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Trimuryani v Retail Food Group Limited [2024] FCA 1282 (31 October 2024)

Last Updated: 7 November 2024

FEDERAL COURT OF AUSTRALIA

Trimuryani v Retail Food Group Limited [2024] FCA 1282

ORDERS

THE COURT NOTES THAT:

1. The Applicant and the Respondents have, subject to the Court's approval, agreed to settle the claims in this proceeding on the terms recorded in a deed of settlement and release which is exhibited in Exhibit DJM-1 to the Affidavit of Daniel John Marquet sworn 2 July 2024 (Settlement Deed).

THE COURT ORDERS THAT:

Settlement approval

1. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (Act), the settlement of this proceeding (Settlement) is approved on the terms set out in the Settlement Deed, being pages 8-73 to Exhibit DJM-1 of the Affidavit of Daniel John Marquet sworn 2 July 2024.
2. Pursuant to ss 33V and 33ZF of the Act, the Court authorises the Applicant nunc pro tunc on behalf of the Group Members (as defined in the Settlement Deed) (Group Members) to enter into and give effect to the Settlement Deed and the transactions contemplated thereby for and on behalf of the Group Members.
3. Pursuant to s 33ZB of the Act, the persons affected and bound by the Settlement are the Applicant, the Respondents, and the Group Members.

Dismissal

4. Pursuant to ss 22, 23 and 33ZF of the Act and r 1.32 of the Federal Court Rules 2011 (Cth) and the Court’s implied jurisdiction, and with effect from the date the Settlement is approved by the Court, the proceeding against the Respondents is dismissed on the basis that:

(a) the Applicant, on her own behalf and on behalf of the Group Members, releases and discharges the Respondents and their current and former directors, officers, employees and agents from all claims which they have or which but for the Settlement Deed, could, would or might at any time hereafter have or have had against the Respondents and their current and former directors, officers, employees and agents in connection with or arising out of the Dispute, as defined in the Settlement Deed;

(b) each of the Respondents release and discharge the Applicant and the Group Members and their current and former directors, officers, employees and agents from all claims which they have or which but for the Settlement Deed, could, would or might at any time hereafter have or have had against the Applicant and the Group Members and their current and former directors, officers, employees and agents in connection with or arising out of the Dispute and the Alleged Debts, as defined in the Settlement Deed;

(c) the dismissal is a defence and absolute bar to any claim or proceeding by the Applicant or any Group Member against the Respondent in respect of the Dispute (as defined in the Settlement Deed) and any claim in connection with or arising out of the Dispute, without prejudice to:

(i) the right of any party to the Settlement Deed to make an application to enforce the Settlement Deed in a new proceeding; and

(ii) the right of any person who opts out of the proceeding; and

(d) no order is made as to costs as between the Applicant and the Respondents and all previous costs orders in the proceeding between them are vacated.

5. Pursuant to s 37AF(1) of the Act, a confidentiality order is made over the confidential affidavit of Daniel John Marquet dated 26 September 2024 and confidential exhibit DJM-1.

REASONS FOR JUDGMENT

ANDERSON J:

INTRODUCTION

1. By interlocutory application filed on 3 July 2024, the applicant sought approval of a settlement of this proceeding under section 33V of the Federal Court of Australia Act 1976 (Cth) (Act).
2. The applicant and the respondents had, subject to the Court's approval, agreed a proposed settlement on terms recorded in a deed of settlement and release dated 2 May 2024 (Settlement Deed). The Settlement Deed is pages 8-73 to Exhibit DJM-1 to the Affidavit of Daniel John Marquet dated 2 July 2024 (5th Marquet Affidavit).
3. Section 33V(1) of the Act provides that a representative proceeding may not be settled without the approval of the Court. The applicant seeks orders under s 33V of the Act:

(a) approving the proposed settlement;

(b) authorising the applicant nunc pro tunc on behalf of the Group Members (as defined in the Settlement Deed) to enter into and give effect to the Settlement Deed for and on behalf of the applicant and the Group Members; and

(c) dismissing the proceeding on the basis set out in the interlocutory application, with no order as to costs.

4. At the hearing before me on 31 October 2024, I made orders in the form sought by the applicant approving the settlement of the proceeding. These are my reasons for doing so.

