Judge orders firms to consolidate actions in carriage fight over Blue Sky class action

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This matter involved two competing class actions on behalf of shareholders in Blue Sky Alternative Investments Ltd (in liq) (Blue Sky). In this judgment, Lee J dealt with:

• an application by the applicant in one of the proceedings to discontinue its proceeding against ten of fourteen respondents, and to amend the class definition; and
• competing applications in both proceedings with respect to carriage.

His Honour had no hesitation in approving the proposed discontinuance (at [23]-[30]).

His Honour also granted the application to amend the class definition (which was not opposed), but did express reservations about defining the class (as is done in most shareholder class actions) by reference to persons who held an ‘interest’ in the relevant shares. His Honour said (at [31]-[33], emphasis in original):

… This is a very common criterion adopted in defining group membership. There is, at least in my mind, a real question as to whether or not such drafting is appropriate. Although distinct concepts, the claim made by group members in this class action needs to be enforced, eventually, by a chose in action. The legal holder of that chose in action is the legal person able to agitate the claim at law.

Although it has not caused any practical problem in the past, what is meant by the term “interest” in a group definition? Does it mean that both a trustee and the beneficiary of the same inter vivos trust are said to be group members? How could this be right? What about persons holding other interests that might be described as mere equities, which might be thought “proprietary” in certain circumstances, but do not amount to any equitable interest in the property to which it relates – are they group members, if the property is the subject of the chose in action? What about a minor, or the objects of a discretionary trust, or beneficiaries under an unadministered estate? Surely the group member should be the parent or guardian on behalf of the minor, the trustee, or the legal personal representative.

The use the [sic] concept of a holder of an interest in property causes all sorts of potential confusion and lacks precision. While it does not fall for consideration in this case, I find it difficult to understand why group membership should not be restricted to persons who have the ability at law to agitate and get in the claim advanced in a representative capacity by the applicant.

His Honour then turned to consider what he described as the ‘main game’, being the carriage applications. Various factors were relied upon by the respective lead applicants in support of their respective arguments for carriage, none of which his Honour found were, when all were weighed in the balance, such as to favour one proceeding over the other. Those factors included:

• the competing funding proposals;
• proposals for security for costs;
• the method of charging legal costs (one being ‘no win / no fee’ with a 25% uplift, the other being paid by the funder throughout the proceeding);
• experience of legal practitioners and availability of resources;
• book build – number of registrants and clients;
• size of classes and scope of claims; and
• progress of proceedings and conduct of the lead applicants.

In the end result, the most significant factors were:

• the extensive pre-commencement investigation work done by Shine Lawyers in their proceeding (including applying for, and obtaining, access to documents of Blue Sky under s 247A of the Corporations Act 2001 (Cth)), the benefit of which should not be lost; and
• the extensive work done by Banton Group in analysing in some detail the causation and loss case theory, the benefit of which should also not be lost.

Thus, his Honour determined (at [85]):

This seems to me a case where group members would be best assisted by the fruits of the work that has been done by both sets of solicitors and counsel. At the end of the day, if I am focusing on the interests of group members, this is determinative.

His Honour therefore ordered the lead applicants, their funders and solicitors to confer with a view to settling upon a form of consolidated pleading and the terms of a litigation cooperation protocol, and in the event that there is no agreed position between the parties, for each to file an affidavit setting out “with specificity the competing positions of the parties and why agreement has not been reached”. His Honour concluded with the following closing remark (at [93]);

It should be evident from these orders that I intend to be in a position to assess the respective positions taken by [the lead applicants]. At the end of the day, if I take the view that one or other party has been intransigent in coming to a sensible resolution and consolidation has not been achieved, this will inform the different remedial solution that will then be put in place.

(Postscript: The applicant in the Shine Lawyers proceeding sought leave to appeal from his Honour’s decision, arguing in essence that his Honour made various errors in weighing the relevant factors. The application for leave to appeal was dismissed by Middleton J, one significant reason being that the primary judge had not yet made any substantive orders to resolve the multiplicity issue, whether by consolidation or stay of one proceeding or otherwise, but at that stage had simply ordered the parties to confer on that subject with a view to reaching an agreed position (see Furniss v Blue Sky Alternative Investments Ltd (in liq) [2022] FCA 1546).)

R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Ltd (in liq) (Carriage Application) [2022] FCA 1444

Federal Court of Australia, Lee J,
23 November 2022

Applicants’ Solicitors: Banton Group / Shine Lawyers
Respondents’ Solicitors: Arnold Bloch Leibler / Gilbert + Tobin / GRT Lawyers / HWL Ebsworth Lawyers / Allen & Overy / Corrs Chambers Westgarth
Applicants’ Funder: International Litigation Partners No 10 Pte Ltd / LCM Funding Pty Ltd

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