In the recent decision of Bywater v Appco Group Australia Pty Ltd  FCA 1877, his Honour Justice Lee of the Federal Court approved a proposed settlement of a class action commenced against Appco Group Australia Pty Ltd. The decision highlights some of the persuasive factors a Court will consider in determining whether to approve a settlement where the proposed settlement sum is significantly less than the asserted value of a group’s claims.
His Honour’s decision provides guidance as to some of the key factors which will prove determinative as to whether a proposed class action settlement will be approved as being fair and reasonable and in the interests of all group members in circumstances where the claimant maintains that its claims have good prospects but the proposed settlement sum is considerably less than the asserted value of the group’s claims (even where the prospects and asserted value of those claims are disputed by the respondent). In particular, his Honour’s decision highlights that:
- a respondent’s available assets and the associated prospects of recovery will be a persuasive factor as to whether a settlement is likely to be approved;
- a Court will wish to be satisfied that adequate investigations have been undertaken to explore the asset position of a respondent, even where there is no third party funding to do so;
- notwithstanding the usual practice of an applicant leading the evidence for a settlement approval application, in circumstances where the asset position of the respondent is a relevant factor, it may be necessary for a respondent to lead direct evidence as to its financial position;
- a Court will be focused on ensuring that group members are adequately informed as to a proposed settlement and any investigations into a respondent’s asset position, and may even seek active engagement from the group as to the proposed course of action; and
- substantial support of a proposed settlement by the group is likely to be necessary, notwithstanding that it may result in minimal returns to group members.
In more detail
By way of representative proceeding commenced in October 2016 under Part IVA of the Federal Court of Australia Act 1976 (“FCA Act”), it was alleged that Appco Group Australia Pty Ltd (“Appco”) breached various provisions of the Fair Work Act 2009, including by allegedly falsely representing to group members that they were independent contractors and not employees. Appco denied all the allegations.
In August 2020, the parties executed a deed of settlement, resulting in an application to the Court by the Applicant for settlement approval pursuant to section 33V of the FCA Act (“Settlement Approval Application”).
The application was supported by evidence from the solicitor for the Applicant and group, to the effect that the agreed settlement sum of $1.9 million was proposed on the basis that Appco’s only identifiable asset was approximately $2.1 million in cash. The Applicant maintained that its claims, which it valued at $65 million, had good prospects of success.
Appco disputed both the Applicant’s assessment of prospects and the claimed quantum of the Applicant’s claims, but nonetheless supported the settlement. This was due to the fact that its business had been considerably negatively impacted by the class action and associated publicity, resulting in the significant diminishment of the value of its business and of its recoverable assets and, in circumstances where the proceedings were being conducted in a “no cost” jurisdiction under the Fair Work Act, the continued defence of the claim was likely to exhaust its remaining assets, regardless of the outcome.
Following multiple listings before his Honour over the course of the following months, his Honour ultimately made orders on 22 December 2020 approving the terms of the settlement.
Adjournment of Settlement Approval Application
Upon first return of the Settlement Approval Application in October 2020, his Honour indicated an initial disposition to refuse settlement approval, but adjourned the application part-heard to give the parties time to file further evidence in support of the Settlement Approval Application. In particular, his Honour observed that:
- the claims of the Applicant and group members were asserted, by the Applicant and group’s legal representatives, to be in the range of $65 million and to have good prospects of success (both of which were denied by Appco), in the context of the proposed settlement sum of $1.9 million, with a significant proposed distribution to the litigation funder. This was resulting in what his Honour described as a “derisory” return to group members; and
- while the settlement was proposed in the context of Appco’s only identifiable asset being a relatively small amount of cash, there had been no “proper investigation” by the solicitors for the Applicant and group as to Appco’s asset position, but rather there was only mere “speculation” as to recovery prospects.
While his Honour emphasised that there was no suggestion that the solicitors for Appco, in making representations as to Appco’s financial position, had acted in any other than an appropriate way based on instructions, nor was there any suggestion that the information was wrong or that Appco had done anything wrong, his Honour emphasised the need for further investigation as to Appco’s financial position in the context of the proposed settlement sum (relative to the asserted value of the claims) and the amount already spent on the litigation. His Honour took this position notwithstanding the litigation funder’s expressed refusal to fund further investigations or the continuation of the case should the Settlement Approval Application be refused.
Further investigations and evidentiary material
Following the adjournment of the Settlement Approval Application, further investigations were undertaken by the solicitors for the Applicant, resulting in further evidentiary material being served in support of the Settlement Approval Application. Candid affidavit material was also served by Appco directly putting into evidence and supporting the representations previously made in respect of its financial position (including the identification of a small amount of additional cash by Appco itself, resulting in a commensurate augmentation of the proposed settlement sum). As noted by his Honour in the decision ultimately approving the settlement, the further investigations did not impeach any of the information provided by Appco or identify any other assets that might be realistically recoverable by the Applicant.
Notice to group members
Given his Honour’s concern to ensure that group members had been provided with a straightforward notice as to the further investigations into Appco’s assets, his Honour made an order at a further listing on 30 November 2020 that a notice be sent to all group members pursuant to section 33X(6) of the FCA. That notice, which was distributed to group members in early December 2020 (amongst other things):
- set out the proposed settlement amount, including the proposed distributions as between the litigation funder, solicitors, Applicant, and the group;
- stated the concern held by the solicitors for the Applicant and group that there was a “real risk, if the litigation [were] to continue, that there would be no return to Group Members”; and
- sought an indication from group members as to whether they wished for the proposed settlement to be approved.
“Overwhelming support” for settlement approval
According to evidence affirmed by the solicitor for the Applicant and group, a total of 130 responses were received in response to the notice (from a total group size of approximately 1,172 individuals), of which:
- 119 group members confirmed they wished the settlement be approved;
- 8 group members confirmed they wished the settlement be approved, but made “adverse” comments regarding the settlement;
- 2 group members requested to opt out of the proceeding; and
- 1 group member responded in a way which was “initially unclear”, but which his Honour considered seemed to indicate “a willingness to move ahead with the current settlement”.
His Honour observed that “the overwhelming response to the Notice is that the group members wish to proceed”, which his Honour noted “seem[ed] to…be a very powerful factor militating in favour of approving the settlement”.
His Honour also observed that “various improvements” had been made to the proposed settlement, including by fixing administration costs and the augmentation of the settlement sum (referred to above).
Ultimately, his Honour held that “In circumstances where group members overwhelmingly take the attitude they have, together with the fact that [his Honour was] satisfied that further attempts to augment any sum for settlement [would] likely be a case of throwing good money after bad”. His Honour concluded that the settlement ought be approved, it being fair and reasonable and in the interests of all group members.