STATUS OF THE PROCEEDING

5. This proceeding was commenced by the applicant, by an Originating Application filed on 18 October 2021 pursuant to Part IVA of the Act on behalf of herself and the Group Members.
6. On 13 December 2022, the applicant filed an Amended Statement of Claim.
7. On 28 July 2023, the respondents filed a Defence.
8. On 15 September 2023, the applicant filed a Reply.
9. On 4 December 2023, the applicant filed two Points of Claim, one of N.E. Coffee Pty Ltd, and one of Vakil and Company Pty Ltd.
10. On 2 May 2024, the applicant and the respondents reached agreement in respect of the proposed terms of settlement recorded in the Settlement Deed.
11. On 3 July 2024, the applicant filed the interlocutory application seeking approval of the proposed settlement, supported by the 5th Marquet Affidavit.
12. On 1 August 2024, the Court made orders and directions for steps to be implemented in the lead up to the approval hearing.
13. On 13 September 2024, one Group Member filed an opt-out notice with the Federal Court Registry. An additional opt-out notice was filed by the applicant's solicitors, on behalf of one Group Member.
14. On 18 September 2024, two notices of objection were filed by the applicant's solicitors, on behalf of two Group Members.
15. On 26 September 2024, the applicant filed a further affidavit of Daniel John Marquet (6th Marquet Affidavit) in support of the application for settlement approval of the proceeding, together with a confidential affidavit of the same date (Confidential Marquet Affidavit).
16. On 3 October 2024, an additional notice of objection was filed by the applicant's solicitors, on behalf of one Group Member.

FACTUAL BACKGROUND

Applicant’s claims

17. The applicant's claims were set out in the Amended Statement of Claim filed on 13 December 2022 and the Reply dated 15 September 2023.
18. The claims concerned the respondents' conduct in relation to the Michel's Patisserie franchise during the period between 15 October 2015 and 30 August 2019 (Relevant Period).
19. The second respondent was the franchisor of the Michel's Patisserie business, and the third respondent leased and licensed premises to the applicant and Group Members for the purpose of the Michel's Patisserie business. The first respondent was the ultimate holding company of the second and third respondents.
20. In summary, the applicant's claims were that the respondents:

(a) engaged in systemic unconscionable conduct in breach of ss 20 or 21 of the Australian Consumer Law, predominantly in relation to the implementation of "Franchise System Changes", being the change from a “fresh” to “frozen” business model, in circumstances where the respondents knew that franchisees were vulnerable and were subject to an asymmetry of information, risk and power that advantaged the respondents over the franchisees;

(b) breached cl 6 of the Franchising Code of Conduct (the implied duty to act in good faith and the implied duty to cooperate);

(c) entered into franchise agreements which incorporated unfair terms within the meaning of s 24(1) of the Australian Consumer Law, in particular in relation to the use of "Nominated Suppliers" and provisions relating to transfer and termination; and

(d) breached cl 31 of the Franchising Code of Conduct (and thereby breached s 51ACB of the Competition and Consumer Act 2010 (Cth)) by misusing "marketing funds".

Main issues in dispute

21. The respondents' defence was contained in their Defence filed on 28 July 2023.
22. The Defence raised a number of legal and factual issues, including the following:

(a) it attributed much of the alleged conduct to RFGA Management Pty Ltd acting as the franchise system manager on behalf of the second respondent;

(b) it contended that there was a lack of common issues between the Group Members, including different disclosure documents and franchise agreements, and said that the facts and circumstances relating to each Group Member differed in material ways, including in respect of certain conduct that it said the applicant and Group Members were responsible for, and that was the cause of any loss or damage suffered;

(c) it contended that the Franchise System Changes were made in circumstances where the retail trading conditions for the franchises had already weakened and that it was a necessary business decision intended to benefit the respondents and the franchisees;

(d) it made set-off claims against Group Members, including debt claims for more than $17,860,921.

