The approval by the Supreme Court of Victoria of a $494 million settlement of the class action brought on behalf of victims of one of the 2009 ‘Black Saturday’ bushfires provided substantial compensation in circumstances where the plaintiff faced “some real risk that the claim would wholly fail and that she and the other group members would receive nothing".[1]

The decision highlights again the importance of the Court’s assessment of the prospects of success in determining whether a settlement will be fair and reasonable, following hot on the tail of the earlier approval of the Great Southern class action settlement, where delivery of the judgment would have resulted in a complete failure of the claims.

It is the largest settlement of a class action in Australia to date, and 2½ times greater than any class action settlement previously achieved in Victoria. The settlement approval included $60 million in legal fees and disbursements, to be paid out of the settlement amount.

What was the class action about?

The Kilmore East-Kinglake bushfire was ignited when a section of a power line broke and struck the ground on 7 February 2009. The fire claimed 119 lives, left more than 1,000 people seriously injured and caused damage or destruction to 1,772 homes. The plaintiff, Mrs Carol Matthews, brought representative proceedings against the owner and operator of the power line, Ausnet Electricity Pty Ltd (Ausnet, formerly SPI Electricity Pty Ltd), as well as a maintenance contractor who periodically inspected the power line (UAM) and certain entities of the State of Victoria who were responsible for the management of forest land, fire-fighting and emergency response (State parties).

Before the settlement was reached, the proceedings had undergone 208 days of hearing over 16 months before Justice Forrest, although no findings were made as to whether the defendants had breached any duties owed to the group members.

Initially an open class, in January 2013, the Court made class closure orders limiting the availability of relief to those persons who registered their interest before a specified date. A total of 5,847 group members registered, who claimed variously for personal injury or in consequence of the death of another person (I-D claimants) and economic loss or property damage (ELPD claimants).

Under the settlement agreement, Ausnet will pay $378.6 million, UAM will pay $12.5 million and the State parties will pay $103.6 million.

Under s 33V of the Supreme Court Act 1986 (Victoria) (Act), the Court must approve any settlement of a class action. The Court has emphasised that in doing so it exercises a protective jurisdiction (as a guardian of the rights of the absent class members).

In a judgment handed down on 23 December 2014, Justice Osborn considered:

  1. whether the settlement amount was fair and reasonable having regard to the circumstances of the proceedings;
  2. whether the scheme under which the settlement amount was to be distributed among group members was fair and reasonable; and
  3. whether the quantum of legal fees claimed by Maurice Blackburn was fair and reasonable.  

Were the terms of the settlement fair and reasonable?

The Court held that the settlement amount was a reasonable one that would provide substantial compensation for group members, falling comfortably within the range of fairness.

In making this determination, his Honour had regard to a number of factors, including the opinion of trial counsel and the plaintiff’s solicitor set out in confidential memoranda, as well as the opinion of an independent interstate counsel:

  • Strength of the legal case: the various bases upon which the plaintiff brought her claim all faced legal and evidentiary problems. There was a real risk that the case would wholly fail and the group members would receive no compensation. Alternatively, given how complex and contentious the issues in the case were, the result would likely be significantly worse than full recovery of the amount claimed and, indeed, worse than the proposed settlement amount. In light of these risks, the almost $500 million sum represented a significant amount that would provide a substantial level of compensation to the victims.
  • Certainty of a final and positive outcome: the settling of the dispute would convey a number of other advantages on the group members. It would provide finality, whereas legal proceedings would likely continue for several years and almost inevitably lead to appeals.
  • Avoiding the stresses and costs of litigation: settlement would relieve the victims of personal stress, anxiety and suffering associated with the aftermath of the fire. It would also relieve them of the burden of having to establish their claims in the adversarial context of litigation. It would advance the time for payment of compensation and would contain legal costs, which were already very high in circumstances where the case was being litigated on a no-win no-fee basis (creating difficult issues as to the ongoing funding of expert evidence and other costs).
  • Little opposition: there was very little opposition to the settlement from group members. In particular, no objection had been made by commercial claimants with experience in litigation funding (including property insurers who had significant interests in the outcome of the case).
  • Extensive negotiations: the settlement was the product of a lengthy and complex negotiation process and was the best the claimants could expect to receive as a result of mediation.

Justice Osborn also emphasised the importance of providing a just, efficient, timely and cost-efficient result to group members, who had already experienced substantial delay, warranted an approach under which the Court could be satisfied that the settlement was within the range of reasonable settlements. In this regard, his Honour reasoned that success in liability and the common questions would not be the end of the matter, as there were a number of issues (including questions of causation) which would have had to be resolved on an individual claimant basis.

Was the settlement distribution scheme fair and reasonable?

Justice Osborn held that, as between the group members, the scheme for distribution of the settlement amount was fair and reasonable. Under that scheme, once legal costs are deducted, the sum is to be split 3/8 to the I-D claimants and 5/8 to the ELPD claimants.[2] From this allocation, I-D claimants will receive approximately 66% of their total likely losses and ELPD claimants will receive approximately 33% of their total likely losses.[3]

In finding that this was a fair outcome, his Honour said that regard must be had to the fact that the ELPD claimants had already received insurance and gratuitous payments. While these payments would have differed from claimant to claimant, when taken as a whole they meant that the amounts received by both groups of claimants would be comparable. Moreover, the amount receivable by I-D claimants was capped at 80% of their total losses and, as such, any excess funds would become available to the ELPD claimants.

Were the claims for legal fees and disbursements reasonable?

Justice Osborn confirmed that the Court has a role in class actions to review the plaintiff’s costs and satisfy itself that the amount is reasonable in the circumstances.

In considering the proposed allocation of $60 million in settlement funds to legal fees and disbursements, the Court had regard to:

  1. the conditional costs agreements entered into by the plaintiffs, which provided for fees to be applied at the Supreme Court of Victoria costs scale plus a loading for the complexity and scale of the proceeding and an uplift fee of 25% should a successful outcome be achieved for the plaintiff (as allowed under s 3.4.28 of the Legal Profession Act 2004 (Vic)); and
  2. the reports of two independent costs consultants.

In the opinions of the cost consultants, the legal costs and disbursements incurred by Maurice Blackburn would have been well in excess of $60 million, as calculated using two methodologies.[4] The Court drew confidence from their seniority and experience and it is apparent from the judgment that Justice Osborn relied on their findings to conclude that the quantum of legal costs was fair and reasonable.

In this case, the 25% uplift was deemed fair by both costs consultants on the basis that all fees were deferred and only payable on a successful outcome. His Honour concluded that there was no reason to find that the uplift component was not reasonable as the proceeding was not funded by a commercial litigation funder. If the proceeding had been subject to litigation funding, it is likely that the group members would have been obliged to pay an amount of approximately 30% of the settlement amount to the commercial funder. In this case the solicitors bore the full financial risk of the proceeding and, in such circumstances, the 25% uplift fee was not unreasonable.

Justice Osborn was further convinced by the fact that the plaintiff and group members were kept informed of estimated costs as the proceeding progressed and that no objection was made to the quantum of costs when notice of the proposed settlement was published.

Implications

This settlement approval judgment, along with the recent Great Southern approval (see our earlier article here) and the recent February approval of a renegotiated settlement in the Vioxx class action (an earlier settlement having been not approved), shows that Courts are being very mindful in considering the likely prospects of the litigation – in effect considering the “but for” scenario if the settlement were not to be approved.

Click here to view the table

This case is Matthews v AusNet Electricity Services Pty Ltd & Ors [2014] VSC 663.