention of a civil remedy provision.
89.4.The Applicant is not affected by an alleged contravention or proposed contravention of a civil remedy provision in respect of any of the individual Group Members and therefore does not have standing to seek relief on their behalf.
The pleaded argument is to the effect that s 539 and s 540 the FW Act exhaustively prescribe the manner in which proceedings may be brought on behalf of employees in relation to their workplace entitlements and that, by implication, those specific provisions exclude the operation of the more general provisions contained in the Pt IVA of the FCA Act.
Included among the persons who may commence proceedings for relief under the FW Act on behalf of employees (including for the imposition of pecuniary penalties) are the Fair Work Ombudsman in her capacity as statutory regulator. On such claims, the persons for whose benefit claims are brought are not liable to meet the Ombudsman’s costs. Also among the persons having standing to seek relief on behalf of employees are employee organisations, defined in s 12 to include registered Unions.
The purpose of the provisions granting standing to the Ombudsman and employee organisations to bring proceedings on behalf of employees include the desirability that employees have access to affordable justice with respect to their workplace rights. The provisions advance the objectives of the FW Act by providing a means by which employees may assert and enforce their entitlements in a way that does not expose them to an outcome in which any damages or other award is subsumed by their own legal fees. In addition, there is a clear public interest in a regulator such as the Ombudsman having standing to bring claims on behalf of a group of employees, particularly where the claims of each individual employee may be small, and yet the profits gained by employers from contraventions of the FW Act affecting multiple employees may potentially be very large indeed.
The desirability that employees have affordable access to justice to vindicate and enforce their entitlements is reflected to an extent by s 570 of the FW Act. It limits the circumstances in which a court may order a party to proceedings to pay the costs of another party. They include circumstances in which the Court is satisfied that a party has instituted proceedings vexatiously or without reasonable cause or a party has caused another party to incur costs by an unreasonable act or omission. Together, these provisions go some way to guarding against a circumstance where the spectre of an adverse costs order inhibits the commencement or continuation of reasonable claims.
In the present statutory context (as in other civil contexts) when an employee engages a lawyer to act in litigation commenced on his or her own behalf, the employee will, in the usual course be liable to pay their lawyer’s costs in accordance with any valid retainer and the general law regulating the legal profession. There is plainly an advantage in the costs of enforcing workplace entitlements being shared among multiple employees by way of a single representative proceeding of the kind that might be brought under Pt IVA of the FCA Act. However, that mechanism gives rise to risks that do not ordinarily arise in proceedings commenced on employees’ behalf by the Ombudsman or an employee organisation: the applicant’s own costs in pursuing a claim may exceed the amount that may be awarded even in the event of a successful claim. In my view, that circumstance heightens the obligations of solicitors to provide frank advice about the likely costs of proceedings and the likelihood that it may be uncommercial to proceed to trial even on a strong case. The financial futility in continuing a case (even a strong case) should not be a matter that comes as a surprise to the client after any liability to pay the lawyer’s invoices has been incurred.
Where the lawyer acts for a litigant employee on a “speculative basis” a further complication is introduced. Under such an arrangement, the employee may stand to lose nothing in the event that the proceedings are unsuccessful, assuming that no costs order under s 570 of the FW Act is made. In that event, the employee will not be liable to pay the respondent’s costs, and nor will the employee be liable to pay his or her lawyer for legal services under the “no win no fee” agreement. Of course all of that is subject to the operation of s 570 of the FW Act, but there is no suggestion that the conditions for an adverse costs order against the lead applicants are present here.
The risk to the Group Members in the present case is that any amount paid in damages or penalties on a favourable judgment will be entirely subsumed by irrecoverable legal fees. In my view, that is a risk that ought to be made known to an employee litigant before he or she executes a cost agreement and commences a representative proceeding. In addition, I consider that lawyers acting for lead applicants in proceedings under Pt IVA of the FCA Act should advise prospective clients of the provisions in the FW Act that provide mechanisms for their claims to be pursued other than by way of representative proceedings. That advice should be given at a time before the representative proceedings are commenced.
The context is one in which affected Group Members who are not parties to the retainer do not have the benefit of legal advice from the outset concerning the options for other legal mechanisms for securing their entitlements before the opt-out deadline, nor do they have the direct benefit of statutory provisions requiring lawyers to give cost estimates for the whole of the proceeding (discussed below). They are in no position to assess the utility of the action, and yet they are bound by the outcome. The protective nature of the Court’s jurisdiction becomes all the more obvious in that context.
As to the existence of the Court’s power to make orders under Pt IVA of the FCA Act in respect of a claim brought under the FW Act, the respondents have not invited the Court to resolve the jurisdictional argument set out in their respective Defences and I have not had the benefit of argument on the point. It is sufficient to observe that there are several judgments of the Court that proceed from the assumption that the provisions contained in Pt IVA of the FCA Act apply in the context of claims for relief under the FW Act: see for example Turner v Tesa Mining (NSW) Pty Limited [2019] FCA 1644; 290 IR 388, Lee J; Sheehan v Thiess Pty Ltd [2019] FCA 1762, Colvin J; Mutch v ISG Management Pty Ltd [2020] FCA 362, Bromberg J; Bywater v Appco Group Australia Pty Ltd [2020] FCA 1877, Lee J; Duck v Airservices Australia (No 3) [2021] FCA 304; 304 IR 99, Bromwich J; Gall v Domino’s Pizza Enterprises Ltd (No 2) [2021] FCA 345; 391 ALR 675, Murphy J; Fair Work Ombudsman v Woolworths Group Limited (Case Management) [2022] FCA 376, Perram J; Baker, Murphy J.
I will proceed in the same way, none of the parties before me suggesting that the assumption in the prior cases as to the Court’s jurisdiction is plainly wrong. I should not otherwise be taken to have expressed a concluded view on the question.
DETERMINATION OF THE COSTS AMOUNT
The approval of the Proposed Settlement necessarily includes approval of the terms of the Deed. As I have mentioned, the Deed itself contemplates that the Costs Amount is a sum that may be determined by the Court. It need not be fixed in the amount of $825,000.00 and I am not satisfied that it should be.