Group Members

23. Group Members were defined in the Amended Statement of Claim as the applicant and other franchisees represented by the applicant who during the Relevant Period:

(a) were, as at the beginning of the Relevant Period, parties to a standard form franchise agreement with the second respondent in relation to the Michel's Patisserie business, even if the persons did not remain parties for the entire Relevant Period; or

(b) became party to a standard form franchise agreement with the second respondent during the Relevant Period, even if the persons did not remain parties for the entire Relevant Period; or

(c) provided guarantees, indemnities or other security for a franchisee's obligations in relation to a franchise; and

(d) had suffered loss or damage for which damages or compensation under statute or general law is claimed, as was pleaded in the Amended Statement of Claim.

Notices of proposed settlement

24. Notice of the proposed settlement were provided to Group Members in accordance with the process set out in the orders made on 1 August 2024, as described in the 6th Marquet Affidavit at [8]-[17].
25. Two Group Members objected to the settlement and two filed an opt-out notice within the time provided by the orders. A further Group Member subsequently objected to the settlement, the objection being filed with the Court on 3 October 2024.
26. The three Group Members who objected to the proposed settlement did not appear at the settlement hearing.

Settlement

27. The proposed settlement as agreed between the applicant and the respondents was recorded in the Settlement Deed annexed to the 5th Marquet Affidavit.
28. Pursuant to the proposed settlement:

(a) the applicant would release the respondents from claims in connection with or arising out of the claims made in the proceeding, to the extent described in clause 5(a) of the Settlement Deed;

(b) the respondents would release the applicant and Group Members in relation to all claims in connection with or arising out of the claims made in the proceeding, and debts that the respondents alleged that Group Members are liable for, to the extent described in clause 5(b) of the Settlement Deed;

(c) each party would bear their own costs; and

(d) the proceeding would be dismissed.

LEGAL PRINCIPLES

29. Under s 33V of the Act, a representative proceeding may not be settled or discontinued without the approval of the Court. Section 33V provides:

(1) A representative proceeding may not be settled or discontinued without the approval of the Court.

(2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court.

30. The principles attending to approval of a proposed settlement of a representative proceeding pursuant to s 33V of the FCA Act are well established.
31. The principles were recently summarised in Equity Financial Planners Pty Ltd v Equity Financial Planning Pty Ltd [2024] FCA 1036 at [39]- [44] (McElwaine J) and in Fowkes v Boston Scientific Corporation [2023] FCA 230 at [31]- [45] (Lee J). The central question for the Court will be whether the proposed settlement is fair and reasonable in the interests of the group members considered as a whole and inter se. In addressing this issue, the Court:

(a) assumes a protective role in relation to group members' interests;

(b) must be astute to recognise that the interests of the parties before it, and those of the group as a whole (or as between some members of the group and other members), may not wholly coincide; and

(c) must decide whether the proposed settlement is within the range of reasonable outcomes, rather than whether it is the best outcome which might have been won by better bargaining.

32. The relevant non-mandatory and non-exclusive factors for consideration are outlined in [15.5] of the Court’s Class Actions Practice Note (GPN-CA) and provide for consideration of:

(a) the complexity and likely duration of the litigation;

(b) the reaction of the class to the settlement;

(c) the stage of the proceedings;

(d) the risks of establishing liability;

(e) the risks of establishing loss or damage;

(f) the risks of maintaining a class action;

(g) the ability of the respondents to withstand a greater judgment;

(h) the range of reasonableness of the settlement in light of the best recovery;

(i) the range of reasonableness of the settlement in light of all the attendant risks of litigation; and

(j) the terms of any advice received from counsel and/or from any independent expert in relation to the issues which arise in the proceeding.

