Introduction

In past editions of Insurance Update we have reported on the Federal Court judgment and the High Court special leave application in the representative (class) action brought on behalf of certain consumers of the arthritic drug, Vioxx. The High Court’s refusal of special leave brought an end to the claim of the lead applicant, Graeme Peterson but did not extinguish the claims of other group members. On 20 May 2013 the Federal Court declined to approve a settlement which would have resolved the claims of other group members.

History of proceedings

Vioxx was alleged to have caused adverse cardiovascular side-effects in several arthritis patients.

In March 2010 Peterson (being one such patient), was awarded damages against the supplier of Vioxx, Merck Sharp & Dohme (Australia) Pty Limited (MSDA), by Justice Jessup of the Federal Court on the basis of a finding that a myocardial infarction (heart attack) suffered by him was caused by consumption of Vioxx.

In October 2011, the Full Court of the Federal Court allowed an appeal against the damages award.

The High Court’s refusal of special leave suggested that it would be difficult for other group members of the representative proceedings (being other patients who allege that they consumed Vioxx and consequently suffered adverse cardio-vascular effects) to win compensation from MSDA. However, it did not resolve the claims of group members other than Peterson – these claims remain on foot in the Federal Court.

On 17 April 2013 Peterson (via his lawyers, Slater & Gordon) brought an application in the Federal Court to approve a settlement agreement resolving the remaining group members’ claims - under the Federal Court of Australia Act 1976, a representative proceeding can only be settled with the approval of the Court.

The proposed settlement of other group members’ claims

The proposed settlement agreement involved establishment of a scheme whereby group members would need to satisfy two sets of criteria to establish eligibility for compensation.

The first criteria, termed the “event gate”, was that a group member must have had a diagnosis of myocardial infarction. On this point, at the first instance trial Jessup J had found that while Vioxx could be a cause of myocardial infarction, it did not cause many of the other claimed conditions alleged by group members.

The second criteria, termed the “usage gate”, involves the group member establishing that he or she had received a supply of Vioxx tablets within a certain number of days of the myocardial infarction taking place.

Under the proposed settlement, living group members who satisfied both criteria would receive $2,000 in compensation while the estates of deceased group members would receive $1,500. These amounts would be reduced if total settlements for living group members exceeded $497,500 or total settlements for deceased group members exceeded $45,000.

The settlement also involved MSDA abandoning its claim for costs against Peterson arising from the trial and the appeals, and each of Slater Gordon and MSDA bearing their own costs of the administration of the proposed settlement agreement.

Refusal to approve proposed settlement

On 20 May 2013 Jessup J dismissed the application and refused to approve the settlement.

During submissions Peterson’s counsel had conceded that the individual compensation amounts were very low compared to what might be awarded to a plaintiff who could establish that a defendant was legally liable for causing a heart attack suffered by a plaintiff. However, Peterson’s submission was to the effect that this reflected the difficulty any group member would face in successfully prosecuting an action against MSDA, having regard to the Full Court’s reasons in Peterson’s own case.

Jessup J did not agree that this was necessarily the case. While the Judge did not express any disagreement with the amount of the settlement, he took issue with the fact that the settlement made no discrimination between group members who had risk factors from myocardial infarction other than Vioxx consumption, and group members who had and any group members who might have had no other risk factors. On this point, Jessup J noted that the Full Court had found that Peterson’s other risk factors for a heart attack (hypertension, hyperlipidemia, obesity etc) precluded a finding that Vioxx caused Peterson’s heart attack. However, he considered that these reasons did not preclude other group members establishing a causal relationship between Vioxx consumption and a heart attack. Indeed, he commented that some group members may have grounds for optimism on this point.

Jessup J also noted that while there was an obvious advantage of the settlement for Peterson (avoiding a liability to pay costs to MSDA), the settlement may represent an injustice to other group members. He also commented that he was entitled to infer that Slater & Gordon had a very real interest in securing the settlement.

In summary the Judge did not consider that the settlement was fair and reasonable and in the interests of the group members as a whole.

What happens now?

Other than dismissing the application Jessup J did not make any orders and has reverted to the parties to discuss appropriate next steps in the litigation.

The 2 broad options would seem to be either the parties putting forward an amended settlement agreement for approval or proceeding with the litigation with another group member substituting Peterson as lead applicant. The former would seem the more likely – notwithstanding the Judge’s comments there would appear to be little enthusiasm on the part of Slater & Gordon to re-try the case with a different lead applicant.

The settlement hearing of Vioxx continues to highlight some of the difficulties inherent in prosecuting product liability claims as class actions. In particular, individual causation issues are frequently at play meaning that neither the parties nor the court can have absolute confidence that the finding on causation in the lead applicant’s case is likely to be replicated in the cases of all group members.