Counsel for the lead applicants relied on the opinions of the cost consultants (particularly the Dealehr Report) in support of a contention that the amount should be $825,000.00. The submissions were to the effect that the lead applicants would be liable to pay Adero Law a sum in excess of that amount in accordance with the terms of the Cost Agreement or otherwise in accordance with the general law.
Adero Law has acknowledged that it is appropriate for the Court to scrutinise the amount. The degree of scrutiny to be applied is a question for the Court. Much of the hearing time was devoted to that topic.
The approach to be applied in considering the appropriateness of a fixed cost sum in representative proceedings was summarised by Murphy J in Earglow Pty Ltd v Newcrest Mining Limited [2016] FCA 1433 (at [91]):
… The Court should satisfy itself that the arrangements in relation to legal costs meet any relevant legal requirements, contain reasonable and proportionate terms relative to the commercial context in which they were entered, and that the costs and disbursements are in accordance with the terms of the relevant agreements and are otherwise ‘reasonable’. …
His Honour elaborated in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd (No 3) [2018] FCA 1842; 132 ACSR 258 (at [88]):
In class actions the requirement for judicial supervision of legal costs proposed to be charged is obvious because: (a) the applicant’s solicitor is in a more dominant position vis-a-vis a class member than in a solicitor-client relationship in individual litigation; (b) class members are commonly not told about the mounting costs as they are incurred and they suffer a significant information asymmetry in that regard; (c) it is not necessary for class members to retain the applicant’s solicitor and commonly they do not, yet they are usually made liable for a pro rata share of the costs; (d) even where class members retain the applicant’s solicitor they do not provide instructions as to the running of the class action and have no control over the quantum of costs, yet they are usually made liable for a pro rata share of the costs; (e) class members are unlikely to pay much attention to legal costs because they are usually only payable upon success and from the successful outcome; (f) it is usually not until after settlement is achieved that class members are told the total costs claimed, but they are not told (and it is commonly very difficult to accurately estimate) what their pro rata share of the costs will be; and (g) the Court has a protective role in relation to class members’ interests.
In the present case, it is relevant that the Costs Amount is a sum to be paid by the respondents, and is not to be drawn from the Settlement Sum payable to the lead applicants and Group Members. The respondents are not parties who require the protection of the Court. The circumstance that they have not actively sought for the Court to assess costs in an amount less than $825,000.00 is also relevant. However, in all of the circumstances described in these reasons, I do not consider that to be a proper basis to avoid subjecting the sum sought by Adero Law to careful scrutiny.
On the proper construction of the Deed, it was the intention of all of the parties that Adero Law receive an amount that properly represented the amount it could lawfully charge to the lead applicants, not that it receive money in the nature of a windfall. The Court should give effect to that intention. That is not only because it is consistent with the Deed, but also because careful scrutiny of the costs protects the integrity of the Court’s own processes by guarding against litigation of this kind being perceived as an enterprise in which there is money to be gained by lawyers, other than in consideration for the provision of services in accordance with the laws that regulate their profession.
A settlement agreement in representative proceedings should not provide for a sum to be paid to the lawyer for a party that is shielded from scrutiny by the Court. The Deed in the present case does not suffer from that vice because it makes express provision for the Costs Amount to be a sum fixed by the Court. The amount of $825,000.00 is a maximum amount, not a required amount.
The fact that the Costs Amount is not to be directly drawn from the Settlement Sum does not otherwise warrant the Court ignoring instances of apparent proposed overcharging by Adero Law or evidence of non-compliance by them with the laws regulating the legal profession. In my discretion, I consider that the reasonableness of the Costs Amount, and the consequences for any such non-compliance, should be considered as if the question of costs fell to be assessed as between Adero Law and its clients in accordance with the Legal Profession Act 2006 (ACT) (LP Act) (albeit on a fixed sum basis), albeit applying a broad brush approach.
As will become clear, I am not satisfied that the lead applicants were properly informed about the amount in fact owing by them (whether under the Cost Agreement or otherwise) at the time of he mediation. Nor am I satisfied that the respondents were informed of the actual extent of the lead applicants’ costs liability.
It may be said that the readiness of Adero Law to “cap” the Costs Amount at $825,000.00 appears (at least superficially) to be a compromise on its part. However, if there was a willingness on Adero Law’s part to receive an amount less than its lawful entitlement, that willingness might just was well have been reflected in a different structure: the respondents might have paid a sum in a larger amount in settlement of the claims so as to incorporate a capped costs figure, with an agreement that Adero Law charge no more than the capped amount. It is plain from the outcome of the mediation that the respondents had the capacity to pay at least the sum of $2,300,000.00. Under an alternative structure, if the costs lawfully able to be charged by Adero Law fell short of the capped amount, then the lead applicants and Group Members would have shared in a greater net sum than they presently stand to gain under the Deed (should the Proposed Settlement be approved).
Of course, the Court should respect the agreement reached between the parties, including the manner in which the payments are structured. It is not the role of the Court to speculate as to what occurred at the mediation nor whether a better deal might have been obtained in resolving the controversy as between the parties. However the present case is one in which a better bargain may have been struck by Adero Law for the lead applicants in respect of an issue where there was potential for real controversy as between Adero Law and the lead applicants concerning the fees Adero Law was lawfully entitled to charge. There was no independent advisor present at the mediation to advance the interests of the lead applicants in respect of the obligations said to be owed by them to their own lawyers. Moreover, Adero Law attended the mediation with a duty to act in the best interests of the lead applicants. It had a duty to avoid a conflict between its own interests and duties. If Adero Law had no legal entitlement to charge the lead applicants $825,000.00 (as appears from my observations below), then it seems to me the lead applicants were entitled to be informed of that circumstance so that they could make a fully informed decision as to whether to agree to a resolution having the structure recorded in the Deed. To say that is not to second guess the agreement reached between the lead applicants and the respondents on the information that they had before them, it is simply to point out an objective factual circumstance in which their agreement was reached. There should have been a reliable assessment of the costs of the lead applicants before negotiations commenced, so that the mediation could proceed from a proper factual foundation with the lead applicants fully informed of their actual costs liability, whether under the Cost Agreement or otherwise.