33. While these factors may provide a useful guide to whether a settlement should be approved, there is no “checklist” of mandatory considerations: Ingram as trustee for the Ingram Superannuation Fund v Ardent Leisure Limited (Settlement Approval) [2024] FCA 836 at [16] (Derrington J).
34. When considering the reasonableness of the settlement, it is necessary to consider the alternative, which includes the risks and costs to which the Group Members may be exposed were the matter to proceed to trial. The question of whether the settlement is reasonable cannot be separated from ancillary questions concerning funding and legal costs: Findlay v DSHE Holdings Ltd [2021] NSWSC 249; (2021) 150 ACSR 535; NSWSC 249 at [12]-[14] (Stevenson J).
35. It is a relevant consideration that if approval is not given to a settlement, that funding may be withdrawn and solicitors will not continue to act: see Bywater v Appco Group Australia Pty Ltd [2020] FCA 1537 (Lee J); Bywater v Appco Group Australia Pty Ltd [2020] FCA 1877 (Lee J).
36. A "walk away" settlement of a representative proceeding may be appropriate, even where the claims of group members are to be released or discontinued for no return: see for example, Hawker v Powercor Australia Ltd [2019] VSC 521 at [25]- [30] (Forbes J); Hall v Pitcher Partners (a firm) [2022] FCA 1524 at [52]- [56] (Beach J); Kuterba v Sirtex Medical Ltd (No 3) [2019] FCA 1374 (Beach J).
37. A settlement proposal may also be appropriate even where some, but not all group members, receive a return or benefit and other group members receive nothing: see Prygodicz v Commonwealth of Australia (No 2)  [2021] FCA 634 (Murphy  J); Re Ansett Australia Flight Engineers Superannuation Plan [2004] VSC 18 (Byrne J); Harrison v Sandhurst Trustees Ltd [2011] FCA 541 (Gordon J). A settlement with no return to some or all group members may still fall within the range of reasonable outcomes, particularly if the claims have little prospect of being successfully prosecuted to completion.

APPLICATION

38. A confidential opinion of Counsel has been provided to the Court, annexed to the Confidential Marquet Affidavit. Counsel who provided the opinion have been involved in the matter for a significant period of time, are familiar with and have considered the claim and the factors which affect it. The length and nature of the proceeding has allowed for an informed assessment of the strengths and weaknesses of the proceeding, the evidence, the costs likely to be involved should the proceeding continue to trial, and the further costs and delay that could result if the proceeding went on to trial and then on appeal. The confidential opinion addresses the considerations relevant to whether the settlement should be approved: the stage and complexity of the proceeding; the risks the applicant and Group Members face in establishing liability in respect of each claim; the risks faced by the applicant and Group Members in establishing causation and the risks associated with quantifying loss; and the releases contained in the Settlement Deed. Counsel have advised that the proposal set out in the Deed of Settlement is fair and reasonable, in the interests of Group Members as a whole and inter se.
39. At a broad level, the claims advanced by the applicant in the proceeding, and the claims advanced in additional points of claim, involve considerable legal and factual complexity. The proceeding is factually dense, evidenced by the lengthy statement of claim, and the legal issues are not straight forward. I accept the applicant’s submission that prosecuting the claims to judgment would present significant challenges. The outcome would be uncertain and the cost of prosecuting the claims would be significant.
40. The proceeding has been on foot for a significant period. The claim has been vigorously defended and it is likely that the proceeding would take a long time to be completed. Even if the case could be prosecuted to trial, there would necessarily be remaining issues relating to other Group Members still to be resolved, as well as the prospect of appeals.
41. Importantly, the evidence is that it is unlikely that the applicant's and Group Members' claims could proceed against the respondents. The funder has determined not to proceed with funding the applicant and Group Members' claims if the proposed settlement does not proceed and it is unlikely that other funding could be obtained. Accordingly, the settlement proposal must be assessed in the context of the claims having little prospect of being prosecuted to completion.
42. In respect of all (approximately 311 Group Members), the respondents are providing a broad release in connection with the claims that are the subject of the proceeding. The release extends to any entitlement to costs that the respondents might otherwise have against the applicant and Group Members.
43. The settlement provided for includes the provision of significant releases by the respondents in respect of debt claims against 166 Group Members. For the remaining Group Members, the offer is, in effect, a 'walk away' offer, as it does not provide for any monetary payment.
44. I have also considered the three objections to the proposed settlement which have been filed. The objections understandably raise the concerns of Group Members regarding the personal losses they have incurred, and the fact that the settlement provides a better outcome for those Group Members who have received releases in respect of the alleged debts. However, these concerns must be considered within the context of the fundings issues noted above, and the risks involved in the proceeding continuing.
45. Considering all of the circumstances which I have identified above and in particular, counsel’s opinion, I was satisfied that the proposed settlement was a fair and reasonable compromise of the claims made on the applicant’s behalf and on behalf of the Group Members. On that basis, I determined that it was appropriate that the Court make the orders sought in the applicant’s application, filed on 3 July 2024.

Associate:

Dated: 7 November 2024