In brief

On 16 March 2023, the Federal Court of Australia made orders in the Johnson & Johnson pelvic mesh class action (Gill v Ethicon Sarl (No 10) [2023] FCA 228), approving a settlement sum of $300 million, which is the largest settlement in a product liability class action in Australian history.

The judgment provides a cogent discussion of the types of factors to be considered when determining if a proposed settlement sum is within the range of fair and reasonable outcomes. This guidance is not only valuable to parties involved in other contemporaneous class actions concerning similar transvaginal mesh products, such as the class action against TFS Manufacturing Pty Ltd and IVS Pty Ltd, but also any future court-assessed settlement schemes for medical goods class actions.

Background

These proceedings concerned pelvic mesh devices manufactured by Ethicon and marketed and sold by Johnson & Johnson which, once inserted, caused serious and chronic complications for many women.

Key milestones in the proceedings include:

• in 2019, the Full Court of the Federal Court of Australia (Full Court) found in favour of the applicants regarding nine of the pelvic medical devices (further information on this decision can be found here);^[1]
• in 2021, the Full Court unanimously dismissed all 17 grounds of appeal brought by the Ethicon parties (further information on this decision can be found here);^[2]
• in 2021, the High Court of Australia refused an application for special leave;^[3]
• in February 2022, the parties entered into negotiations in an attempt to settle the proceedings;
• in 9 September 2022, the parties agreed upon a proposed settlement; and
• in 10 November 2022, the matter was set down before the Federal Court of Australia to determine whether the settlement amount was within the range of fair and reasonable outcomes.

Key reasons of the Court

Courts are responsible for scrutinising the terms of a proposed settlement agreement between parties to a class action dispute and must determine whether it is a fair and reasonable compromise of the claims made on behalf of the broader pool of group members in the class action. In coming to the view that the proposed settlement was within the range of fair and reasonable outcomes, ‘albeit at the lowest end of that scale’, Justice Lee considered the following factors.

Reaction of the class

The Court placed considerable weight on the written and oral objections provided by group members which focused primarily on the final settlement sum agreed by the parties. Nevertheless, Justice Lee concluded that these concerns were mitigated to some extent by the fact that a settlement would substantially lessen the distress suffered by group members. His Honour also recognised that many of the strong objectors within the group recounted experiences of great severity and would therefore likely be entitled to claims that were at the higher end of compensation under the proposed settlement scheme.

Adequacy of the settlement sum

The Court also acknowledged that only an estimated $174,433,640.30 would be left for group members once all payments owing to third parties were deducted. Justice Lee concluded that although the amount of compensation would be less than what might have been obtained in a ‘best case scenario’, the proposed settlement would nevertheless provide a ‘sizable amount’ of compensation and would provide certainty and closure as well as avoiding further delay and vexation.^[4]

Assessment under the Trade Practices Act

In negotiating a settlement amount, the applicants’ solicitors decided that the claims of group members would be assessed under the Trade Practices Act 1974 (Cth) (Trade Practices Act) and the Competition and Consumer Act 2010 (Cth) (Competition and Consumer Act), as opposed to the applicable negligence laws in each State and Territory.

This approach was criticised by many of the group members as it restricted the scope of compensation to only the top 15% of group members who suffered the most extreme cases of non-economic loss, meaning that women who do not meet the threshold would not be compensated. Furthermore, the financial caps on the maximum amount of compensation available under the Trade Practices Act and Competition and Consumer Act were significantly less than the limits applicable under the negligence laws in each State and Territory.

The Court recognised that the applicants’ choice to assess the potential claims of group members in this way was ‘ungenerous’, but was nevertheless accepted as a practical way to implement a universal regime which could be applied across the whole cohort of group members in a time efficient manner.^[5]

His Honour also took into consideration any unfairness to group members whose claims were excluded from the proposed settlement because they were not within the top 15% of cases despite having viable claims of negligence. Justice Lee concluded that the compensation which could be obtained for group members outside of the 15% threshold would be limited and therefore was a reasonable restriction to have in place.

Deductions to the settlement sum

Justice Lee also expressed considerable concern towards the costs to be deducted from the settlement sum and, in particular, that only an estimated $174,433,640.30 would remain for group members once all payments owing to third parties and the applicants’ solicitors had been made.

Despite these concerns, Justice Lee approved the settlement proposal on the basis that orders would be made to ‘guard against unjust deductions’.^[6] In justifying the settlement approval, his Honour also considered the potential benefits of bulk payment arrangements with third party payers, such as Medicare and health insurance funds to increase the net funds available to group members.

Lack of merits to the respondents’ claim

While determining that the proposed sum is within the range of fair and reasonable outcomes, Justice Lee was nonetheless troubled by this outcome.^[7] His Honour considered as significant the unmeritorious approach taken by the respondents throughout the proceedings which put the group members through further delay and suffering.^[8] In describing the proposed settlement, his Honour concluded:^[9]

big-pocketed respondents have taken every point (including points eventually shown to be contrary to the true position and wholly devoid of merit) and dragged out the dispute interminably only to be rewarded at the eleventh hour by a proposed settlement which reduces Ethicon’s likely exposure.

Ultimately, the respondents’ approach to the proceedings was one of the more significant factors which placed the proposed settlement on the lower end of the fair and reasonable scale.

Next steps

Having approved the settlement scheme, the next question was the administration of it. The proposed orders nominated Shine Lawyers, the solicitors for the applicants, as the default administrators. Given Shine Lawyers’ estimate of the costs of administration was over $36 million, his Honour ordered that the administration of the scheme be put to tender, with a view to reducing the cost and time needed to distribute the funds, and ultimately increasing the pool of compensation available for group members. The Court concluded that it will make further orders for the distribution of funds to be paid under the settlement at a later date (yet to be determined).^[10]