I have nonetheless concluded that these observations should not stand in the way of the lead applicants and Group Members having the Settlement Sum paid to them in accordance with the Settlement Distribution Scheme. I have arrived at that view because the orders made on 12 April 2022 gave all Group Members the opportunity to inspect documents filed in the proceedings and extended the time by which they may object to the Proposed Settlement. Some of the Group Members took the opportunity to inspect the documents and those persons were also provided with a copy of the Dealehr Report disclosing a number of issues with Adero Law’s claim for costs. If the hearing had not been fragmented for that purpose, I would not have approved the Proposed Settlement.
The circumstance that only one Group Member opposed the Proposed Settlement should not be taken as an indication that the Group Members are content for the Court to approve a payment of $825,000.00 to Adero Law without any scrutiny. As I have mentioned, the Group Members may reasonably expect that Adero Law not be paid more than the amount that they could reasonably have claimed for the provision of their services in accordance with the law. The submissions of the lead applicants also proceed from that premise.
I now turn to consider the respects in which Adero Law have failed to comply with the provisions of the LP Act regulating their entitlement to payment and the consequences that should follow from that non-compliance.
Non-compliance with the LP Act
The Cost Agreement is subject to the laws of the Australian Capital Territory, including Pt 3.2 of the LP Act. The procedural provisions of the LP Act (including the provisions relating to the validity and enforceability of costs agreements) otherwise apply in the exercise of federal jurisdiction: Judiciary Act 1903 (Cth), s 79.
Division 3.2.3 of Pt 3.2 of the LP Act is titled “Costs disclosure and assessment”. Section 269 sets out matters relating to costs that must be disclosed by the legal practitioner. The disclosures under s 269 must be made in writing before, or as soon as reasonably practicable after, the law practice is retained in the matter: LP Act, s 271(1). The consequences for failing to make the required disclosures are set out in s 277.
Division 3.2.5 is titled “Cost agreements”. Sections 283 and 284 set out certain requirements for a conditional costs agreement, including agreements for the charge of an uplift fee. A cost agreement that contravenes, or is entered into in contravention of any provision of Div 3.2 5 is void: LP Act, s 287.
Part A of the Dealehr Report contains opinions to the effect that Adero Law has failed to comply with the LP Act in several respects. On relying on the Dealehr Report Counsel for the lead applicants did not seek to persuade the Court that Ms Dealehr’s conclusions were incorrect, not did Mr Markham who was granted an audience at the hearing in his own right.
I accept Ms Dealehr’s opinions in respect the particular failures discussed below. For present purposes I do not consider it necessary to consider the remainder of them.
Non-compliance with s 269(1)(d)
Section 269(1)(d) of the LP Act required Adero Law to disclose to the lead applicants:
an estimate of the total legal costs, if reasonably practicable or, if it is not reasonably practicable to estimate the total legal costs, a range of estimates of the total legal costs and an explanation of the major variables that will affect the working out of the costs; …
As mentioned earlier, the Cost Agreement contained within it an estimate of costs through to the first case management hearing in amounts that attracted the Court’s attention, given the very early stage of the proceedings to which they related. It did not contain an estimate of total costs, whether expressed within a range or otherwise.
On 10 June 2021, Adero Law gave written advice to the lead applicants that the total costs were budgeted at $1,711,875.00 in each of the proceedings. As Ms Dealehr correctly observed, each of those estimates was provided more than 12 months following the initial disclosure and appeared to be a “boilerplate estimate used in both matters”: the estimates did not take into account that from November 2020 the two proceedings were to be conducted together which ought to have reduced the costs of each of them. Quite apart from those observations I have considerable difficulty comprehending how legal fees in the estimated amounts in each proceeding could reasonably be predicted to be incurred. The estimates have caused me to approach the determination of actual costs with considerable caution.
Non-compliance with s 293(3)(e)
There is no provision in the Cost Agreement for a five day cooling off period as required by s 293(3)(e).
Non-compliance with s 284(3) and s 284(4)
A conditional costs agreement that provides for an uplift fee must contain an estimate of the uplift fee or, if that is not reasonably practicable, a range of the estimates of the uplift fee and an explanation of the variables that will affect its amount: LP Act, s 284(3). A law practice must not enter into a costs agreement in contravention of s 284.
The Cost Agreement provides for the charge of an uplift of 25% upon Adero Law’s usual rates. However, contrary to s 284(3), the monetary amount of the uplift is not quantified.
In addition, contrary to s 284(4)(b) of the LP Act, cl 5.5 of the Cost Agreement purports to apply a 25% uplift to disbursements.
Consequences of non-compliance
In the present legal context I consider the failure to comply with s 269(1)(d) of the LP Act to be particularly serious, principally because there existed a risk that the only entities that might stand to receive any payment in the event of a successful outcome on the two class actions were lawyers. On the material before me, I am satisfied that there was an appreciable risk that any judgment sum would be entirely consumed in legal fees and I am satisfied that risk existed from the moment each proceeding was commenced. It matters not that the total fees might be affected by contingencies (such as the number of Group Members who registered or opted out) and so could not be predicted with precision. The obligation under s 269(1)(d) of the LP Act was to provide an estimate of total costs within a range that factored in variables of that very kind. I have already mentioned the Court’s expectation that litigants in the lead applicants’ position should be advised of the provisions of the FW Act that enable proceedings to be brought on their behalf by the Ombudsman or employee organisations. The failure of Adero Law to provide the lead applicants with a timely estimate of costs for the total of the proceedings had the undesirable consequence that any commercial futility in progressing their claims to trial through the mechanism of class actions may not have been made known to them at the time that the claims were commenced. There is a risk that the compromise of their claims under the Proposed Settlement is the solution to a cost/benefit problem that may not have arisen had they received the advice to which they were entitled before the proceedings were commenced. The fact that it might be the best solution does not affect my assessment of the seriousness of Adero Law’s breach.
