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Group Costs Orders “Beauty Parade” in the Beach Energy Group Class Action

On 1 August 2022, the Victorian Supreme Court handed down the first decision in a “beauty parade” contest where two law firms were both seeking to represent the same class under a Group Costs Order (GCO)[1] in a class action against Beach Energy.[2]

The provision allowing a GCO to be made was introduced in July 2020 in the Supreme Court Act 1986 (Vic) (the SC (Vic) Act), allowing for the costs payable to the law practice representing the lead plaintiff and group members to be calculated as a percentage of any amount recovered in the proceedings, with these costs being shared by the lead plaintiff and group members.

The decision provides guidance on the matters the Court would consider in deciding whether or not to grant a GCO; and how the Court determines competing GCO applications in a beauty parade.

Background

On 25 November 2021, two securities class actions were commenced against Beach Energy:

  • ·one brought by Mark Sanders represented by Shine Lawyers in the Federal Court of Australia, backed by Woodsford Group Limited and Woodsford Litigation Funding 20 LLP; and
  • ·one brought by Edward and Gail Nelson as represented by Slater & Gordon in the Victorian Supreme Court.

On 11 February 2022, the Sanders proceedings were transferred to the Victorian Supreme Court by consent. Both Sanders and the Nelson plaintiffs sought GCOs under s 33ZDA(1)(a) of the SC (Vic) Act and argued that the competing proceeding should be stayed.

In deciding which of the competing proceedings should continue, her Honour Justice Nichols first considered whether a GCO should be granted in the proceeding that is to be advanced and then subsequently considered which of the two proceedings should go forward. We address each of these in separate sections below.

The applications for GCOs

Section 33ZDA of the SC (Vic) Act provides that, on an application by the Plaintiff in any group proceeding (a class action), the Court may make a GCO if it is satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding.

In deciding whether to order the GCOs, Justice Nichols referred to the general principles concerning s 33ZDA, including as articulated in Fox v Westpac; Crawford v ANZ [2021] VSC 573[3] and Allen G8 Education Ltd [2022] VSC 32 (in which a GCO of not greater than 27.5% was made).[4] It was held that the Court must conduct a “broad evaluative assessment” of the facts and evidence of each case (see e.g. Fox/Crawford 33; G8 Education 20) and it was held that the Court must be astute to the interests of group members (see e.g. Fox/Crawford 34 and G8 Education 21). In making a GCO, the Court must also be satisfied that doing so would be a suitable, fitting or proper way to ensure that justice is done in the proceeding (Fox/Crawford 31).

Slater and Gordon sought a GCO for 24.5% of the amount of any award or settlement.

Shine’s single or flat percentage rate offered in the alternative was also 24.5%; however, as a primary contention, Shine proposed a “rachet” or sliding scale of percentages that was said to avoid a disproportionate (or otherwise unreasonable) cost for group members. The proposed rachet was that, as the amount of compensation recovered increases, the percentage by which legal costs are calculated decreases.

Justice Nichols was satisfied that a GCO ought to be made in the proceeding that is selected to advance. Her Honour summarised the reasons as to why it was appropriate to make a GCO at paragraph 113:

  • The plaintiffs sought a GCO that would guarantee that the plaintiffs and group members would receive not less than 75.5% of any resolution sum;
  • Existing contractual arrangements expressly contemplate an application for a GCO and the GCO would not be in alternative to another existing funding arrangement that would result in better outcomes;
  • If third party funding would be obtained, the evidence provided that group members would obtain a worse outcome as compared to a GCO(at paragraph 24, her Honour noted Mr Sanders’ reference to published data on funding rates as discussed in the G8 Education class action, indicating average net returns to group members in the vicinity of 54%); and
  • The proposed GCO provides a readily understandable and straightforward means of calculating legal costs.

Having determined that a GCO should be made, the next question her Honour considered was which proceeding should advance.

The “beauty parade”

In deciding which proceeding should advance, the Court reiterated the appropriateness of applying a “multi factorial analysis” while avoiding a “one-size-fits-all” approach as discussed in Wigmans v AMP Limited [2021] HCA 7 (WR article). In deciding to stay the Sanders proceedings, her Honour first discussed the factors that Sanders and the Nelson plaintiffs identified as relevant in distinguishing the respective proceedings.

