BHP to now face Maurice Blackburn after partial appeal win

The increasing dilemma of how to manage competing class actions continues as the Maurice Blackburn Lawyers' appeal against having its case stayed is partially upheld, with consolidation foreshadowed as the way forward for plaintiffs to take on BHP in this shareholder class action. The appeal comes after the primary judge made orders allowing only one of three overlapping class actions to go forward.

This update concerns three overlapping shareholder class actions against BHP Group Limited (BHP). The applicants in each proceeding allege that BHP engaged in misleading or deceptive conduct and breached its continuous disclosure obligations by failing to inform the market of the risk that the Fundão tailings dam at the Germano mine in Minas Gerais, Brazil, might collapse.

This decision concerned appeals from the judgment of Moshinsky J in Impiombato v BHP Billiton Ltd (No 2) [2018] FCA 2045, in which his Honour:

  • selected the Impiombato proceeding (filed by Phi Finney McDonald with funding from G&E KTMC Funding LLC) as the class action to proceed
  • permanently stayed the Klemweb proceeding (filed by Maurice Blackburn without an external litigation funder)
  • temporarily stayed the LACERA proceeding (filed by Johnson Winter & Slattery with funding from Harbour and Robbins Geller Rudman & Dowd).

Klemweb appeal

The Court (Middleton and Beach JJ in a joint judgment, and Lee J writing separately) allowed Klemweb's appeal in part and set aside Moshinsky J's order permanently staying the Klemweb proceeding.

No-win no-fee model

Klemweb argued that in circumstances where the no-win no-fee model in the Klemweb proceeding was likely to result in a higher percentage of any settlement or judgment sum being available for distribution to group members, there was no basis to conclude that this arrangement was less attractive than an arrangement involving a litigation funder.

The Court upheld Klemweb's appeal on this point, on the basis that Moshinsky J's reasoning on Klemweb's proposed no-win no-fee model was infected by error in two key respects.

First, Middleton and Beach JJ (at [31]) and Lee J (at [107]) observed that Moshinsky J appeared to consider that the existence of a third-party litigation funder in the Impiombato proceeding would better ensure that the class action would be properly resourced and achieve a 'level playing field' between the applicant and group members on one hand and BHP on the other. Justices Middleton and Beach held that his Honour’s conclusion 'had not been sufficiently supported by the material before him' (at [31]). Similarly, Lee J stated that there was 'nothing in the evidence that would suggest that the no-win no-fee model had any flaw that would mean that the playing field would be tilted against group members' (at [109]). In fact, the evidence 'disclosed that Maurice Blackburn had conducted the Kilmore East-Kinglake Bushfire class action, the Murrindindi Bushfire class action and the DePuy ASR Hip Implants class action on a no-win no-fee model and secured, by use of this model, the three highest class action settlements in Australia to date' (at [110]).

Justice Lee also observed that Moshinsky J had found that in many scenarios the no-win no-fee model was 'likely to result in a higher percentage of any settlement or judgment sum being available for distribution to group members, as the arrangement does not require a commission to be paid to a funder' (at [100]). In circumstances where the return to group members was 'a weighty consideration in the discretionary mix', Lee J reflected that 'it might have been thought that this would be a decisive factor, but this was not the case' (at [101]).

Second, in finding that a factor against the no-win no-fee model was that it was not the preferred model put forward by Klemweb, Moshinsky J erred by failing to assess the model on its merits (Middleton and Beach JJ (at [30]) and Lee J (at [104]-[105]).

Litigation services fee

Klemweb also argued that Moshinsky J erred in finding that a Court would be unlikely to order the 'litigation services fee' proposed in the Klemweb proceeding on the basis that it is contrary to the legislative policy evinced by s 183(1) of the Legal Profession Uniform Law (Victoria) (LPUL) (which prohibits a law practice from entering into a costs agreement providing for the payment of a contingency fee).

The Court granted Klemweb leave to appeal on this point, but ultimately dismissed the appeal.

Justices Middleton and Beach held that s 183 LPUL does not prevent the Federal Court of Australia from making an order for the payment of a contingency fee to a legal practitioner. Their Honours stated (at [20]):

There are a number of matters to be noted. First, as has been pointed out by the Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (March 2018) at [3.95] and [3.96], s 183(1) does not directly prohibit a practitioner from being paid a contingency fee. Rather, the prohibition is on the practitioner entering into a proscribed costs agreement. Second, the relevant stipulated consequence for an infringement is that the costs agreement is void. Third, s 183(1) does not of course directly speak to this Court's powers under s 33ZF of the FCA or indeed its express or implied powers more generally to order and thereby permit the payment of a contingency fee to a legal practitioner before it as part of any common fund order and out of any settlement proceeds (s 33V) or any judgment (s 33Z). No State legislature could relevantly circumscribe the exercise of Federal judicial power in that respect. Moreover, to the extent of any inconsistency, ss 33V, 33Z and 33ZF would prevail over s 183(1) and, of course, s 79 of the Judiciary Act 1903 (Cth) would have little operation.