As Ms Dealehr correctly observed, the failure to comply with s 269(1)(d) of the LP Act may have the consequence that upon an assessment of costs under the LP Act as between solicitor and client, the breach may justify a global reduction in allowable charges in the range of 5% – 30%. That there might be a deduction is consistent with s 277 of the LP Act, which provides:
277 Effect of failure to disclose
(1)If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the client or associated third party payer (as the case may be) need not pay the legal costs unless they have been assessed under division 3.2.7.
NoteUnder s 302 (Costs of costs assessment), the costs of an assessment in these circumstances are generally payable by the law practice.
(2)A law practice that does not disclose to a client or an associated third party payer anything required by this division to be disclosed may not bring a proceeding against the client or associated third party payer (as the case may be) for the recovery of legal costs unless the costs have been assessed under division 3.2.7.
(3)If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed and the client or associated third party payer has entered into a costs agreement with the law practice, the client or associated third party payer may also apply under section 288 (Setting aside costs agreements) for the costs agreement to be set aside.
(4)If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the amount of the costs may, on an assessment of the relevant legal costs, be reduced by an amount considered by the Supreme Court to be proportionate to the seriousness of the failure to disclose.
…
(7)Failure by a law practice to comply with this division can be unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner or Australian-registered foreign lawyer involved in the failure.
Ms Dealehr considered it appropriate to apply a 15% global discount to reflect the various instances of non-compliance referred to in her report. It was not suggested by the lead applicants that no discount should apply.
Whilst I have some respect for Ms Dealehr’s opinion on the matter (especially given her diligent approach on other topics) I do not consider a discount of 15% adequately reflects the seriousness of Adero Law’s non-compliance with s 269(1)(d) of the LP Act. On an assessment of the kind referred to in s 277 of the LP Act, the appropriate reduction would be a matter for the Court. Even if the LP Act is not directly applicable, this Court should act consistently with its terms and as if the Costs Amount were a disputed question between a lawyer and client.
In making the assessment contemplated under the Deed, I have concluded that a reduction in the amount of 25% should be applied to Adero Law’s total claimable costs to reflect the seriousness of the breach as I have assessed it.
In addition, s 287(1) of the LP Act provides that a cost agreement that breaches any of the provisions of Div 3.2.5 is void. Adero Law acknowledges that consequence, at least by reason of its failure to comply with s 284. As a further discrete matter, Adero Law is unable to recover the uplift fee: LP Act, s 287(4).
In the ordinary course, Adero Law may nonetheless be remunerated in accordance with the Scale of costs contained in Sch 3 to the Federal Court Rules 2011 (Cth): LP Act, s 279(b), s 287(2).
It is to be recalled that Adero Law agreed that it should not be entitled to payment other than in the event of “success” under the Cost Agreement. It would be a strange consequence if a lawyer could escape the consequences of a clause of that kind because of his or her own default in complying with the LP Act, and so assert an entitlement to be paid regardless of whether there has been a “success” as defined in a void retainer.
A purpose of the orders made on 12 April 2022 was to ensure that all Group Members had access to all of the information that might bear on their decision as to whether or not to object to the Proposed Settlement, including to make submissions on the question of whether or not it constitutes a “success” within the meaning of the Cost Agreement. The time for them to object was extended for that purpose.
The question of whether there had been “success” was raised by the Court itself during the course of the hearing at a time when the parties had sought to maintain confidentiality over the terms of the Deed and other critical documents, including to the extent that Group Members had not been given an opportunity to access and inspect them. I took the view that whether there had been “success” was a matter in respect of which Group Members should be afforded the opportunity to be heard, having first been provided with the opportunity to inspect all documents that might bear on the question. As I have mentioned, the orders of 12 April 2022 made provision for the Group Members to object to the Proposed Settlement on any basis. I consider that if any Group Member took the view that there had not been “success” then that could have been the subject matter of an objection. The sole objector has not based their objection on matters arising under the Cost Agreement or the LP Act.
Accordingly, I do not consider it necessary to determine whether the definition of “success” in the void Cost Agreement has been fulfilled in relation to the lead applicants, nor to consider whether their position on the question would bind the Group Members if the Cost Agreement applied. I reject the submission (advanced by Mr Chapman) that the question of “success” is irrelevant.
I now proceed on the basis that Adero Law may be remunerated for legal services in accordance with the Scale, subject to the 25% reduction I identified above.
Claimable Costs
In Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 Gordon J (as her Honour then was) said this in the context of a request to deduct solicitors fees from a proposed settlement sum (at [32]):
First, the role of the Court requires explanation. It has two aspects; the test to be adopted by the Court and then the material necessary to undertake the assessment. The task of the Court is not a taxation. The questions for the Court in assessing the fees and disbursements claimed by Slater & Gordon are twofold:
1.are the fees and disbursements of an unreasonable amount having regard to, inter alia, the nature of the work performed, the time taken to perform the work, the seniority of the persons undertaking that work and the appropriateness of the charge out rates for those individuals; and
2.if the work is unreasonable in the circumstances, can the group members be considered to have approved (explicitly or impliedly) the costs claimed.
I do not understand the lead applicants to persist in their reliance on Mr Chapman’s reports. If I am wrong in that regard, I would place no weight on the opinions expressed in them in any event. I do not consider those reports to be sufficiently rigorous in their approach. Mr Chapman has failed to identify significant issues that were subsequently identified by Ms Dealehr on her more careful analysis. His approach of applying a global discount to account for the possibility of all forms of overcharging is unhelpful and should be discouraged.
The material before Ms Dealehr included Adero Law’s time recording data up to 26 May 2022, together with estimates of its costs of attendance for the remainder of the approval hearing and its costs in administering the Settlement Distribution Scheme should it be appointed as the administrator. According to Adero Law’s time recording system, the claimed fees totalled $1,124,769.50.
Ms Dealehr did not review the work product referred to in the data entries, including because the time available to her was insufficient. For example, in respect of the charges for the preparation of documents, Ms Dealehr has for the most part proceeded from an assumption that the activities were necessary and that the time expended on them was reasonable. In that respect, Ms Dealehr relied on Adero Law’s instructions to the effect that there was a “high level of complexity” in the proceedings. I deal with that issue at [103] to [107] below.
