The Court’s role in settlements of representative settlements

On 5 December 2016, following a trial that ran over 22 sitting days, Justice Mortimer of the Federal Court delivered judgment in relation to the lead applicants’ claim in the representative proceeding of Wotton v State of Queensland and Anor (No 5) [2016] FCA 1457.  Crown Law acted for the respondents in the proceeding.

Following Justice Mortimer’s decision the parties agreed to settle the proceeding, and on 15 June 2018 Justice Murphy made orders approving the Palm Island Class Action Settlement Scheme (Wotton v State of Queensland (No 10) [2018] FCA 915).

It is not every day that parties require the Court’s approval to settle on terms both the applicant and respondent have themselves agreed.

When the Court becomes concerned with settlement  

The conduct of representative proceedings is dealt with in Pt IVA of the Federal Court of Australia Act 1976 (Cth).

A representative proceeding may not be settled or discontinued without the approval of the Court.

When applying for Court approval of a settlement, the parties will usually need to persuade the Court that:

(a) the proposed settlement is fair and reasonable having regard to the claims made on behalf of the class members who will be bound by the settlement; and

(b) the proposed settlement has been undertaken in the interests of class members, as well as those of the applicant, and not just in the interests of the applicant and the respondent.

The Court takes on a ‘protective’ role in an attempt to ensure the settlement is fair and reasonable having regard to the interests of all class members bound by it.  This is because the Court has observed the possibility for conflicts of interest between the applicant and class members, subgroups within the class, or between the duty of the applicant’s lawyers to client class members and the lawyers’ duty to non-client class members.[1]

A settlement the Court can call “fair and just”

This case is a good illustration of the complexities in settling a representative proceeding. The settlement amount was $30 million. There were 441 registered class members, who fell within three subgroups, one of which was further divided into four categories.

There are a number of factors that may be relevant in an application for settlement approval by the court, and the relevance of any particular factor will vary depending upon the circumstances of each case.

Justice Murphy approved the settlement scheme proposed by the parties in Wotton, and in doing so observed the following:

(a) The settlement amount was sizeable and the estimated recovery for class members through the settlement represented approximately 100% of their assessed losses;

(b) The settlement was agreed in arm’s length negotiations between parties who were represented by competent and experienced lawyers who are experienced in class action litigation and who had sufficient information available to assess the merits and quantum of the class claims;

(c) The Court had the benefit of a careful and comprehensive confidential opinion of counsel who were briefed in the case, upon which significant reliance was place by the Court;

(d) No class member had objected to the substance of the settlement;

(e) The Scheme fairly distributed the settlement sum between the registered class members;

(f) The terms of the fulsome public apology were significant to his Honour’s view that the settlement should be approved;

(g) The proposed reductions in the settlement sum for legal costs and disbursements were fair and reasonable;

(h) The Scheme provided for a sufficient amount to be set aside to ensure that the members of the Palm Island community are given appropriate financial counselling, advice and assistance in dealing with the substantial amount of compensation that will be received within a small community.

This case is a good illustration of the protective role the Court takes in approving a settlement in representative proceeding.

[1] see Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323at [62]-[77].

The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.

Published: 29 October 2018

Author: Lachlan Grant