Judge approves GCO application with glowing praise

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This judgment related to an application for a group costs order (GCO) under s 33ZDA of the Supreme Court Act 1986 (Vic) in a group proceeding. The proceeding is a shareholder class action against the defendant (James Hardie), an ASX listed company, in respect of alleged misleading or deceptive conduct, misleading statements, and breaches of its obligations of continuous disclosure to the market in relation to representations made about its expected growth, and information withheld about its likely FY23 performance.

The application was neither consented to nor opposed by the defendant, however, brief submissions were made as to the proposed rate of 27.5% in light of the rates set in other cases and on the question as to the extent to which the Court should consider the capacity of the plaintiff's solicitors, Echo Law, to meet the obligations to which it will be subject if a GCO is made.

Ultimately, Osborne J was satisfied that it was appropriate to make a GCO at the rate of 27.5% to ensure justice is done in the proceeding. In reaching this conclusion, his Honour had regard to the following:

Relevant Principles

• The statutory criterion for the exercise of the power to make a GCO under s 33ZDA is that the Court be satisfied that it is appropriate or necessary to ensure that justice is done in the proceeding to make such an order; further, a court should be satisfied, in order to make a GCO, that doing so would be a suitable, fitting or proper way to ensure that justice is done in the proceeding.
• The term “justice is done” occurs within a specific statutory context which is focussed on enhancing class members' access to justice. Thus, s 33ZDA confers on the Court the power to enhance or facilitate access to justice for class members by making a GCO, subject of course to the pre-conditions for the exercise of that power being satisfied. The statutory criterion is capable of being satisfied in “myriad ways”.

GCO and Certainty, Transparency and Equity

• Described by his Honour as a very significant benefit, and one highly relevant in the Court’s assessment in the exercise of its discretion under s 33ZDA, is the certainty conferred by a GCO on the plaintiff and class members by fixing the proportion of any award or settlement that is offered, subject only to variation by Court order.

• Further, making the GCO will fix the funding mechanism for the proceeding, providing further certainty as to how the proceeding will be funded (and avoiding commensurate delays), the evidence before his Honour establishing that the plaintiff and Echo Law would seek third-party funding in the event that a GCO is not made (nor was Echo Law prepared to fund on a conditional basis).

• There is simplicity and transparency in the GCO funding model, both of which are in the interests of class members.

Continued Protection for the Plaintiff

• Pursuant to the Conditional Legal Costs Agreement and Costs Disclosure Statement (CCA), Echo Law’s agreement to indemnify the plaintiff against any adverse costs order in the proceeding would lapse 90 days from the making of a decision by the Court to decline a GCO. In these circumstance, the lead plaintiff’s evidence was that if the indemnity from Echo Law and the ATE insurance were to lapse (with no appropriate substitutes put in place), he would instruct Echo Law to replace the plaintiff as lead representative or discontinue the proceeding. Accordingly, a GCO in this proceeding would shift the risk of adverse costs and burden of providing any security ordered from the plaintiff to Echo Law for the duration of the proceeding.

Reasonableness of the Proposed Rate

▪ His Honour was satisfied that a rate of 27.5% is appropriate and that it would not be in the interests of justice to award a lower rate. In particular, his Honour had regard to the internal rate of return analysis carried out by Echo Law, an assumption-based comparison of the 27.5% rate with other funding arrangements and conventional litigation funding, and a comparison of rates ordered in other GCO applications (ranging from 14% to 40%, with a median rate of 24.5% across all cases and 24% in shareholder class actions). Ultimately, his Honour was satisfied that the rate sought of 27.5% is consistent with rates granted in comparable cases.

Raeken Pty Ltd v James Hardie Industries plc [2024] VSC 173

Supreme Court of Victoria, Osborne J, 11 April 2024
Plaintiff’s Solicitors: Echo Law
Defendant’s Solicitors: Herbert Smith Freehills
Plaintiff’s Funder: N/A (portfolio financing arrangement with CASL)

AustLII link

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