Will Group Costs Orders "Anchor" Class Actions in Victoria?

INTRODUCTION

The Victorian Supreme Court is fast becoming the jurisdiction of choice for class actions.

This is because on 1 July 2020 the Victorian Supreme Court was given power to make orders permitting a law firm to be paid a percentage of any award or settlement. Every other Australian jurisdiction prohibits the making of such orders.

On 18 November 2022, the High Court of Australia refused an application that it remove then determine KPMG's argument that the Arrium Limited (Arrium) shareholder class action be transferred from the Victorian Supreme Court to the NSW Supreme Court.

The application highlights a concern about the role which Group Cost Orders (GCO) might play in an attempt to transfer a class action from Victoria to another State. KPMG submitted to the High Court that the plaintiffs were seeking to use the existence of a GCO "as an anchor to keep the proceedings in Victoria, notwithstanding the overwhelming preponderance of factors connecting it to NSW".

BACKGROUND

Accounting firm KPMG and four former directors of insolvent mining company, Arrium, are defendants in representative proceedings instigated in the Supreme Court of Victoria by Arrium shareholders on 14 August 2020.

The plaintiffs allege that the defendants engaged in misleading or deceptive conduct and breached the Australian Consumer Law (Cth), the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth).

HISTORY OF LITIGATION

The proceedings were commenced approximately one month after the GCO regime was introduced in Victoria pursuant to provisions under section 33ZDA of the Supreme Court Act 1986 (Vic) empowering the Supreme Court of Victoria to make a GCO.

KPMG's removal application to the High Court set out the following history of the proceeding:

1. In November 2020, KPMG suggested to the parties in correspondence that the NSW Supreme Court was the more appropriate forum for the proceeding.
2. On 2 February 2021, the plaintiffs applied for a GCO (GCO Application).
3. On 26 February 2021, KPMG filed an application to transfer the proceedings from the Victorian Supreme Court to the NSW Supreme Court (Transfer Application), and sought to have the Transfer Application determined before the GCO Application.
4. On 31 March 2021, Nichols J directed that the GCO Application be determined before the Transfer Application. No reasons were provided by her Honour.
5. On 3 May 2022, Dixon J made a GCO for legal costs to be paid to the plaintiffs' solicitors calculated at 40% of the amount of any settlement or award that may be recovered in the proceeding.
6. KPMG argued against the GCO being made, including because it might be used as an "anchor to resist" the Transfer Application. Dixon J found that if a GCO was not made "there is a considerable risk, indeed a probability, that the Funder will conclude that the Funding Agreement is not financially viable for it and will not continue to fund the proceedings".
7. On 10 May 2022, KPMG filed an application seeking an order to have the proceeding removed into the High Court of Australia for determination of its Transfer Application (Removal Application).

PROCEDURAL ADVANTAGE?

KPMG submitted in its Removal Application that the making of a GCO has given the plaintiffs a procedural advantage because:

1. While there were overwhelming factors connecting the matter with NSW (only two defendants (one deceased) were connected to Victoria), the GCO regime led to the plaintiffs commencing proceedings in Victoria.
2. The Transfer Application should have been determined before the GCO Application, yet the GCO was made to the advantage of the plaintiffs' solicitors (including the Funder).
3. The Victorian Supreme Court, if it were to determine the Transfer Application, may have regard to the prospect of the GCO not being enforced if the transfer to NSW was granted, and that being a "consideration weighing against transfer of the proceedings". In this regard, KPMG submitted that the GCO:
   1.  Will "travel" with the proceeding in the event it is transferred, and the NSW Supreme Court will have power to deal with it as it considers appropriate; and
   2. Is a "neutral factor", irrelevant to the "interests of justice", when the Court exercises its discretion in deciding whether the transfer of the proceeding to NSW is "more appropriate", pursuant to the transfer provisions in section 1337H of the Corporations Act.
4. If the Transfer Application was unsuccessful in the Victorian Supreme Court, KPMG would not be afforded a right of appeal from that decision because of the express terms of section 1337R of the Corporations Act. For that reason, KPMG sought the removal of the proceeding under section 40(2) of the Judiciary Act 1903 (Cth) so as to determine the Transfer Application outside the Supreme Court of Victoria.

As KPMG noted in its Transfer Application

"This case is unlikely to be the only one in which the question of the relevance (if any) to a transfer application of the making of a GCO will arise. The GCO regime makes the Supreme Court of Victoria an attractive forum in which to commence representative proceedings. The procedural manner in which the competing applications were dealt with and the outcome of the transfer application in this case sets a precedent for future cases".

On 18 November 2022, Justices Gageler, Gleeson and Jagot of the High Court of Australia refused the Removal Application with costs on the basis that the proceeding is inappropriate for removal into that Court.

WHAT NEXT?

We will wait to see if KPMG seeks to have the Victorian Supreme Court determine its Transfer Application and whether the GCO does indeed help "anchor" the proceeding in Victoria.