Experience counts in class action carriage disputes

Maglio v Hino Motor Sales Australia Pty Ltd; McCoy v Hino Motors Ltd [2023] VSC 757

Maglio v Hino Motor Sales Australia Pty Ltd; McCoy v Hino Motors Ltd [2023] VSC 757 offers practitioners a timely reminder of the procedural and substantive considerations that pertain to the hearing and determination of competing carriage and group costs order (GCO) applications.

The McCoy proceeding and the Maglio proceeding were two competing representative proceedings commenced in the Supreme Court of Victoria.  The causes of action in each proceeding arose from the same factual matrix and involved common defendants: [5].  The Maglio plaintiffs sought that the McCoy proceeding be stayed, struck out or declassed: [7].

The McCoy plaintiff and the Maglio plaintiffs agreed to procedural orders ([8]) which provided for each to file and serve evidence and submissions on a range of topics ([9]) designed to assist the Court in determining the carriage and GCO applications.  The orders set out in full in these paragraphs are a helpful guide to practitioners when considering what orders might efficiently progress the hearing and determination of competing carriage and GCO applications.  Given the Court’s similar approach to such procedural orders in Star Entertainment Group class action [2023] VSC 561, practitioners might well expect that orders of that sort will be commonplace.

Whilst the Maglio proceeding was commenced earlier in time, this factor alone was not determinative of the Maglio plaintiffs’ application.  The task of the Court in determining the carriage application is to determine which arrangement is in the best interests of the group, including which proceeding should go ahead if one is stayed: [23].  In this regard, his Honour applied the “well settled” principles summarised by Nichols J in Lay v Nuix Ltd [2022] VSC 479, which – among other things – set out the following non-exhaustive list of factors used to compare sets of competing proceedings (Nuix at [18]):

(a) the competing funding proposals, costs estimates and net hypothetical returns to group members;

(b) proposals for security;

(c) the nature and scope of the causes of action advanced (and the relevant case theories);

(d) the size of the respective classes;

(e) the extent of any book-build;

(f) the experience of legal practitioners (and funders) and the availability of resources;

(g) the state of progress of the proceedings;

(h) the conduct of the representative plaintiffs to date;

(i) the degree of expedition with which the respective parties have approached the proceedings;

(j) the order of filing (although there is no rule or presumption that the proceeding filed first in time should necessarily be preferred, and this consideration is less relevant where the competing proceedings have been commenced within a short time of each other).

In determining this application, his Honour observed that carriage applications are an increasing part of the business of the Court; probably encouraged by Victoria’s unique s 33ZDA(1) of the Supreme Court Act 1986 (Vic), which allows for contingency fees in the making of a GCO (27]). 

His Honour reiterated that competing carriage proposals require management which facilitates their efficient resolution and the procedural regime the parties proposed in this case were endorsed by the Court: [18]-[29].

Ultimately, the Court determined the applications in favour of the McCoy plaintiff and ordered a stay of the Maglio proceeding.  The relative difference in the experience of the practitioners, the relative difference in the GCO proposals, and the financial resourcing and proposal for security each appear to have been persuasive factors in this determination.

As to experience of the practitioners, the McCoy plaintiff was represented by solicitors Maurice Blackburn (MB), a law firm whose experience in class actions is considerable and widely known: [33] – [34].  The Maglio plaintiffs were represented by solicitors Gerard Malouf & Partners (GMP) who, by comparison, had less class action experience: [36].  Whilst Counsel for both plaintiff groups were considered experienced ([52]), the experience of the solicitors who would have the day-to-day conduct and oversight was considered by the Court to be particularly important: [52].  Accordingly, the substantial difference in the relative expertise and experience of the respective law firms was significant in the Court’s determination: [89].  In many cases, the experience of the practitioners has been treated as a neutral factor, unless there is a marked difference as in this case, or if the practitioners have considerable technical expertise with respect to the specific subject matter of the proceedings as was the case in Greentree v Jaguar Land Rover Australia Pty Ltd (Carriage Application) [2023] FCA 1209.

As to the proposed funding arrangements, both parties participated in a blind tender designed to obtain the best funding terms for the group members: [62].  Both parties started with a 25% contingency fee, which was followed by the McCoy plaintiff providing a second proposal which reduced the proposed contingency fee to a ‘stepped’ rate based on the quantum of any award or settlement: [11].  This was considered a superior proposal ([90]) to the Maglio plaintiffs’ GCO proposal, which remained unchanged at 25%.  Importantly, the Maglio plaintiffs were not granted leave to revise their GCO proposal to match the McCoy plaintiff, as such leave was sought after the date for filing and service of revised statements of position had passed: [60].  The Court held that granting leave to the Maglio plaintiffs in this way would substantially undermine the open “conditions of tender” agreed by the parties and reflected in the Court’s timetabling orders, by “permit[ting] one party alone the opportunity of in effect obtaining the valuable right to make the last bid”: [65].

As to each side’s financial resources and security proposals, the Court considered the question of comparative proposals for security at the same time as considering the financial capacity of the funding parties to sustain the prosecution of the proceeding: [68].  The Maglio plaintiffs did not seek to engage an external funder, whereas MB (in the McCoy proceeding) entered into a cost sharing arrangement with a funder.  The Maglio plaintiffs relied upon an expert report regarding the financial capacity of GMP to fund the Maglio proceeding.  That report was the subject of objection, on the basis that the GMP financial report and management accounts relied on by the expert were not produced, ostensibly on the basis of commercial sensitivity: [74]-[76].  The Court considered that the failure to adduce evidence of the contents of the financial report and management accounts (and more particularly, the failure to provide copies of same to the McCoy plaintiff and the Court) “substantially undermine[d]” the weight capable of being attributed to the expert report: [79].  By reason of this failure, the Court was unable to interrogate aspects of the financial information placed before it (such as the constituent components of current and non-current assets, and current and non-current liabilities, which – depending on the position – might inform the question of capacity to meet an adverse costs order): [80].

In staying the Maglio proceeding, the Court acknowledged it would have the effect that GMP would have to bear sunk costs incurred by it to date.  However, the Court observed that this was a risk that the firm assumed when entering the field of “commercialising litigation and should therefore be regarded as part of the risk associated with the commencement of class actions where the prospect of a competing class action being commenced cannot be discounted”: [93].

When determining the GCO application in the McCoy proceeding, the Court had regard to percentages ordered in 11 other proceedings where a GCO had been made: [105].  The table summary at [105] may be useful for practitioners when considering where to ‘pitch’ a GCO.  The fact that the GCO proposal was a result of the competitive process in the carriage applications was also taken into account by the Court: [109].

In what is an increasingly competitive environment in commercialised class action litigation, this case is a timely reminder of the weight that courts will attribute to both law firm experience and competitive GCOs when determining carriage applications.  The case also demonstrates the importance of ensuring that procedural orders are strictly complied with, particularly as part of any tender process (as it ought not be assumed that the Court will grant a further opportunity to revise one’s bid beyond what is provided in the timetabling orders).  Finally, the case is a reminder of the importance of disclosure of the primary materials relied upon by expert witnesses in providing their opinion evidence, in order to enable the Court to properly interrogate the evidence regarding financial capacity to conduct the litigation and meet any security for costs order.

The case is currently on appeal.

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