Judge approves substitution of lead applicant on basis of unsuitability for role

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This is a shareholder class action alleging contraventions by the respondent (Sims) of the continuous disclosure and misleading or deceptive conduct provisions of the Corporations Act 2001 (Cth). In this judgment, Rares J dealt with an application by the applicant in the proceeding that it be substituted by a different applicant (but that it nevertheless remain a class member).

The proceeding is listed for a trial commencing in July 2022. The applicant was ordered to file its lay evidence by 7 May 2021. In the course of preparing that evidence, it became apparent that the applicant had acquired its shares in Sims as a result of having entered into an ‘American style’ put option, and not by way of an ordinary on-market transaction. As such, the view appears to have been taken that the applicant’s claim would give rise to several complexities which did not apply to the vast majority of class members’ claims, potentially requiring additional expert evidence; that the applicant was therefore not an appropriate representative applicant; and the applicant indicated that it no longer wished to continue in that role. Consequently, an application was made under s 33T of the Federal Court of Australia Act 1976 (Cth) (FCAA) to substitute a more appropriate applicant. The application was opposed by Sims, on the basis that any substitution was unnecessary (albeit Sims did not contend that it would suffer any particular prejudice by reason of any substitution).

His Honour was critical of the fact that this issue had only come to light during the course of preparation of the applicant’s lay evidence (such that it had never been pleaded, despite the proceeding having been on foot for more than two years), and described it as “unsatisfactory” – nevertheless his Honour accepted, based on previous decisions under s 33T (and its cognates), that “an unwilling party should not be forced to litigate against his or her will”, and that “an unwilling representative plaintiff cannot adequately represent the interests of others”. His Honour said (at [19]):

At the end of the day, it seems to me that an unwilling applicant in a group proceeding cannot be forced to remain as an applicant, whatever its reason or lack of reason for not wishing to remain the representative party. The purpose of a representative proceeding is to deal with the claims that a class of persons may have against a particular respondent. The structure of Pt IVA of the [FCAA] is concerned to ensure that members of the group have appropriate attention given to their interests throughout the processes of the Court determining the common questions…

His Honour therefore held that the proposed substitution was in the interests of justice, and made orders accordingly. His Honour also made a series of ancillary orders for the filing of an amended pleading (to reflect the substituted applicant’s claim) and to ensure that the substituted applicant effectively ‘stood in the shoes’ of the previous applicant with respect to existing and future costs orders and security for costs, thereby avoiding any consequent prejudice to Sims by reason of the substitution.

Carpenders Park Pty Ltd (as trustee of the Carpenders Park Pty Ltd Staff Superannuation Fund) v Sims Ltd [2021] FCA 984 

Federal Court of Australia, Rares J, 13 August 2021

Applicant’s Solicitors: William Roberts Lawyers;
Respondent’s Solicitors: Herbert Smith Freehills;
Applicant’s Funder: N/A

Austlii Link: Accessible here

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