In Short

The Situation: It is increasingly common for Australian class actions to be brought by private plaintiffs at the same time as regulatory proceedings are brought by Australia's corporate, competition and other regulators in respect of the same subject matter. A judge of the Federal Court of Australia determined that he would hear consecutively a civil penalty proceeding and a related class action, giving rise to concerns about impartiality and apprehended bias, particularly as the evidence to be led in each case was to be different.

The Result: On appeal, the Full Court of the Federal Court in GetSwift Limited v Webb [2021] FCAFC 26 disapproved of the judge's decision to hear both matters himself due to the risk of apprehended bias as the evidence to be presented in each proceeding was to be different, and the judge would be exposed to extraneous information which would not otherwise have been received in each proceeding and which might subconsciously influence the judge's final decisions.

Looking Ahead: The Full Court's decision confirms that, while the swift and economical administration of justice remains at the forefront of the Federal Court's concerns in managing parallel cases, the principle of impartiality will override case management considerations. Going forward, it is unlikely that Australian judges at first instance will attempt to hear and determine both regulatory and class action proceedings which arise from the same subject matter, unless there are exceptional circumstances which justify doing so.

Background

Justice Lee of the Federal Court was assigned to oversee two separate proceedings commenced against GetSwift Limited ("GetSwift") in respect of alleged contraventions of its continuous disclosure obligations, one being a regulatory proceeding brought by the Australian Securities and Investments Commission ("ASIC") (ASIC v GetSwift Limited & Ors VID 146 of 2019) ("ASIC Proceeding") and the other a class action brought by shareholders of GetSwift (Webb v GetSwift Limited & Anor NSD 580 of 2018) ("Webb Proceeding") (together, the "GetSwift Proceedings"). The GetSwift Proceedings were both allocated to the primary judge following the commencement of the ASIC Proceeding against the company and the stay of two other competing class actions against the company.

The primary judge decided that he would first hear the ASIC Proceeding then the Webb Proceeding and that evidence that the parties sought to rely upon would need to be adduced separately in each proceeding. The primary judge indicated that he would only consider the evidence and submissions received in each separate proceeding and clear his mind of the evidence and submissions received in the other.

This decision was challenged on two occasions by the respondents in the Webb Proceeding. The applications were dismissed on both occasions, and on the second occasion, the primary judge granted leave for any party to appeal his decision within 14 days of judgment, noting the importance of settling the position to the future conduct of concurrent class actions and civil penalty proceedings in Australia.

The Appeal

GetSwift and the other respondent to the Webb Proceeding appealed the primary judge's decision unopposed by Mr Webb and with ASIC's support, requiring a contradictor to be appointed by the Court to assist the Court in its deliberations. The Full Court allowed the appeal and found that, although the primary judge carefully considered the relevant issues and authorities and was properly and selflessly motivated by a desire to achieve economies, he should have disqualified himself from hearing the Webb Proceeding. According to the Full Court, the primary judge failed to properly consider the hypothetical observer's understanding of the "human frailty" of the decision maker, and the subconscious effect that extraneous information received in each proceeding might have in influencing his final decisions. In these circumstances, a fair-minded lay observer might reasonably apprehend that the judge might not be able to bring an impartial mind to the resolution of the GetSwift Proceedings.

Among other things, the Court looked to various considerations of the hypothetical fair-minded lay observer and highlighted the volume of evidence to be examined in each proceeding. In the Webb Proceeding, the primary judge would be required to ignore the evidence of up to 33 lay witnesses, an expert and the submissions in the ASIC Proceeding and, similarly in the ASIC Proceeding, would have to ignore evidence of four experts and submissions made in the Webb Proceeding. The Court considered that the hypothetical observer may look to the reality of the process and the potentially conflicting evidence and reasonably apprehend that the primary judge may be influenced subconsciously by the extraneous information.

Opinion evidence adduced through cross-examination of the experts was also considered capable of being extraneous information for the purposes of the ASIC Proceeding, and the expert evidence on the "key issue" of materiality "might be a substantial aspect of the determination of the largely overlapping issues in dispute in each proceeding". The hypothetical observer might apprehend that the primary judge may be unable to compartmentalise the expert evidence received in each proceeding.

The Court also considered the risk that, on hearing the Webb Proceeding which encompassed three additional customer agreements which are not the subject of the ASIC Proceeding, the primary judge might subsequently be disqualified from determining the ASIC Proceeding which was heard over several weeks in mid-2020. In this circumstance, the Court noted the potential for wasted costs.

Two Key Takeaways

  1. The Full Court's decision confirms that the principles of judicial impartiality and independence will override case management considerations, including judicial concerns around costs and efficiencies, in relation to the hearing of overlapping regulatory proceedings and class actions.
  2. Going forward, it is unlikely that Australian judges at first instance will attempt to hear and determine related regulatory and class action proceedings, unless there are exceptional circumstances which justify doing so. For example, where the evidence to be led in each case will be the same. While this is a welcome development for defendants who are now unlikely to face the risk that the trial judge may obtain knowledge of extraneous information in the first proceeding which might influence the outcome in the second proceeding, the decision inevitably will result in the duplication of time and costs for both defendants and the court.