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Bonsoy Class Action - When are legal costs 'reasonable in the circumstances'?

NewsFlash 19 May 2015

The Supreme Court of Victoria approved the settlement of the Bonsoy class action on 7 May 2015 [1]. The settlement requires the owner, exporter and manufacturer of Bonsoy Soy Milk to pay a costs inclusive total of $25 million to a plaintiff group of up to 578 members. However, the Supreme Court has not approved the total legal costs and disbursements of $6.9 million claimed by the plaintiff group’s solicitors, Maurice Blackburn. This total amount for legal costs and disbursements is 27.6 percent of the class action settlement.

Facts

This class action alleged that the composition of Bonsoy Soy Milk was reformulated in 2003. This included a change to using a seaweed powder instead of a seaweed extract. As a result of this change, it was alleged that an adult would consume seven times the recommended daily intake of iodine by drinking one cup of Bonsoy Soy Milk. The new formulation of Bonsoy Soy Milk was recalled from sale in 2009, and the seaweed extract was not used in the product from then onwards.

All plaintiff group members claimed to have suffered from iodine-related thyroid conditions. This ranged from hyperthyroidism and hypothyroidism, to Grave’s disease and chronic iodine toxicity. The lead plaintiff alleged that she developed a significant thyroid dysfunction as a result of drinking three to four glasses a day of Bonsoy Soy Milk between April 2008 and December 2009.

The class action against all defendants was settled for $25 million inclusive of legal costs and disbursements and with a denial of liability.

Role of the Supreme Court

Every class action settlement requires the approval of the Supreme Court [2]. Before approving legal costs and disbursements in an all inclusive class action settlement, the Supreme Court must be satisfied that the amount is ‘reasonable in the circumstances’ [3]. This is because the claim for legal costs can affect the reasonableness of the overall settlement and it will reduce the amount available for distribution between plaintiff group members [4]. It is likely that a particularly close examination will be required when legal costs represent more than 20 percent of the settlement sum, as occurred in this case [5].

Legal Costs in the Bonsoy Class Action

In the Bonsoy class action, the $6.9 million in legal costs and disbursements claimed by Maurice Blackburn includes a 25 percent uplift fee and was reviewed by an independent costs consultant. However, Justice Forrest reached the following conclusion:

‘It is not enough, in the distribution of a settlement sum of such magnitude to such a large number of claimants, and in the absence of a contradictor regarding taxation, for a bill of costs of nearly $7 million simply to be presented to the Court and then approved’ [6].

Justice Forrest has ordered that a Costs Registrar or a Judicial Registrar of the Supreme Court must review the claimed costs and disbursements and then prepare a report. Any outstanding issues following this review will be referred to the Costs Court or an Associate Justice of the Supreme Court.

The approach of the Supreme Court to legal costs and disbursements in the Bonsoy class action is different to the outcome of two recently approved settlements in the Kilmore East bushfire class action [7] and the Hepatitis C class action [8]. In both of these class action settlement approvals, the Supreme Court was ultimately satisfied that the legal costs sought were fair and reasonable without the need for further review. Total legal and costs and disbursements were $60 million out a costs inclusive settlement of $494.7 million (12.1 percent) in the Kilmore East bushfire class action, and total legal costs and disbursements were $3 million out of a costs inclusive settlement of $13.75 million (21.8 percent) in the Hepatitis C class action. It is clear that the 27.6 percent share of the total settlement amount for the legal costs and disbursements in the Bonsoy class action is significantly higher.

Conclusion

The outcome of the Bonsoy class action may indicate a change in approach by the Supreme Court when considering legal costs and disbursements sought by the plaintiff group’s solicitors. It may indicate a preference for further scrutiny of legal costs and disbursements in a class action settlement, rather than approval based on the report of a costs consultant engaged by the plaintiff group’s solicitors. This may be particularly so when legal costs represent a large proportion of the total settlement sum for a class action.

[1] Downie v Spiral Foods Pty Ltd and Ors [2015] VSC 190 (7 May 2015).
[2] Supreme Court Act 1986 (Vic) s.33V.
[3] Matthews v AusNet Electricity Services Pty Ltd [2014] VSC 663 (23 December 2014) [348].
[4] Downie v Spiral Foods Pty Ltd and Ors [2015] VSC 190 (7 May 2015) [178] and [180].
[5] Ibid [198].
[6] Ibid [199].
[7] Matthews v AusNet Electricity Services Pty Ltd [2014] VSC 663 (23 December 2014) [379]-[386].
[8] A v Schulberg (No 2) [2014] VSC 258 (5 June 2014) [17].


John Petts, Partner
Melbourne

Cindy Tucker, Partner
Melbourne

NewsFlash 19 May 2015
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