Ms Dealehr otherwise adopted an appropriate methodology involving six steps. First, she compiled all of the time recording data, verified the accuracy of the time recorded and determined the positions of “operators” (lawyers) who worked on the matters so as to determine which hourly rates prescribed in the Scale were appropriate to them. Secondly, she applied the recorded activities the appropriate rates pursuant to the Scale. Thirdly, she classified the time spent in accordance with activity entries according to the nature of the work undertaken. Fourthly, she identified and removed non-recoverable work, so far as it could be ascertained from the face of the time keeping entries. Fifthly, she applied discounts after considering the nature of the work claimed or the way that the work was done. Sixthly, Ms Dealehr applied a loading for skill, care and attention at a rate of 12.5%.
To the total figure reached, Ms Dealehr then added amounts to reflect her assessment of the estimated costs beyond 26 May 2022 (including for the resumption of the hearing on 14 June 2022) and disbursement costs, including Counsel fees.
Ms Dealehr’s assessment of the applicable hourly rates as determined in her first two steps is appropriate. Ms Dealehr made the additional observation that the hourly rates otherwise ascribed by Adero Law to particular lawyers were unreasonably higher than market values, even if the Scale had not been applicable.
For present purposes I also accept Ms Dealehr’s identification and classification of activities, although it should be noted that she has accepted the accuracy of Adero Law’s descriptions as set out in the time recording system at face value.
Ms Dealehr removed non-claimable work, including duplicated tasks and charges for activities that are not claimable. No detail is provided of the instances of duplication or otherwise. However, I have observed from other material before me that Adero Law’s recorded fees (at least initially) included the costs of preparing the Cost Agreement itself. The circumstance that Adero Law had not reviewed its own time keeping records to remove such entries is concerning to the Court. A cursory examination of the records would have identified that activity as non-chargeable. It ought to have been removed from the time keeping records before they were referred to any costs assessor.
In step five, Ms Dealehr concluded that it was appropriate to apply discounts, first to address identified instances of overcharging, and also to reflect Adero Law’s non-compliance with the LP Act. As I have mentioned, I consider the non-compliance deduction to be too low.
With one qualification, I accept Ms Dealehr’s opinion with respect to the claimable disbursements, particularly her opinions concerning the reasonableness of Counsel’s hourly rates and the modest reductions she has applied to the totals. The qualification concerns Counsel’s charges for “conferring with team” and perhaps in relation to the drawing and settling of documents (discussed below).
Ms Dealehr accepted Adero Law’s instructions as to the likely costs of administering the Settlement Distribution Scheme. I also consider that estimate to be reasonable and accept that aspect of her opinion.
Ms Dealehr applied a 12.5% loading to all legal work with respect to skill, care and responsibility, so arriving at a total of $885,438.00 plus $11,550.00 for the costs of the administration. She expressed the view that the costs claimed were proportionate to the complexity and importance of the issues.
Notwithstanding Ms Dealehr’s conclusion, I have determined that for the purposes of the Deed, the costs amount should not be fixed at $825,000.00. I consider the appropriate order is to fix the amount at $560,893.52 to reflect the matters referred to thus far and the following additional observations.
Excessive claims
As I have mentioned, Ms Dealehr acted on Adero Law’s instructions concerning the asserted complexity of the proceedings. It was appropriate that she set out those instructions and she is not criticised for acting on them. However, I do not accept that the proceedings were attended with a “high degree of complexity” as asserted in Adero Law’s instructions.
The disputed issues involve a question concerning the interpretation of clauses in the Award and their interrelation. Questions of construction may of course be “difficult”, but not in a sense that should sound in a very significant amount of time spent at the trial or preparatory to it. Argument on the question may reasonably be expected to consume a half day at the most. Evidence is not required to resolve that issue.
The dispute otherwise turns on questions of fact as to when employees worked and the breaks they did or did not have, and the application of the Award (as properly construed) to the facts as proven. There is no expert evidence required in relation to any of that subject matter.
Proof of the facts might ordinarily be achieved by reference to business records (if accepted by the employees to be accurate) or by contradictory or supplementary testimony. It may be that the lead applicants have the benefit of a reverse onus of proof in s 557C of the FW Act (at least for some part of their claims), but that of itself may be the subject of dispute between the parties. My observations about the complexity of the matters do not turn on the answer to that question.
Whilst I accept that a class action must meet additional procedural requirements (particularly the requirement for notices), that modest degree of procedural complexity is reflected in the higher hourly rates for more experienced legal practitioners holding themselves out as experienced in conducting proceedings of this kind.
In summary, I consider there to be a moderate degree of intellectual challenge attending the construction questions, and little complexity attending the remaining aspects of the controversy. Overall, I do not consider a loading for skill, care and responsibility to be warranted. It is unclear what additional skill, care and responsibility must be employed over and above the standard of care Adero Law must ordinarily apply in the provision of legal services.
My assessment of the complexity attending the proceedings affects other steps in Ms Dealehr’s methodology, particularly in determining whether it is appropriate for the reasonableness of charges to be assessed without any reference to work output. As I have mentioned, in the time available to her, Ms Dealehr did not scrutinise the work undertaken to satisfy herself that the charges were appropriate, she has largely accepted the time keeping entries at face value except where they appear problematic on their face.
By way of illustration, the following forms a part of a table extracted from the Dealehr Report with respect to certain activities and the hours dedicated to them expressed as a percentage of the claimed costs. They will be referred to as “illustrative activities” and should not be understood to exhaustively encapsulate the Court’s concerns.
TABLE 10 – BREAKDOWN OF ACTIVITIES
ACTIVITY AMOUNT HOURS Plan, Prepare, Draft $302,258.00 768.6 Review, Analyse $120,865.50 316 Communication with Counsel $45,311.00 104.6 Communication with Internals $117,206.50 280.6
The hours expended in conducting the illustrative activities appear to me to be exorbitant given that the matters were referred to mediation at a procedurally early stage.
