Law shop bogged in class action fiasco … Communicating with the forbidden fruit … Correspondence that was “apt to mislead” … Punished with indemnity costs … Call for a rehearing with a different judge … Nick Bonyhady reports from the Federal Court
The letter was from SPB partner Amanda Banton.
GetSwift is software company that developed delivery systems for other businesses.
After listing on the ASX in 2016, the company’s shares quickly rose to $4 after it trumpeted long-term contracts with well-known companies, including Fantastic Furniture and Beta Home Living.
Soon after, the Australian Financial Review reported that those claims were overblown, causing GetSwift’s share price to plummet to under $3 on the ASX and less on unofficial markets. Its shares were promptly suspended.
In the wake of the tumult, Corrs Chambers Westgarth, Phi Finney McDonald and Squire Patton Boggs all raced to file class actions on behalf of GetSwift’s shareholders.
Multiple media outlets quoted a press release from Squire Patton Boggs which claimed that the total claim size could exceed $300 million.
At an interlocutory hearing though, William Edwards, SPB’s barrister admitted that a realistic estimate of damages was no more than $75 million. The gap between SPB’s publicised damages and its statements to the court is now a factor in GetSwift’s defence in the shareholder class action.
Justice Michael Lee of the Federal Court permanently stayed SPB and CCW’s suits, allowing Phi Finney McDonald’s to proceed.
Amanda Banton is the partner at SPB who was running the GetSwift class action and is in charge of the Asia-Pacific Restructuring & Insolvency team at the shop.
CCW and SPB’s group members could transfer to the surviving class action or opt out.
Justice Lee noted that one risk of this process is that a law firm or litigation funder might ask the group members to opt out of the Phi Finney McDonald proceedings to save those plaintiffs for a new class action.
To avert that possibility, HH proposed to make an order prohibiting contact between the firms, their litigation funders and the class members on the question of opting-out and invited submissions on that point.
After some wrangling over the terms and time period of the order, it appeared that all parties were agreed. SPB did not attend the hearings, instead sending an email.
“We confirm that neither SPB nor [litigation funder] ILP18 will be exercising their right to appear as interveners tomorrow and further that they are not making any submissions as to the content of the opt out notices nor as to the questions of power regarding restraint addressed by [SPB’s lead plaintiff] Mr Perera.”
In court, discussion proceeded on the basis that SPB was happy with whatever restraints were ordered.
According to Justice Lee, “it was plain as a pikestaff from these exchanges that everyone in the courtroom believed that the issue relating to a restraint” on SPB had been resolved.
After reading the minutes of the hearing, SPB sent another email to the court. It read:
“For the avoidance of doubt, we confirm that the undertakings described in Exhibit SPB1 will be given to the other parties and to the court by:
Mr Perera, as Applicant in NSD226/2018; and
Mr Perera’s servants and agents, including SPB, in its capacity as Mr Perera’s servant and agent.”
Justice Lee took this as confirmation that SPB understood that it had committed not to contact the class members on the opt-out question and would abide by its commitment.
“Unsurprisingly, everyone proceeded on the basis that all issues relating to restraints on communication by solicitors and funders, with group members as to the right to opt out had been resolved consensually, and all parties and the Court acted accordingly.
We were all wrong.”
SPB later disclosed that it saw itself as being bound only in its capacity as Perera’s servant and agent and could therefore communicate with the class members as solicitors for each individual member.
In light of this disclosure, Justice Lee held that SPB’s earlier letter was “apt to mislead”.
“I do not suggest that this was done intentionally, but the confusion of thought and apparent change of position is difficult to understand.”
To rectify the issue, HH granted an application for an injunction from Phi Finney McDonald restraining contact on the opt-out question.
His Honour conceded that awarding a lump sum indemnity costs order against a firm for opposing an injunction was “unusual” but held that “conduct which causes loss of time to the court and to others has long been identified as a basis upon which indemnity costs could be awarded”.
On Phi Finney McDonald’s calculations, those costs came to a tidy $38,271.
According to latest reports, SPB now says the class action should be reheard by a judge other than Justice Lee.