Courts grapple with carriage contest across jurisdictions

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These were two concurrent judgments of the Federal Court of Australia and the Supreme Court of Victoria, resolving a cross-court carriage dispute.  The dispute involved three separate competing class actions: one in the Supreme Court of Victoria (SCV Proceeding) and two in the Federal Court of Australia (which applied to be consolidated) (FCA Proceedings).

All three class actions were brought against International Capital Markets and its founder Mr Budzinski, on behalf of investors who suffered loss as a result of trading contracts for difference (CFDs).  A CFD is a highly leveraged financial product that allows the holder to make a trade based on their prediction of the likely movement in the value or price of an underlying asset. Each of the class actions involve similar allegations, namely misleading and deceptive conduct and unconscionable conduct.

There was a dispute between the applicants in each of the proceedings, as to whether one or more of the proceedings should be stayed, to enable the efficient resolution of the overlapping claims of group members, in essence, a carriage contest.

That dispute was heard by the Federal Court and the Supreme Court, at a concurrent sitting, pursuant to an agreed protocol between the two courts, for communication and cooperation in class action proceedings.

The Federal Court and Supreme Court were in agreement, and each held that:

• the SCV Proceeding be stayed;
• the FCA Proceedings be consolidated, and
• carriage of the class action be awarded to the consolidated FCA Proceedings.

The reasons of each court were substantially the same.

Pleadings and experience

Central to both judges’ decision was the amount of work done by the applicant’s lawyers in the FCA Proceedings. Counsel retained in the FCA Proceedings were heavily involved in preparing the pleadings and it was obvious that an enormous amount of ‘thought and intellectual endeavour’ had gone into them. 

It was equally clear that the solicitors for the applicants in the SCV Proceeding had applied very little independent skill or original intellectual input.  The pleadings in the SCV Proceeding were virtually an identical copy of the detailed pleadings prepared in the FCA proceeding.  Justice O’Bryan in the Federal Court noted that the solicitors‘ used the expression ‘harmonise’ as a euphemism for ‘copy’. Justice Delaney in the Supreme Court said:

To describe what has occurred as plagiarism may sound harsh, but it is accurate. The pleadings were copied and pasted and put forward…without any attributions. It would not be a just result and it would not be in the best interests of group members to award carriage to a firm that has engaged in such conduct unless there were other compelling reasons to do so.

Apart from concerns about the conduct itself, De4laney J raised the substantive concern that the pleadings were copied without any first-hand knowledge of the investigations or research underlying the preparation of those pleadings. This would ‘invariably leave the practitioner copying, in an inferior position to run the case than those who prepared the original pleading’.

Counsel in the FCA Proceedings also had more direct experience in dealing with consumer claims against issuers of CFDs litigation generally, than counsel retained in the SCV Proceeding.

Group member composition

The FCA Proceedings captured more group members, as those proceedings covered a wider claim period. This was a material advantage of the FCA Proceeding over the SCV Proceeding.

Funding and legal costs

The SCV Proceeding was to be funded on a ‘no win no fee’ basis, together with a Group Costs Order (GCO) under s 33ZDA of the Supreme Court Act 1986 (Vic), in the event of a successful outcome. 

The FCA Proceedings was to be funded by a litigation funder, together with an ‘all inclusive’ common fund order in the event of a successful outcome (being an order for payment of all legal costs, disbursements and funding commission, as a percentage of the amount recovered).

Solicitors for the applicants in the SCV Proceedings argued that the ability to seek a GCO in the Supreme Court was advantageous for group members because that order could be sought at the beginning of the proceeding, whereas a common fund order in the Federal Court could not be made until settlement or judgment. This was not ultimately found by either court to be material.

While both courts found that the litigation funding model proposed in the SCV Proceeding was more beneficial to group members because the percentage of any win sought by the solicitors was lower, this was not determinative and was outweighed by other factors.  Justice O’Bryan said:

The ultimate financial return to group members will be most affected by the amount of any award or settlement achieved, and that will be affected by the overall conduct of the proceeding, including the skills, expertise and resources able to be devoted to the conduct of the proceeding.

Both courts also had concerns about the financial position of the applicant’s solicitors in the SCV Proceeding and the lack of detailed evidence as to their ability to fund the class action. 

The retainer in the SCV Proceeding did not provide indemnity for costs and it also contained provisions which allowed the solicitors to potentially withdraw from (and cease funding) the proceeding if a GCO was not made at a rate acceptable to them. There were no equivalent provisions in the Conditional Costs Agreement in the FCA Proceedings. Ultimately both courts found that the funding proposal in the FCA Proceedings was more favourable for group members. 

Security for costs and interest on damages

Justice O’Bryan observed that while the primary consideration in resolving a carriage contest is in the interests of group members, the respondent must also be treated fairly. The applicants in the FCA Proceedings accepted the need to provide security for costs and offered to do so by way of a Deed of Indemnity from the insurer. By contrast, the applicants in the SCV Proceeding did not accept that security for costs was necessary and did not submit a firm proposal with respect to providing such security.

Both courts also found that the Federal Court offered potential benefits to group members in relation to the statutory interest available on any damages awarded. The standard position in the Federal Court is that interest on damages is awarded from the time the cause of action accrues.  In contrast, the position in the Supreme Court is that interest generally only runs from the date the proceeding commenced. 

As a result of all of those considerations, both courts held that the case for awarding carriage to the FCA Proceedings was ‘overwhelming’.

Bain v International Capital Markets Pty Ltd (No 2) [2024] FCA 847 (O’Bryan J) and Vingrys v International Capital Markets Pty Ltd & Ors [2024] VSC 455 (Delany J):

Federal Court of Australia, O’Bryan J, 2 August 2024
Supreme Court of Victoria, Delany J, 2 August 2024
Applicant’s Solicitors: Echo Law / Piper Alderman
Respondent’s Solicitors: Banton Group

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