I have particular regard to the hours expended on the two activities titled “Plan, Prepare, Draft” and “Review, Analyse”. The 1,084.6 hours attributed to those activities are to be considered in light of more than 120 hours of “settling/drawing” by Counsel. The total hours (more than 1,180) is especially high, even having regard to the length and content of the pleadings in the two proceedings. As I have mentioned, the pleadings are identical in significant respects. It is apparent that a large proportion of a pleading in the Thomas Proceeding has been pasted into the pleading in the Shina Proceeding, including cross-references which (as pasted) are incorrect. The amended statement of claim filed on behalf of Mr Thomas and Mr Shina (including replies) comprise 123 paragraphs and 96 paragraphs respectively. Whilst it may be accepted that they are not the only documents drafted or that manifested the “planning” that was undertaken they are relevant in determining whether the hours said to be billable for the illustrative activities can be justified on any reasonable view. I am not satisfied that the hours should be accepted at face value.
In addition, Ms Dealehr has proceeded on the basis that the costs of preparing those and other documents may be assessed at an hourly rate, rather than on an “item” assessment. Whilst in some cases that might be appropriate, I cannot identify a reason why in the present case it should be. At the very least, if a time based approach is to be applied, the very hours dedicated to the drafting of documents should reflect a reasonable amount of time that ought to be expended in the performance of the task.
It may reasonably be inferred that the costs of drafting include the costs of preparing a “position paper” provided to the Court in advance of the first case management hearing on 19 August 2020. That was an entirely unnecessary document, including because the orders to be made on that day were not contentious and the information conveyed was either obvious or able to be conveyed orally in the usual way. The performance of unnecessary work of that kind would not have been apparent on the material before Ms Dealehr. Again, she is not to be criticised for that. Whilst it is a minor example, it reinforces my view that costs have been claimed for unnecessary work or excessive time spent on necessary work.
The hours dedicated to communications with Counsel (more than 104) and internal communications (more than 280) appear to be high. As with the drafting charges, their reasonableness should not be accepted at face value. I include in that observation an additional 40 hours itemised by Counsel as “conferring with team”. Whilst Ms Dealehr has applied a discount of 15% to the internal communications component, it is difficult to assess how even the discounted amount (in terms of hours) could be justified.
There are instances in which fees have been charged at a single six minute unit for each email sent to each Group Member, resulting in multiple single unit entries for a succession of emails. Such conduct is highly concerning. I consider that if the file principal had applied some care in scrutinising the time keeping records, that device would and should have been detected and the records corrected before they were referred to any costs assessor. While Ms Dealehr detected that instance of overcharging I am not prepared to accept that it is an isolated occurrence. It gives rise to a concern that there is a lack of oversight by the file principal and (considered in the context of other concerns) it seriously undermines the Court’s confidence in Adero Law’s time keeping records and compliance systems.
My confidence is further undermined by the cost estimates given to the lead applicants. As identified earlier in these reasons, the estimates of $400,000.00 in each proceeding to the first case management hearing only, and the subsequent estimates of about $1.7 million in each proceeding to trial are surprising to the Court, given my observations about the nature of the issues to be tried.
Adero Law provided estimates to Ms Dealehr in respect of the resumption of the hearing after 26 May 2022. Ms Dealehr concluded that estimate was excessive and doubly so. The claims said by Adero Law to be attributable to solicitors and Counsel for the future conduct were as follows:
TABLE 23 – REASONABLE ESTIMATED COSTS TO APPROVAL
DESCRIPTION OF WORK OPERATOR & RATE AMOUNT Principal: Preparation for the Settlement Approval Hearing – pre-hearing conferences with the client, Counsel, and specific members of the team, reviewing the entire file and reviewing correspondence in the lead up to the Hearing Principal @ $650 x 9 hours $5,850.00 Senior Associate: preparation for the Settlement Approval Hearing – reviewing factual matrixes and Affidavits filed, considering multiple variations of the model, assessing the quantum of claim reached against such variations and other ‘Best Alternative Outcomes’ in light of such information Senior Associate @ $550 x 12 hours $6,600.00 Senior Associate: preparing detailed submissions in the lead up to the Hearing including time spent with Counsel discussing submissions Senior Associate @ $550 x 6 hours
$3,300.00Principal: preparing detailed affidavit on the carriage of the proceedings since the last hearing and submitting further costs report and the settlement achieved Principal @ $650 x 3 hours $1,950.00 Senior Associate: preparing detailed affidavit explaining the nuances of the costs review Senior Associate @ $600 x 3.5 hours $1,925.00 SUB-TOTAL $19,625.00 Application of 12.5% loading pursuant to the Federal Court scale $2,453.13 TOTAL $22,078.13 TABLE 24 – COUNSEL’S REASONABLE COSTS TO APPROVAL
TASK HOURS AMOUNT Preparation of confidential opinion (noting previous opinions provided) 10 hours @ $302.50 per hour $3,025.00 Preparation for hearing (noting previous hearings) 15 hours @ $302.50 per hour $4,537.50 Appearance at hearing, including an allowance for travelling to and from Canberra to Adelaide 10 hours @ $302.50 per hour $3,025.00 TOTAL 35 hours $10,587.50
The necessity of much of that work is questionable, including the suggestion that it was necessary for the file principle to review the entire file for any purpose that could be properly chargeable to the lead applicants. Ms Dealehr reduced the estimate by about half, but the fact remains that Adero Law’s estimates are concerningly high. That only serves to reinforce my concern that its claimed costs include the costs of performing unnecessary work or expending unnecessary hours on necessary work.
In any event, I consider the fragmentation of the proceedings necessitating the further hearing date to be occasioned by problems for which Adero Law was responsible, particularly the multitude of issues affecting the submission that it had an entitlement to be paid legal fees exceeding $825,000.00 and the attempt to defend that figure. That question has consumed a considerable portion of the hearing time.
The circumstance that the Cost Agreement was belatedly revealed to be void reinforces my view in that regard. In accordance with the observations made earlier in these reasons, I consider it to be consistent with the provisions of the LP Act (particularly s 277) that Adero Law bear its own costs of persuading the Court what the Costs Amount should be. In my view that could have been done with a rigorous and careful approach to Adero Law’s costs claim before the Court was approached to approve the Proposed Settlement. It ought not to have been assumed that the Court would take a relaxed attitude to the Costs Amount merely because it would not make a difference to the Settlement Sum to be paid and distributed to the lead applicants and Group Members.