Justice Lee reached the same conclusion, and went on to state that (at [141]):

Subject to being properly framed (which the Order was not), I do not consider it unlikely that a common fund order incorporating a contingency payment could be made. When one has regard to the equitable roots and restitutionary basis of common fund orders, it is not apparent why a common fund order incorporating a contingency component is antithetical to doing justice in a Pt IVA proceeding in an appropriate case.

However, ultimately, Middleton and Beach JJ dismissed the appeal on the ground that Moshinsky J's finding that a Court would be unlikely to make such an order was a statement of opinion that was reasonably open to him. Justice Lee also held that Moshinsky J's finding was open to him and dismissed the appeal, on the basis that the order sought by Klemweb had not been properly framed.

Notwithstanding the outcome of Klemweb's appeal on this point, the Court has left the door ajar for the ordering of a legal services fee in the future.

Other grounds of appeal

Justice Lee (Middleton and Beach JJ agreeing) refused leave to appeal on Klemweb’s remaining grounds of appeal. His Honour:

  • rejected Klemweb's submission that Moshinsky J gave inadequate consideration to the election made by a substantial number of group members (including institutional investors) to enter into a contractual arrangement with Maurice Blackburn
  • held Moshinsky J was entitled to conclude that each firm of solicitors were capable of running the class action. However, in so finding, Lee J observed that, 'there is some factual support in the evidence giving credence to the particular experience and capability of Maurice Blackburn in achieving high settlements for group members including in shareholder class actions' (at [68]).

Consolidation with Impiombato proceeding

At the encouragement of the Court, in the period between the Court's orders (28 May 2019) and the publication of its written reasons (21 June 2019), the Impiombato and Klemweb applicants conferred and subsequently proposed a formal consolidation of the proceedings.

The Court agreed that consolidation was appropriate, and invited the applicants to provide proposed consolidation orders mirroring the orders made by Murphy J in the Brambles Class Action, which:

  • provide for one set of counsel, one address for service and communication, joint interlocutory applications, joint retention of expert witnesses, one set of discovery by the respondent
  • establish a litigation committee responsible for the conduct of the litigation and minimising any duplication of costs
  • appoint a Costs Referee to review work performed and costs incurred on the matter every four months.

LACERA appeal

The Court refused LACERA leave to appeal, and remitted the question of whether the stay of the proceeding be changed from temporary to permanent to Moshinsky J. In short, the Court rejected all of LACERA's arguments, including that Moshinsky J had paid insufficient regard to the longer claim period advanced in the LACERA proceeding. In this regard, Lee J (Middleton and Beach JJ agreeing) held that it was appropriate for Moshinsky J to allow the Impiombato applicant time to consider whether to amend the relevant period for the proceeding.

Other matters

Although the Court allowed Klemweb's appeal in part, Middleton, Beach and Lee JJ issued a warning against future appeals from judgments resolving the choice between competing class actions. Justice Lee stated (at [51]):

… these applications for leave, like many others where a discretionary decision is impugned, have sought to dress up quibbles and disagreements with parts of the primary judge's reasoning, as constituting error... in the wake of this judgment, there will now have been two Full Court decisions relating to the case management of competing class actions. The considerable latitude given to docket judges in fashioning a solution is evident. Occasions of competing class actions which have led to different procedural outcomes in the past, will continue to do so in the future – as one would expect given it is a case management decision rooted in the particular circumstances of a given case. In my view, in the light of this guidance, and the flexibility given to docket judges, absent recognisable legal error, considerable hurdles confront those seeking leave to appeal in similar circumstances in the future.

Case details

Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107

  • Full Federal Court of Australia, Middleton, Beach and Lee JJ
  • 28 May 2019 (Orders) and 21 June 2019 (Judgment)
  • Klemweb Applicant's Solicitors: Maurice Blackburn
  • Klemweb Applicant’s Funder: N/A
  • Impiombato Applicant's Solicitors: Phi Finney McDonald
  • Impiombato Applicant's Funder: Grant & Eisenhoffer with Kessler Topaz Meltzer & Check
  • LACERA Applicant's Solicitors: Johnson Winter & Slattery
  • LACERA Applicant's Funder: Robbins Geller
  • Rudman & Dowd with Harbour Fund IV
  • Respondent's Solicitors: Herbert Smith Freehills

Read more on Austlii: Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107

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