Key points:

  • While experience and funding may be neutral factors in assessing the preferred proceeding to prosecute group members’ claims, the way that representative parties argue and evince their applications can be instructive in how the Court views their likely approach to the substantive proceedings. Her Honour found that the ‘standard and quality of evidence’ in the respective carriage motions weighed in favour of the Nelson plaintiffs.
  • Whether or not a representative party is a “price setter” by being the first to put forward the funding rate of return may be a neutral factor because such competition involves the self-interest of the party funding the proceedings.

Factors that the Court considered

The Court found that the following factors weighed against Sanders’ carriage motion:

  • Sanders submitted that evidence in respect of Shine’s Internal Rate of Return (IRR) should weigh in his favour as it demonstrated the reasonableness and proportionality of the rate sought.[5] Justice Nichols noted that there were significant difficulties with the expert evidence on the IRR that limited its utility and did not favourably distinguish the Sanders proceedings. Ultimately, her Honour found that the expert evidence put by Sanders highlighted “notable deficits on matters Sanders and Shine emphasised as being of considerable importance” (paragraph 192).
  • Sanders submitted that the “ratchet” provision of his GCO application provided a “potential advantage” to group members. Justice Nichols found that Sanders had not provided an explanation for the “ratchet” approach, leaving gaps in its approach which were not present in the rate of return sought by the Nelson plaintiffs.

The Court considered a number of factors put forward by Sanders and Nelson as neutral to their respective carriage motions. Amongst other neutral factors,[6] Sanders raised a novel argument that he was the “price setter” because he sought a GCO at 24.5% whereas Nelson had initially agreed to seek a GCO at 28%. The Court noted that in the circumstances it was problematic to attribute the status of “price setter” or to allow such status to lead to the preference of one proceeding over another because such competition involves the self-interest of the party funding the proceedings, including the solicitors and should not be a factor in assessing what is in the interests of group members (see paragraph 129).

The Court found that the quality of the Nelson plaintiffs’ pleadings weighed in favour of their carriage motion as its greater level of particularity, as distinguished from the Sanders’ pleadings, reflected a greater investment of time and attention (see paragraph 165).

 


[1] See section 33ZDA of the Supreme Court Act 1986 (Vic).

[2] Nelson v Beach Energy [2022] VSC 424.

[3] In Fox/Crawford, her Honour Justice Nichols was not satisfied, on the evidence relied on by the plaintiffs, that the proposed GCO was more advantageous to group members compared with the plaintiff’s present “no win no fee” (NWNF) funding arrangements and the GCO application was not successful.

[4] In G8 Education, the retainer agreement between the plaintiffs and their lawyers was intended to operate irrespective of whether the proceeding is funded by a GCO, by litigation funding or by the lawyers bearing the costs on a NWNF basis, unless it was terminated according to its terms. See also paragraph 16 of Nelson v Beach Energy [2022] VSC 424 in which each retainer agreement expressly contemplated that the plaintiff would seek a GCO and in the alternative, third party litigation funding, and in the meantime the lawyers would act on a NWNF basis. Compare each of these with Fox/Crawford, in which the Court found that the NWNF agreements were the default arrangements and they were not interim or conditional. That is, the NWNF agreements would not come to an end in the event that a GCO was not made (see paragraph 60). Further, the NWNF agreements did not provide that the law firm may obtain third party funding in the event that a GCO was not made (see paragraph 61).

[5] The Court noted that Sanders’ evidence on Shine’s IRR was in connection with Justice Dixon’s statement in Bogan v The Estate of Peter John Smedley (Deceased) [2022] VSC 201 that expert evidence on an IRR may be a way to assess an appropriate rate of return to a party funding proceedings.

[6] These include Sanders’ submissions on obtaining “after-the-event” insurance, the respective causes of action and case theories, Sanders’ engagement of an independent liability expert, the Nelson plaintiffs’ submissions on conducting more fulsome book building, the respective lawyers’ experience, and Sanders’ “back up plan” with a third-party funder should his GCO application not succeed.

 

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

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