What consequences should follow from all of the observations made at [107] to [125] above?
Adopting a broad brush approach, I consider it appropriate to reduce the figure arrived at by Ms Dealehr in the second step of her analysis. The deduction should be expressed in a dollar figure and should be in addition to the modest deductions Ms Dealehr applies at steps three and four, notwithstanding that those deductions cover some of the same subject matter. The reduction is also in addition to a further deduction to be made later in these reasons concerning costs post-dating 26 May 2022.
The appropriate reduction is $200,000.00. That sum reflects the degree to which the Court lacks confidence in the time keeping records said to justify the quantum of the original claim, as well as the specific factors I have identified in this portion of my reasons. It represents approximately 25% of the amount determined at step two by Ms Dealehr, who acted on assumptions concerning the accuracy of the time keeping records, the complexity of the proceedings and the necessity of work that I cannot readily cannot readily accept.
As identified at the conclusion of these reasons, Adero Law will have the opportunity to make submissions and provide evidence to a Registrar (acting on a referral) if it considers that a more detailed consideration of its claimed fees might yield a more favourable result.
Amount for disbursements
I generally accept Ms Dealehr’s opinions with respect to the reasonableness of disbursements, with one qualification.
The qualification is that I do not consider certain charges of Counsel to be fees that could or should in the ordinary course have been claimed against the lead applicants in these proceedings, particularly the costs of attempting to persuade the Court that the Costs Amount should be $825,000.00.
Should Adero Law exercise the liberty to apply (discussed below), an occasion might arise to apply a greater degree of scrutiny to the hours otherwise expended by Counsel in the proceedings more generally.
Again applying a broad brush approach, the appropriate figure for disbursements is $108,240.38, applying a $10,000.00 reduction to accommodate a portion of Counsel fees expended on the costs question.
Estimated additional costs
I do not accept the estimate of additional costs arrived at by Ms Deahler should be permitted, not only because the additional hearing of 14 June 2022 was necessitated by the poor quality of evidence previously prepared by Adero Law (whether on behalf of the lead applicants or in advancing its own interests) but also because it included a 12.5% loading for skill, care and responsibility. In light of my conclusion that the expense of any costs assessment of Adero Law’s charges could ordinarily have been borne by its clients under the LP Act, the reasonable professional fees between 26 May 2022 and the hearing of 14 June 2022 should be fixed at $15,000.00, including Counsel fees.
The sum to be ordered
Subject to what is said below, the Court’s orders will make provision for the Costs Amount to be fixed at $560,893.52. That outcome reflects the:
(1)acceptance of some parts of the Dealehr Report identified above and general acceptance of Ms Dealehr’s methodology;
(2)conclusion that there should be no uplift for care, skill and attention;
(3)conclusion that there should be a reduction of 25% referable to Adero Law’s non-compliance with the LP Act;
(4)reduction for disbursements; and
(5)reduction for additional costs.
The following table contains Ms Dealehr’s figures in the second column. The Court’s figures are in the final column.
Ms Dealehr Court Step 2: Amount of professional fees pursuant to Scale $808,042.50 $608,042.50 Step 3: Less reductions - non-claimable $8,965.50 $8,965.50 Step 4: Less reductions - discounts $30,938.98 $30,938.98 Subtotal: $768,138.02 $568,138.0 Step 5: Less reductions – global discount $115,220.70 (15%) $142,034.51 (25%) Professional fees (steps 1 to 5) $652,917.32 $426,103.52 Uplift loading $81,614.67 (15%) - Disbursements $118,240.00 $108,240.00 Costs from 26 May to approval hearing $32,665.63 $15,000.00 Costs of administration $11,550.00 $11,550.00 TOTAL $896,987.62 $560,893.52 Proportionality
As a global consideration, it is necessary to ask whether the Costs Amount sought on the application is proportionate in the relevant sense. The principles are conveniently summarised by Murphy J in Prygodicz in the context of considering the reasonableness of legal costs sought to be recovered from group members generally. His Honour was not directly concerned with the reasonableness of a payment made under an agreement of the kind entered into in the present case. However, consistent with what I have said above, I consider the Costs Amount should be determined by applying (so far as is practicable) the same principles that might arise in the course of a solicitor/client costs dispute having regard to non-client Group Members who typically share the costs burden in a class action. As Murphy J said:
329.… The Court must be satisfied that the legal costs sought to be recovered from group members are, in all the circumstances, reasonable and proportionate: Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 (Modtech) at [32] (Gordon J); Petersen; Lenehan v Powercor Australia Ltd [2020] VSC 82 (Lenehan) at [9]–[12] (Nichols J).
330‘Proportionality’ is concerned with ‘the relationship between the costs incurred and the value and importance of the subject matter in issue’: Petersen at [130] citing Skalkos v T & S Recoveries Pty Ltd (2004) 65 NSWLR 151; [2004] NSWCA 281 at [8] (Ipp JA, Grove and Sheller JJA agreeing); Lenehan at [11]. It involves a forward-looking assessment at the time the work is performed, concerned with the benefit reasonably expected to be achieved, not the benefit actually achieved: Williams v Ausnet Electricity Services Pty Ltd [2017] VSC 474 at [110] (Emerton J).
331In Petersen (at [134]) I cited with approval the explanation of proportionality by Beach J in Blairgowrie at [181], where his Honour said.
… 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.
(Emphasis added.)
332I went on to note, however, that there are inherent uncertainties in class action litigation which mean that the determination of what the applicant’s lawyers might reasonably expect to achieve in the litigation may not be as straightforward as in ordinary inter partes litigation. As I explained in Caason at [152]:
In circumstances where the applicant’s solicitors cannot be expected to be completely accurate in assessments they make at the commencement of a case about the level of risk, the likely aggregate claim value and the likely quantum of legal costs, the proper question in relation to proportionality of legal costs is what settlement or judgment amount it was reasonable for the applicant’s solicitors to expect would be achieved by class members, not what they actually achieved. It is true that the applicant’s solicitors know more about the risks of the case than the class members, but that does not mean they should not be paid costs reasonably incurred in pursuing a benefit for class members which they reasonably expected to be achievable. Nor does it mean that the applicant’s solicitors should be punished when, by reason of the strenuous defence of the proceedings, the costs blow out.
