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This is a consolidated shareholder class action against Noumi Ltd (Noumi) and its auditor, Deloitte Touche Tohmatsu (Deloitte). The plaintiffs (Mr Gehrke and Mr Buch) allege that Noumi misrepresented its true financial position to the market as a result of accounting errors which overstated its performance, and Deloitte engaged in misleading conduct by certifying as correct, incorrect accounts. In November 2021, Nichols J made orders consolidating separate class actions commenced by Mr Gehrke and Mr Buch, appointing them as joint plaintiffs, and granting leave to their solicitors (Slater and Gordon (SG) and Phi Finney McDonald (PFM)) to act as joint solicitors on the record.

In this judgment, her Honour approved a group costs order (GCO) of 22% sought by the plaintiffs, pursuant to s 33ZDA of the Supreme Court Act 1986 (Vic) (SCA).

In doing so, her Honour reiterated comments she had earlier made in Allen v G8 Education Ltd [2022] VSC 32 at [33]-[43] (Allen v G8) regarding the inherent structural benefits of a GCO. Her Honour accepted, as set out in earlier decisions, that making a GCO would provide the plaintiffs and class members with certainty, simplicity and transparency about funding and legal costs from the time at which the GCO was made. Her Honour said that, in this case, class members would have the certainty that they will receive no less than 78% of any amount recovered on settlement or judgment, subject only to further order of the Court. Her Honour said “[t]his is a real and substantive benefit that is specifically sought by the plaintiffs in this proceeding and is protective of group members’ interests” (at [36]).

Her Honour was also satisfied that in neither case was the plaintiff the beneficiary of a more beneficial contractual arrangement than the proposed GCO, and that there was a real prospect that class members would achieve a better financial outcome under a GCO fixed at the rate of 22% than would be achieved should the plaintiffs obtain third party-funding, which the evidence established was the likely alternative means of funding should a GCO have been refused. However, her Honour observed that, as has been discussed in earlier decisions, whether or not a GCO is more beneficial to class members than an alternative funding model is not a necessary condition and is not a proxy for the statutory test under s 33ZDA of the SCA; namely 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. Her Honour said that s 33ZDA requires an “evaluative inquiry” under which the effects of making a GCO should be “considered wholistically” (at [37]). For example, the certainty, simplicity and transparency provided by a GCO must be borne in mind. Her Honour also cautioned that predictive modelling about the likely recovery to class members under a GCO versus alternative funding models is “only as good as its inputs” and involves “numerous layered and intersecting assumptions” (at [46]). Nevertheless, her Honour said that a price comparison between a proposed GCO and alternative funding models “remains a relevant consideration” (at [37]) and, in this case, the evidence suggested that the proposed GCO would be more favourable for class members than third party funding.

Her Honour found that there was sufficient evidence that the proposed rate of 22% was prima facie appropriate, notwithstanding the limits of that evidence at a relatively early stage of the proceeding. Her Honour observed that “[t]he plaintiffs properly accepted that, depending on the ultimate result, it was possible that costs calculated at that rate could produce a disproportionate outcome and that a later adjustment under s 33ZDA(3) might be required” (at [49]).

Her Honour was also satisfied on the evidence that each of SG and PFM (through its funder Omni Bridgeway) sufficiently demonstrated its ability to marshal the financial resources required to meet the commitments it must assume by virtue of the GCO (i.e. paying security for costs and meeting any adverse costs order).

In addition to the above, some noteworthy aspects of her Honour’s decision included the following:

  • Consistent with guidance given in earlier cases about the proper role of a defendant in an application for a GCO, Noumi and Deloitte assumed a limited role in the application.
  • While the plaintiffs initially sought that the costs of the application be costs in the proceeding, her Honour said that, ultimately, “they sensibly did not resist the costs orders sought by the defendants” (at [12]), being that the plaintiffs bear their own costs of the application and the defendants’ costs be reserved.
  • PFM had entered into an arrangement with Omni Bridgeway to defray its costs (including indemnification for the payment of adverse costs and security for costs). Her Honour referred with (apparent) approval to John Dixon J’s holding in Bogan v The Estate of Peter John Smedley (deceased) [2022] VSC 201 that s 33ZDA does not invoke any inquiry into the means by which the law practice chooses to fund its obligations. Her Honour also observed that the financing of PFM’s obligations had been undertaken transparently, and evidently in conformity with the requirements of Part 5C.1 of the Corporations Act 2001 (Cth) in respect of managed investment schemes.
  • Her Honour did not require the plaintiffs to give an undertaking that they would not apply for an order under s 33ZDA(3) of the SCA to increase the GCO rate above 22%. Her Honour observed that such an undertaking, which was given by the plaintiffs in Allen v G8, would enhance the certainty of the position of the plaintiffs and class members in respect of costs. However, her Honour said that the absence of such an undertaking would not substantially undermine the certainty afforded by a GCO, in particular because the rate of 22% would remain fixed, subject only to Court order, and “any party applying for an upwards variation in a GCO rate would have to confront the basis on which the GCO was first made” (at [58]).

Gehrke v Noumi Ltd [2022] VSC 672

Supreme Court of Victoria, Nichols J,
8 November 2022

First Plaintiff’s Solicitors: Slater and Gordon
Second Plaintiff’s Solicitors: Phi Finney McDonald
First Defendant’s Solicitors: Arnold Bloch Leibler
Second Defendant’s Solicitors: Corrs Chambers Westgarth
First Plaintiff’s Funder: N/A
Second Plaintiff’s Funder: Omni Bridgeway

Austlii Link: Available here

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