(Emphasis added.)
The principle is not that the Court must allow a fixed sum sought by a party merely because it is not disproportionate when viewed against the benefits of the litigation the lead applicants expected to achieve on behalf of the Group Members. The lead applicants did not contract to pay a percentage of any award or settlement sum. They contracted to pay Adero Law for services in fact performed.
Proportionality in the present case is to be considered in a context where the matters have not proceeded to trial and indeed had progressed only to the first case management hearing. I am not satisfied that the amount of $825,000.00 is reasonably proportionate to the tasks achieved through to and including the mediation, irrespective of the outcome expected to be achieved. Whilst it is necessary to consider the benefit the class members reasonably expected to achieve in the outcome of a successful trial and to consider the reasonableness of the costs in that context, in the present case it is not at all apparent that any benefit would have been achieved in the event of a successful outcome at trial if Adero Law continued to charge at the rates claimed.
I have taken such matters into account in determining that there should be a reduction of $200,000.00 calculated at step two, and so make no further reduction in respect of it.
Liberty to apply
I accept that there exists a possibility that if the matter were to proceed to a formal assessment (whether on a fixed sum basis or on a complete taxation), Adero Law may be able to establish an entitlement to be paid a higher amount by reference to its work output or otherwise.
Accordingly, I will grant any interested party (and Adero Law as an interested non-party) liberty to apply to vary the amount fixed by my order. In the event that the liberty is exercised, the Court will refer the question to a Registrar of the Court in accordance with s 54A of the FCA Act and r 28.61 of the Rules, subject to conditions set out at the conclusion of these reasons. Disinterested and uninterested parties will be excused from participating in that process should it occur.
APPROVAL
I have had regard to the confidential opinion of Ms Byrnes of Counsel. As Murphy J said in Kelly, “the Court should not second-guess the applicant’s lawyers as to whether the settlement ought to have been accepted, or to proceed as if it knows more about the actual risks of the litigation than those lawyers” (at [74]). I am satisfied that Ms Byrnes has diligently approached the task of assessing the risks and likely outcomes in the proceedings on the material before her. Without revealing the content of her opinion, it is appropriate to observe that she was in no position to make a proper assessment of the fees owing by the lead applicants to Adero Law and I do not consider she was in a position to scrutinise the reasonableness of any claimed estimated costs in proceeding to trial.
As I have mentioned, in the ordinary course an employee in the lead applicants’ position would have nothing to lose in the event of an unsuccessful outcome, and also nothing to gain. Independently of Counsel’s opinion, as earlier identified, there exists a risk that no matter how strong the lead applicants’ case, there is a risk that any judgment sum will be subsumed in legal fees even if the judgment is favourable. Speaking generally, such a risk would present a lead applicant with a quandary. To the extent that such a problem arose in the present case, I am satisfied that the payment of the Settlement Sum is a fair and reasonable solution to it. It represents a compromise of the lead applicants’ position in the proceedings, as well as that of the respondents. The Deed (once approved) puts an end to proceedings that might ultimately be an exercise in diminishing returns, whatever be the merits of the lead applicants’ claims.
As to the reaction of the Group Members to the Proposed Settlement, I have had regard to the circumstance that they have all had the benefit of an extended deadline to object and that they were entitled to access all of the materials necessary to make informed decisions, albeit after the orders of 12 April 2022 were made.
The objection
The sole objector’s submission is made in respect of the Shine Proceeding and is expressed as follows:
I believe justice needs to be served to a fair result. We all have worked these hours then we should be paid for the time we worked. Anything short of that is criminal unfair. The added pressure to perform your duties above and beyond your contract cause a lot of stress related problems with anxiety pressure on home relationships.
This type of behaviour is not tolerated so it should be dealt with the penalties and our full entitlements of pay that we worked for. If not then I believe it will stay in these types of industries. Fair Go systems then fail and less and less people will stand up and fight for their rights and entitlements.
…
Fingers crossed law will prevail and justice will be served.
The objector did not seek to make oral submissions at the resumption of the hearing.
The objector’s submissions assume that the respondents are liable to pay the employees’ entitlements. The consequence of the approval of the Proposed Settlement is that the liability of the respondents will be not be determined by the Court.
The objector’s submissions do not mention the risk that Mr Shina’s claim might fail, nor the costs or delay in the resolution of the dispute should the proceedings proceed to trial. Accordingly, whilst I place some weight on the objector’s submission, it has not persuaded me to withhold approval of the Proposed Settlement.
I have had regard to the circumstance that the objector was afforded an opportunity to opt out of the proceedings but did not do so. Whilst that factor is relevant, I attribute it little weight because it is unclear whether the objector was within time to commence his or her own action at the time that the terms of the Proposed Settlement were disclosed.
Neither the lead applicants nor the respondents oppose an order affording the objector additional time to opt out of the proceedings. It is appropriate to make an order to that effect.
As I have identified, it is not inconsistent with the Deed (and the approval of the settlement recorded in it) to identify a Costs Amount in a sum less than $825,000.00. Doing so will not affect the interests of the lead applicants or Group Members in receiving the Settlement Sum in accordance with the Deed and the Settlement Distribution Scheme.
My observations with respect to the reasonableness of Adero Law’s claimed costs are not a reason to withhold approval.
ORDERS
There will be orders approving settlement on the terms set out in the Deed, subject to orders concerning confidentiality and costs as the Deed contemplates may be made.
As to confidentiality, the Court will approve cl 16 of the Deed only to the extent that it is consistent with continuing suppression or non-publication orders over subject matter that I am satisfied should remain confidential. Limited suppression orders will be maintained so as not to undermine the position of the respondents or future applicants in the negotiation of pending or future claims of a similar kind.
I certify that the preceding one hundred and fifty-five (155) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth. Associate:
Dated: 19 September 2022
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